Trust and company service providers are well placed to help combat financial crime
Trust and company services providers (TCSPs) play a unique gatekeeper role in the financial system, by virtue of the services they provide.
The sector therefore plays a critical role in South Africa’s efforts to combat financial crime, including money laundering, terrorist financing, and proliferation financing (ML, TF, and PF).
Company services providers were added to the definition of trust services providers as Schedule 1, item 2 accountable institutions in terms of Financial Intelligence Centre Act (FIC Act) under the TCSPs definition in December 2022.
This definition includes activity performed by the person who carries on the business of any of the activities as listed below::
- Assisting their client in the creation, operation and management of a company, or of an external company, a foreign company or a close corporation
- Acting or arranging for an individual to act as nominee for their client, as defined in the Companies Act
- Creating a trust arrangement for the client.
Where a person falls within the definition of a TCSP, they must register with the Financial Intelligence Centre (FIC) to fulfill their compliance obligations which include filing regulatory reports. This free registration process is completed on the FIC’s reporting platform, called goAML.
Dual registration
If a person provides more than one service listed in item 2 of Schedule 1, they must register per service offering. Registration would be either as a company service provider, a trust service provider or both.
Persons falling within the definition of any other items under Schedule 1 must register per item. For example, if a legal practitioner provides any of the services under the TCSP definition, they are required to register as both a legal practitioner and a TCSP. The FIC has issued helpful guidance to assist with the registration process; this includes the goAML registration guide and public compliance communication (PCC) 5D for guidance on how to register.
In addition to registering with the FIC, other FIC Act obligations include, but are not limited to:
- Implementing a risk-based approach measures to combat money laundering (ML), terrorist financing (TF) and proliferation financing (PF)
- Developing and implementing a risk management and compliance programme (RMCP)
- Conducting customer due diligence
- Training and screening of employees
- Record keeping
Risk indicators
When implementing a risk-based approach, various ML, TF, and PF risk indicators such as client factors, product or service factor, delivery channel, and geographic area must be considered. Risks relating to clients may, for example, include:
- Unnecessary layers of complexity are added to the beneficial ownership structure e.g. trusts where the beneficiary of a trust is another trust
- Profits generated by the company are inconsistent with their business activities
- Searches of media coverage yield adverse reporting or convictions of corruption on the client or their close associates.
The sector risk assessments of company service providers and trust service providers and PCC 6A are available on the FIC website, and provide more examples of possible risk indicators.
Risk and compliance return
Once registration is completed, TCSPs must complete and submit to the FIC the risk and compliance return (RCR) without delay in terms of Directive 6 of 2023. RCR questionnaires can be accessed on the FIC website.
The RCR questionnaire enables TCSPs to assess and understand their ML, TF, and PF risks. The FIC analyses the RCR information submitted by accountable institutions to inform its risk-based supervision approach. Failure to submit RCRs may result in administrative sanctions.
The FIC has not yet launched a 2024 version of the RCR and will communicate any updates on this in the future. The current RCR questionnaire can be found on the FIC website. If incomplete or inaccurate information was included in the 2023 RCR submission, then the TCSP is urged to resubmit.
Reporting to the FIC
Filing regulatory reports with the FIC plays an important part in South Africa’s fight against financial crime. The information contained in regulatory reports is central to the FIC’s analytical work and development of financial intelligence which law enforcement, prosecutorial authorities and other competent authorities can use for their investigations, prosecutions, and applications for asset forfeiture.
TCSPs must monitor client transactions and report to the FIC when any of the following reporting obligations are triggered:
- Cash threshold reports (Guidance Note 5C)
- Terrorist property reports (TPR) (Guidance Note 6A)
- Suspicious and unusual transaction reports (STR) (Guidance Note 4B).
Suspicious and unusual transaction and activity reports
Submitting suspicious and unusual transaction reports (STRs) and suspicious activity reports (SARs) are the cornerstone of any anti-money laundering, combating the financing of terrorism and combating proliferation financing regime. All businesses including accountable institutions listed in Schedule 1 of the FIC Act have an obligation to report suspicious and unusual transactions.
The STR obligation relates to a person’s knowledge or suspicion of a circumstance giving rise to ML, TF, and PF risks. A reporter does not need to have certain knowledge of the risks. It is imperative to file an STR without delay – no later than 15 days from becoming aware of the transaction or activity.
There is no threshold amount regarding the STR obligation, and a reporter should holistically evaluate the transaction or activity, considering the client’s risk profile, transaction history etc.
Once an STR or SAR has been filed:
- The reporter may continue with the transaction, unless otherwise directed in writing by the FIC
- The reporter may not disclose that a report has been made nor the content of the report as this would amount to “tipping off”.
Targeted financial sanctions
Accountable institutions play an indispensable role in identifying TF risks. In terms of section 26 of the FIC Act, an accountable institution’s targeted financial sanctions (TFS) obligations include a scrutinise-freeze-report approach:
- Scrutinising client information against TFS lists
- Freezing property of designated persons
- Filing TPRs and/or STRs where applicable.
If it is found that property is linked to a designated person or entity or person acting on behalf of a designated person or entity on the TFS list, a TPR must be filed without delay and no later than five days from becoming aware.
If the TCSP suspects but does not have actual knowledge that the transaction or activity may be linked to a designated person or entity, then the TCSP must file either an STR or SAR accordingly.
TCSPs must scrutinise the client’s information against the TFS list:
- If there is a hit – submit a TPR and do not proceed with the transaction
- Where there is no hit – the TCSP may continue with the transaction and submit an STR or SAR where there is a suspicion.
The consolidated TFS list can be found on the FIC website. PCC 44A provides guidance on the TFS obligations and webinars on how to scrutinise clients can be found on the FIC’s YouTube channel.
The FIC website contains further guidance notes and public compliance communications. Alternatively, contact the FIC’s compliance contact centre on +27 12 641 6000 or log a compliance query on the FIC website.