FIC issues guidance on what is ‘a high-value goods dealer’

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The Financial Intelligence Centre (FIC) has published a Public Compliance Communication (PCC) that provides guidance on the interpretation and application of “high-value goods dealer” (HVGD).

People or entities whose commercial activities conform to the definition of “high-value goods dealer” in Schedule 1 to the Financial Intelligence Centre Act (FICA) became accountable institutions with effect from 19 December 2022. They must register with the FIC and implement a Risk Management and Compliance Programme.

Typical examples of HVGDs are motor vehicle dealers, jewellers, dealers in valuable coins, antiques, or fine art, and dealers in luxury clothing and accessories.

A HVGD is listed in Item 20 of Schedule 1 as a person who carries on the business of dealing in high-value goods in respect of any transaction where such a business receives payment in any form to the value of R100 000 or more, whether the payment is made in a single operation or in more than one operation that appears to be linked, where “high-value goods” means any item that is valued in that business at R100 000 or more.

PCC 58, which was published on 28 March, clarifies how this definition should be interpreted and applied.

PCC 58 is the finalised version of draft PCC 119, which was published in December 2022 for public comment. Click here to download the FIC’s feedback on the comments it received.

In addition to unpacking the definition of “high-value goods dealer”, PCC 58:

  • explains the arrangements for motor vehicle dealers and Krugerrand dealers that were registered as reporting institutions;
  • explains when customer due diligence obligations arise;
  • provides examples of HVGDs;
  • discusses high-value goods dealers’ cash threshold and terrorist property reporting obligations; and
  • lists some of the risk indicators of money laundering and terrorism financing.

Some of the aspects of how the definition of a HVGD should be understood and applied are highlighted below.

What is ‘carrying on the business of dealing’?

A person is an HVGD where the entity’s commercial activity is to trade in high-value goods as part of their ordinary course of business.

The PCC provides an example of where the “business of dealing” criterion is not met. A consulting firm sells its fleet vehicles for R120 000 per vehicle as part of a downsizing exercise. This activity does not form part of the firm’s ordinary course of business; therefore, it is not regarded as a HVGD.

A charity is not a HVGD.

A HVGD can be a retailer or a wholesaler.

A third-party service provider that is used (and paid) by a HVGD to facilitate the trade of high-value goods is not a HVGD because the third-party service provider does not receive or pay the amount due for the high-value goods.

What is ‘a high-value good’?

A high-value good is an actual physical item. High-value goods include movable, immovable, and tangible items (for example, vehicles, vehicle parts, precious metals, and precious stones). Therefore, the definition excludes non-tangible items such as shares, trading stock, and commodities investments.

High-value goods may include living goods – for example, livestock, game, and exotic animals and plants.

High-value goods can be new or used (second-hand) items.

When is the threshold met?

The threshold of R100 000 or more is determined with reference to the amount at which each item or unit is sold or traded. The FIC’s response to one of the comments about draft PCC 119 indicates that the amount the customer actually pays is important when determining whether or not the threshold has been met. For example, an item can be advertised for R100 000, but the dealer provides a 10% discount, and the client pays R90 000 – in which case, this is not a high-value transaction.

The threshold of R100 000 or more applies to a particular item, not a few separate items where the total combined value is R100 000. The PCC provides the following examples to illustrate this principle:

  • A second-hand dealer in precious metals buys a unit of scrap metal, consisting of several bits of scrap metal. The unit price is R120 000. The unit is regarded as a single high-value good. This activity forms part of the dealer’s ordinary course of business; therefore, the dealer is a HVGD.
  • A dealer in precious metals and stones (DPMS) sells items that are valued at R100 000 or more per single item (such as diamond rings at R100 000) and many items valued below R100 000 (such as watches at R20 000). The DPMS meets the definition of a HVGD because it sells goods where a single item is valued at R100 000 or more per item.
  • A second-hand motor dealership has numerous vehicles on its lot, and the maximum selling price per vehicle is R60 000. The dealership does not meet the definition of an HVGD because it does not sell vehicles where each vehicle is valued at R100 000 or more.

How is the threshold determined where a transaction includes both a service (labour) component and physical items? The FIC’s feedback note indicates that the threshold is exceeded only if the value of the physical items is R100 000 or more. For example, if a motor dealership upgrades a luxury vehicle and charges R40 000 for labour and R80 000 for parts, it is not high-value transaction. The parts alone would have to cost at least R100 000 for the high-value criteria to be met.

Where a business has not yet dealt in a high-value item at the threshold of R100 000 or more but has a reasonable expectation that it will deal in such high-value goods, it must register as an accountable institution and not wait until it deals in an item at the prescribed threshold.

The FIC is aware that individuals or entities may seek to structure a high-value transaction to evade compliance with FICA. This could include splitting what is, in fact, a single high-value transaction into multiple transactions where the value of each transaction is less than R100 000. All businesses, even if they are not accountable institutions, are obliged to report suspicious and unusual transactions to the FIC. This obligation applies irrespective of the value of the transaction.

The Centre warns that where it finds that businesses are trading in high-value goods with a market value above R100 000 per item but are selling them below R100 000 per item to avoid being designated as an HVGD, may constitute non-compliance with FICA. The PCC does not state what criteria the FIC may use to determine whether a business is artificially or intentionally reducing prices simply to avoid FICA compliance.

‘Payment’ can be in any form

The selling price of the item or unit determines whether a person is a HVGD.

Payment includes all payment types – for example, cash, cheque, electronic funds transfer, credit card, and crypto.

Where a business receives payment of R100 000 or more through extending credit for a high-value item, the business is deemed both a credit provider and a HVGD. It must register as both types of accountable institution with the FIC. (Credit providers are accountable institutions in terms of Item 11 of Schedule 1.)

The definition of HVGD is met if the amount of R100 000 or more is paid or received in a lump sum or paid and received in several smaller amounts that add up to R100 000 or more – for example, a deposit of R20 000 and the remaining R80 000 in a later transaction.

High-value goods dealers should note that a high-value transaction may require the filing of a cash threshold report (CTR) if settlement includes a cash payment of R50 000 and more. For example, a HVGD sells a vehicle to a client for R100 000. The client pays R60 000 in cash and the balance of R40 000 via an EFT. The HVGD must file a CTR on the cash part of the payment because it exceeds the prescribed cash threshold of R49 999.99.