Talks are currently underway to increase the obligations of the Short-term industry in respect of the Financial Intelligence Centre Act (FICA).
The Financial Intelligence Centre (FIC) is the body responsible for identifying the proceeds of crime, combating money laundering (ML) and the financing of terrorism (TF). To this end, it uses information submitted by business, including accountable and reporting institutions, as well as additional information to develop its financial intelligence reports for submission to law enforcement authorities.
Short-term Insurers are currently regarded as Schedule 3 Reporting institutions. Those in the Long-term industry, on the other hand, are required to register as Schedule 1 Accountable Institutions, with considerably more obligations, including registration with the FIC, identification and verification of clients, keeping records of clients’ identity and transactions, filing statutory reports on cash threshold and suspicious and unusual transaction reports. Furthermore they are obliged to appoint compliance officers, formulate and implement internal rules and train employees on how to comply with FICA.
The current Schedule 3 status does not absolve short-term insurers from reporting to the FIC. We recently reported on a case where another Schedule 3 institution mistakenly did not report certain transactions and were fined R368 000.
The discussion document released by the FIC contains a number of examples of why they are of the view that the status of the short-term industry should be changed to that of an accountable institution.
Case study 1
Information received reflected that a short-term insurer received an initial amount of R968 429.26 from an embassy’s foreign bank account. According to a report the premium due was invoiced for an amount totalling R149 870.53. The short-term insurer was instructed to reimburse the difference of R818 558.73 to a South African bank account. It was established that the account given for the refund was an account held in the name of a high ranking official who was residing in South Africa and employed at the embassy.
The fact that an embassy could transfer funds into South Africa through a short-term insurance company left a blind spot in the monitoring of foreign funds coming into South Africa.
Case study 2
A high priority target, under investigation by the Illicit Tobacco Task Team, was known to be driving high value exotic sports vehicles. No links to these vehicles were found under official vehicle ownership records or financing records queried with financial institutions.
Assistance was sought from the South African Insurance Crime Bureau (SAICB) to determine if any short-term insurance policies linked to the individual under investigation could be found and for which assets. The policy result positively linked the credentials of the subject under investigation indicating insurance cover for two Ferraris – matching the intelligence received that this individual enjoyed the profits from his criminal activities. This information led to the discovery of assets which were actively concealed from ownership records.
This information could have been ascertained considerably sooner had the option for a section 27 FIC Act enquiry for client relationship of a short-term insurer been available to the FIC.
Case study 3
A high ranking government official was implicated in a corruption matter. His personal account that received the proceeds of the corrupt relationship also made payments to three short-term insurance companies. The individual owned three vehicles to the value of approximately R2.3 million. Payments of R24 878.44 were identified as being made to at least three short-term insurance companies.
The reason and purpose of these payments were not identified due to the fact that the insurance companies are not accountable institutions and the FIC was therefore not in a position to request information relating to the insurance contracts from these short-term insurers. This made the tracing of the high value insured assets (bought with the proceeds of crime) linked to these insurance payments impossible.
Benefits of proposed inclusion of the ST Industry
Suspicious Transaction Reports (STRs) filed by the short-term insurance sector will enable tracking of criminal trends within the insurance industry, thereby assisting the FIC and the industry in its fight against fraud, corruption, money laundering and financing of terrorism.
Short-term insurers are a rich source of information on beneficial ownership for South African law enforcement. This is particularly so in instances where assets are registered in the names of friends or relatives to conceal their origin and real ownership.
With the current state of affairs in South Africa, anything we as law-abiding citizens can do to prevent the escalation of crime should be supported whole-heartedly.
Please refer to the article below which is linked to an earlier article on FSP FICA Obligations.