collaboration between business and public sector in ... awareness seminar... · anti-money...

Collaboration between business and public sector in fighting fraud and corruption

FRAUD AWARENESS SEMINAR 2018

Pieter Alberts

Monitoring and Analysis

Date: 13 November 2018

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PRESENTATION OUTLINE

General Background - FIC

• Industries vulnerable to money laundering

• Anti-Money Laundering/Counter Terrorism Funding – Regime

• The FIC and why do crime concern it

Collaboration – Public-private partnerships (PPPs)

• Why do we need collaboration?

• International best practices

• Benefits

• Functions

• Key factors to consider in setting up a PPP

FIC’s contribution

• Stakeholders / Reporting

• Case studies

• Statistical information

Way forward

Click to edit Master title style

Slide 3 of 27

Schedule 3 – Reporting Institutions

• Motor vehicle dealers

• Gold coin dealers

Schedule 1 - Accountable Institutions

• Banks

• Attorneys

• Estate Agents

• Gambling Institutions

• Financial Advisors

• Long Terms

Schedule 2 – Supervisory Bodies

• Reserve Bank

• Financial Sector Conduct

Authority (FSCA)

• Law Societies

• Estate Agency Affairs Board

Business?

Industry sectors vulnerable to Money Laundering and Terror Financing? (CATEGORIES OF ENTITIES & OBLIGATIONS in terms of FICA)

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Anti-Money Laundering (AML)/Counter Terrorism Funding (CTF) Regime

Money laundering

is the taking of criminal

proceeds and disguising

their illegal sources in

order to use the funds to

perform legal or illegal

acts.

Financing of Terrorism

(TF)

The solicitation, collection

and provision of funds to

support terrorists, their

acts and organisations.

They want to conceal

both the financing and the

nature of the activity

being financed.

Glo

bal

Do

mesti

c

Financial Action Task

Force (FATF)

intergovernmental body

focusing on combating

ML and TF. It is a

policy making and

standard setting body

(IMF and World Bank).

Financial Intelligence Centre Act (Act 38

of 2001) – [FICA] established the FIC and

placed obligations on financial institutions

and other businesses deemed vulnerable to

money laundering.

The Prevention of Organised Crime Act

(Act 121 of 1998) [POCA] - Introduced the

crime of ML and set the penalties associated

with a conviction.

The Protection of Constitutional

Democracy Against Terrorist and Related

Activities Act (Act 33 of 2004)

[POCDATARA] - Introduced measures to

address the financing of acts of terrorism.

Client identification and verification (RBA) [s21]

Record keeping [s22]

Reporting [s28, 28A, S29]STRs, CTRs, TPRs

Risk Management Compliance Program

(RBA) [s42]

Competent person to ensure effective

compliance [s42A]

Ongoing training of employees [s43]

Registration with FIC AI; RI - [s43B]


Slide 5 of 27

The FIC and why do crime concern it

Commercial Crime

Crime Against the State

International Cooperation

Organised Crime

Monitors and gives

guidance to

accountable and

reporting institutions.

Receives, Processes

and Analyses

transactional data to

develop financial

intelligence products

Exchanges

information with

similar bodies in other

countries.

This is made available

to stakeholders to

facilitate the

administration and

enforcement of laws.


Slide 6 of 27

• Destruction caused by financial crimes:

• An average of 3.1% of annual turnover is spent on combating financial crimes; and

• 47% of respondents have been victims of financial crime over the last 12 months*.

• Financial crime and professional money laundering schemes have become more complex and

sophisticated to bypass the AML/CFT controls that have been put in place.

• On the other hand, terrorists are using small amounts of money to inflict great amounts of damage,

and as a result, TF is becoming harder to detect.

• Partnerships between government and the private sector can help both parties more effectively

safeguard their financial systems against misuse by criminal organisations or terrorists.

• Addressing these more complex issues requires proactive engagement between government and the

private sector.

Why do we need collaboration?

