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Application of targeted financial sanction regimes – FIC provides guidance

The Financial Intelligence Centre (FIC) has published Public Compliance Communication 44 (PCC 44) which applies to accountable institutions (AI), reportable institutions (RI) and all other relevant persons. PCC 44 aims to provide guidance on the application of the targeted financial sanctions regime within South Africa.

The South African targeted financial sanctions regime is implemented through the provisions of Section 26A, 26B and 26C of the Financial Intelligence Centre Act (FIC Act) and section 25 of the Protection of Constitutional Democracy Against Terrorist and Related Activities Act, 2004 (POCDATARA Ac”) respectively. Even though section 28A of the FIC Act places an obligation on AI to scrutinise potential client/client information, PCC 44 indicates that all institutions are advised to implement processes to scrutinise client/ potential client information. This aims to ensure that instructions do not enter into financial arrangements with sanctioned persons/entities which will result in a breach of the sanctions provisions under the FIC Act or the POCDATARA Act.

The Risk Management Compliance Programme (RMCP) of an AI (or the internal documents of an institution that is not an AI) must clearly set out the process to be followed when scrutinising client information as to determine whether a client/potential client is a:

sanctioned person/entity; or
a close associated or family member to a person/entities that may be sanctioned. In this instance, the client will be subject to the targeted financial sanctions provisions through association with the sanctioned entity/person.

Targeted financial sanctions, in terms of the FIC Act and the POCDATARA Act, are not dependent on the risk-rating that has been assigned to a client/potential client. Should the client/potential client be identified as a person/entity on the United Nation Security Council (UNSC) resolutions list or the Targeted Financial Sanctions (TFS) list, the institution must:

refrain from transacting with such a client/potential client meaning that no financial services may be provided to the person or entity, and/or
freeze all property (including funds) associated with the client and may not proceed with any further transactions.

PCC44 reiterates that that institution must, when risk-rating a client, take into consideration the likelihood that a client may potentially be listed on a targeted financial sanctions list or linked to sanctioned persons/entities. The following factors must be taken into consideration when risk rating a client/potential client:

the jurisdiction within which the institution operates;
the type, complexity and destinations of international fund transfers conducted by the client; and
the ownership structures

Scrutinising client information against the TFS list and the UNSC consolidated sanctions list can be done manually or can be an automated process. However, the institution must screen against both the lists and keep a proper record of each search performed.

The FIC TFS list is available on the FIC website: http://www.fic.gov.za/International/sanctions/SitePages/Home.aspx

The UNSC consolidated sanctions list is available on the UNSC website: https://www.un.org/securitycouncil/sanctions/1267/aq_sanctions_list.

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