Secondary

Money laundering

FIC issues guidance on assessing money laundering risk

The Financial Intelligence Centre (FIC) has issued a public compliance communication (PCC) that clarifies the requirement to determine whether a prospective client, existing client, the beneficial owner of the client and person acting on behalf of the client is a domestic prominent influential person (DPIP) or foreign prominent public official (FPPO), or whether the client is an immediate family member or known close associate of a DPIP or FPPO.

PCC 51 also provides guidance on the risk mitigating controls an accountable institution may follow for former DPIPs, their immediate family members or known close associates presenting a high money laundering (ML) risk and FPPOs, their immediate family members or known close associates, and further possible indicators of heightened ML risks.

It said PCC 51 must be read in conjunction with Guidance Note 7, which sets out the guidance on DPIPs and FPPOs and explains how matters relating to DPIPs and FPPOs should be included in an accountable institution’s risk management and compliance programme.

The FIC Act distinguishes between two types of politically exposed persons:

  • A DPIP is an individual who holds, including in an acting position for a period exceeding six months, or has held at any time in the preceding 12 months in South Africa, a prominent public function as listed in Schedule 3A of the FIC Act.
  • An FPPO is an individual who holds, or who has held at any time in the preceding 12 months, in any foreign country a prominent public function as listed in Schedule 3B of the FIC Act.

Accountable institutions must determine whether their prospective client, existing client, beneficial owner of the client and person acting on behalf of the client hold either a DPIP or FPPO position or are an immediate family member or known close associate of a DPIP or FPPO, PCC 51 says.

“The FIC strongly encourages that, as part of effective ML risk management, accountable institutions should determine whether their client has at any point held a DPIP or FPPO position.”

The ML risk associated with a client that is a DPIP must be assessed, as not all DPIPs pose an inherent high ML risk. However, FPPOs pose an inherent high ML risk, and the business relationship with an FPPO is always deemed high risk from a ML perspective.

Even though a person may no longer meet the definition of holding either a DPIP or FPPO position, the risk factors relating to having been a DPIP or FPPO may still be relevant in determining the ML risk associated with the client.

When establishing a business relationship with DPIPs, presenting a high ML risk, and/or FPPOs, their immediate family members or known close associates, the accountable institution must conduct enhanced due diligence, of such persons, as part of their customer due diligence (CDD) and fulfil the requirements as set out in sections 21F, 21G and 21H of the FIC Act.

Clients that are immediate family members or known close associates of DPIPs and FPPOs, although not holding a DPIP or FPPO position themselves, must be treated as DPIPs or FPPOs for the purposes of ML risk determination and the resulting CDD, including enhanced due diligence and other applicable measures.

Where the time periods as set out in Schedule 3A and 3B to the FIC Act lapse, it would be good practice, in terms of the risk-based approach, for the accountable institutions to regularly consider whether the former DPIP or FPPO, their immediate family members or known close associates, still poses a high risk from a ML perspective.

The PCC provides possible indicators of heightened ML risks and lists additional data sources that should be consulted in the determination of DPIPs and FPPOs, their immediate family members or known close associates.

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