*Revealing the true costs of Financial Crime” - Thomson Reuters 2018 Survey Report


Slide 7 of 27

• Globally in the Financial Action Task Team (FATF) & the Egmont Group there is a strong movement

towards working more closely with the financial sector, in particular, to combat financial crime.

• The concept used referred to as public-private partnerships (PPPs) - no clear FATF or other definition

of what a PPP is in the context of anti money laundering and counter-terrorist financing (AML/CFT)

measures.

• The Royal United Services Institute (RUSI) Occasional Paper* uses the term:

• ‘financial information sharing partnerships’.

• In the context of this discussion, PPPs refer to largely:

• formal mechanisms to share information between the public and private sectors to advance

joint efforts to combat money laundering/terrorist financing (ML/TF).

International best practises

* https://rusi.org/publication/occasional-papers/role-financial-information-sharing-partnerships-disruption-crime

https://rusi.org/publication/occasional-papers/role-financial-information-sharing-partnerships-disruption-crime


Slide 8 of 27

International best practises - examples

Country UK USA Australia Canada Singapore Hong Kong

PPP Joint Money

Laundering

Intelligence

Taskforce

(JMLIT)

USA PATRIOT

Act 314A

Context and

Entities of

Suspicion

Briefings

Fintel Alliance (FA) Project Protect Anti-Money

Laundering and

Countering the

Financing of

Terrorism Industry

Partnership

(ACIP)

Fraud and Money

Laundering

Intelligence

Taskforce (FMLIT)

Examples

of

outcomes

Produces FinInt

- 400 lives cases

Panama Papers The identification of

entities/information

to share with

LEAs/public sector

(either in country or

internationally);

Success with

human trafficking

matters

Risk areas of

trade-based ML

and the misuse of

company

structures for illicit

purposes

Detection,

prevention and

disruption of

serious financial

crime and money

laundering threats


Slide 9 of 27

• PPPs are mutually beneficial.

• The government has access to information on targets, modus operandi and covert intelligence and requires

access to relevant financial information held by reporting entities (REs).

• The private sector has a wealth of financial information, wants to prevent their institutions from being

exploited by criminals or terrorists, and must identify and report suspicious activity.

• Criminals are often exploiting multiple financial institutions and other professional intermediaries, both domestically

and internationally, which makes it more difficult for individual financial institutions. Partnership is a useful tool for

greater effectiveness, and efficiency, in developing financial intelligence to combat ML, TF, and a range of

predicate crimes.

• PPPs are instrumental in helping the public and private sectors to develop a better understanding of their overall

financial crime risks in order to take a risk-based approach to AML/CFT efforts.

• PPPs are a mechanism to proactively target Crime/ML/TF but are not intended to replace STR regimes.

Benefits of partnerships (PPP)


Slide 10 of 27

Functions of the partnership

In accordance with the applicable legal

frameworks, the exchange of operational

or tactical intelligence associated with on-

going investigations.

Joint development of typologies/risk

information - bringing together experts

from the public and private sectors to better

understand typologies used by criminals or

terrorists and develop risk indictors for

industry to better detect this activity.

To improve AML/CFT compliance and to

support innovation in AML/CFT initiatives

with multiple private sector participants

active in such conversations.

Training is also a useful function of PPPs.

This can be on-the-job training or specific

programs.


Slide 11 of 27

• Leadership – This involves championing the proposal and bringing other partners on board.

• Administrative or organisational support – The FIUs will be involved in the governance and priority

setting of the structure.

• Operational analysis support – The FIU plays a role in liaising with LEAs to develop cases for

consideration by the structure.

• Strategic analysis support – The FIU needs to be particularly active in PPPs that develop new

typologies or risk information.

• International cooperation

Role of the FIC/FIU?


Slide 12 of 27

• Obtain high-level support for the PPP

• Shared objective setting and co-design (not design and consult)

• Explore potential legal barriers to information sharing

• Foster trust between partners

• Put in place governance arrangements and set expectations

• Selecting private sector participants

• Address concerns of regulatory tension or capture

• Case selection / Measuring and demonstrating the results of PPP

• Choosing the format for the PPP

• Human and IT resources

Key factors to consider in setting up a PPP


Slide 13 of 27

National Intelligence Coordinating Committee

(NICOC)

State Security Agency (SSA)

Defence Intelligence

Foreign FIUs (Egmont Group)

DIRCO

South African Revenue Services (SARS)

Special Investigating Unit (SIU)

Public Protector (PP)

Supervisory Bodies (SARB, FSB)

National Treasury

JCPS Cluster

SA Police Service

General Detectives

Directorate Priority Crime

Investigation (DPCI)

Crime Intelligence

National Prosecuting Authority (NPA)

National Prosecuting Services

(NPS)

Asset Forfeiture Unit (AFU)

Independent Police Investigative

Directorate (IPID)

An investigative division in an organ of

state

An investigating authority

Department of Environmental Affairs

Department of Correctional Services

(DCS)

Stakeholders Accountable Institutions (AIs) and

Reporting Institutions (RIs)

Government Departments (CIPC, DHA, NT, SARB)

Data Providers (Experian, Compuscan)

SABRIC/SAFPS/SAICB

Crime

National Security

Admin

Actions

Data/Info

Section 40: FIC makes information reported to it, and information obtained in terms of its mandate, available to specified stakeholders

Provide intelligence upon

REQUEST or at the

INITIATIVE of the FIC


Slide 14 of 27

Public Protector

SARSIntelligence

Services

SupervisoryBodies

LEAsNPA

IPIDDefence

Intelligence

Investigative Division in an Organ of State

SIU

FIUs

Life cycle of a statutory report

Construct a narrative on the type and extent of illegal

activities involved through the approach of following the

money;


Slide 15 of 27

Attorneys

Estate Agents

Investment advisors or intermediaries

Motor Vehicle Dealers

Gambling

Banks

32,65%

25.10%

20.97%

9.34%

7.67%

0,10%

Rest 4.16%

84,32%

6,79%

8,90%

Scheduled reporting entities vs statutory reporting


Slide 16 of 2716

United States of America (USA)

• The FIC was contacted by FinCEN to

assist in a criminal investigation where

a US citizen was defrauded by a

Nigerian citizen based in SA.

• Information shared with the FIC

indicated that the American was in the

process of buying a property in the US.

• Correspondence linked to the

payment was manipulated, bank

account details were unlawfully

changed and money was subsequently

paid to a SA bank in three transfers.

• The victim suffered a loss US$

202,217 (R2,7 million)

South Africa

• The FIC gathered and analysed relevant account

opening information and bank statements, reconstructed

how the money was laundered, identified proceeds and

the ultimate beneficiary thereof.

• The FIC subsequently froze six accounts.

• The FIC also identified three luxury vehicles (Porsche,

Mercedes and BMW) that were purchased with some of

the proceeds.

• The Asset Forfeiture Unit used FIC financial

intelligence to obtain preservation orders on all bank

accounts and the 3 motor vehicles.

• The cooperation between all the stakeholders resulted

in the recovery of 93.33% of the funds initially stolen.

Case study: 1) Fraud – American property purchaser


Slide 18 of 27

• The FIC received an alert from a neighbouring jurisdiction that a person was

defrauded of a large amount of money that was transferred to a South Africa financial

institution. Some funds were transferred to a cryptocurrency exchange and converted

into a basket of cryptocurrencies, including Bitcoin. Some funds were irrecoverable

because they were transferred to other cryptocurrency exchanges in foreign

jurisdictions.

• The FIC froze some of the virtual currency (Bitcoin, Bitcoin Cash and Ripple) held

with the cryptocurrency exchange using a section 34 directive. It also provided an

affidavit that led to the Asset Forfeiture Unit obtaining a preservation order from the High

Court in Johannesburg.

• To note:

• Both addresses traced to BITTREX – exchange based in USA, Las Vegas

• In 24 hours – R500,000.00 moved through 3 countries!

Case study: 2) Fraud and money laundering through cryptocurrencies


Slide 19 of 27

Case Study: 3) Rhino poaching matter

The Hawks arrested two Chinese males and did a search and seizure at the residence of the suspects,

resulting in the seizure of R112,000 in cash, R18m worth of iTunes prepaid cards, and items uniquely

involved in the transnational movement of wildlife items and the transfer of illicit proceeds.


Slide 20 of 27

Rhino poaching matter - cont

• One retail store, to date, provided proof of sale involving R2.7 billion of iTunes cards that

have been purchased in South Africa.

• Apple USA confirmed that the vouchers were redeemed for their monetary value

outside of the country.

• Investigations can confirm that pre-paid gift cards are currently being used to

circumvent reporting requirements and resulting in gross tax and revenue evasion

and exchange control violations.

• Approximately 14 individuals were identified for purchasing iTunes cards in bulk.

• The purchase of iTunes cards provides a commodity that can be used world wide, i.e.

exchange of virtual currency and purchase of physical electronic devices.

• This allows the users in South Africa to purchase large quantities of these vouchers

which they can sell on a Chinese internet site www.taobao.com or www.tmall.com. This

enables the movement of South African currency out of the Republic without any

Reserve Bank interference.

http://www.taobao.com/

http://www.tmall.com/

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STATISTICAL OVERVIEW


Slide 22 of 27

Operational Focus

0 100 200 300 400 500 600 700 800 900

ILLEGAL GAMBLING

KIDNAPPING

CYBER CRIMES

RACKETEERING

CRIMES AGAINST THE STATE

EXCHANGE CONTROL…

ARMS AND AMMUNITION

ILLICIT CIGARETTES

CONTRAVENTION OF…

HIJACKING

MURDER

DUE DILLIGENCE

NON FERROUS METALS

HUMAN TRAFFICKING

PRECIOUS METALS AND…

ROBBERY

THEFT

TERRORISM

OTHER

ENVIRONMENTAL CRIMES

MONEY LAUNDERING

CORRUPTION

TAX RELATED

NARCOTICS

FRAUD

Crime Types analysed 2013 to 2017

2017/18 2016/17 2015/16 2014/15 2013/14

Our priority focus areas:

• Fraud • Narcotics • Tax related• Corruption• Money Laundering • Investment scams


Slide 23 of 27

Domestic and International requests from Law Enforcement Agencies for information responded to (2014-2018)

1799 19792145

2243

0

500

1000

1500

2000

2500

FY 2014/2015 FY 2015/2016 FY 2016/2017 FY 2017/2018

Nu

mb

er

of

case

s

870

511

1322

1470

0

500

1000

1500

2000

FY 2014/2015 FY 2015/2016 FY 2016/2017 FY 2017/2018

Nu

mb

er

of

Refe

rrals

Referral of information to Law Enforcement Agencies(2014-2018)


Slide 24 of 27

181,0 184,6 149,355,1

2296,7

477,6 443,9

3027,9

0,0

500,0

1000,0

1500,0

2000,0

2500,0

3000,0

3500,0

FY 2014/2015 FY 2015/2016 FY 2016/2017 FY 2017/2018

Mill

ion

s in

Ran

ds

Section 34 freezing of accounts Proceeds of crime recovered using FinInt

Suspected proceeds of crime frozen (2014-2018)


Slide 25 of 27

Way forward

• South Africa is experiencing a dramatic shift in the way investigations are conducted using a multi-

disciplinary approach involving different agencies and institutions.

• It is believed that financial intelligence is at the heart of every serious crime investigation in the

country, and plays a central role in the successful apprehension and conviction of serious criminals.

• Detection and pursuit of criminal money flows are challenging for law enforcement;

The FIC shall continue to:

• Engage with all the stakeholders, including the Law Enforcement Agencies and the Intelligence

Services, to counter the threat of Crime

• Improve analytical capability and access to external data – big data

• Stakeholders will be kept accountable – for feedback on matters (Impact)


Slide 26 of 27

Questions and discussion

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THANK YOU

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