Risk and compliance programme relating to FICA

The Donford Group

1. Introduction

The Donford Group is committed to preventing money laundering and counter-terrorist financing activities within our operations. This Risk and Compliance Programme aims to ensure compliance with Section 42 of the Financial Intelligence Centre Act (FIC Act) in South Africa.

The programme focuses on identifying, assessing, monitoring, mitigating, and managing risks associated with money laundering and terrorist financing.

• Program Objectives

Our Risk and Compliance Programme is designed to achieve the following objectives:

• Develop, document, maintain, and implement robust risk management and compliance procedures.
• Establish procedures to verify the identity of clients and understand the nature of their business relationships.
• Conduct due diligence on clients, including the verification of beneficial owners.
• Identify and examine complex or unusually large transactions and patterns that lack a lawful purpose.
• Address the requirements for dealing with domestic prominent influential persons or foreign prominent public officials.
• Ensure ongoing monitoring and reporting of suspicious transactions or activities.

• Identifying Risks

Certain steps need to be taken to mitigate these risks. This could happen at various stages in the customer engagement process. Below describes how to act during those different stages:

1. Identifying the client:

The Donford Group will, when engaging with a prospective client during the transaction process:

• Verifying the client’s identity.
• If the client is acting on behalf of someone else, verifying the identity of that person and their authority to act.
• If someone else is acting on behalf of the client, verifying their identity and authority to act.

Below shows the documents which are required before entering in a business relationship.

For individuals:

• Full name through an identity document, driver’s license, or passport.
• Home address with proof of residence.
• Telephone number.
• Source of funds.
• Occupation.
• Business address if applicable.
• For clients acting on behalf of others, verifying client details and providing proof of authority.

For corporations, partnerships, trusts, associations, etc., verifying:

• Legal name with relevant documentation.
• Registered address.
• Telephone number.
• Registration certificates and other relevant documents.
• Physical address for the entity.
• Name, position, and contact information of the person giving instructions on behalf of the organization.

• Understanding and obtaining information on the business relationship:

• The Donford Group should gather information to determine if future transactions align with their knowledge of the client, including:
• The nature and purpose of the business relationship.
• The source of funds the client expects to use.
• If the client is a legal person, determine the nature of their business and ownership/control structure.
• Identify the beneficial owner(s) of the client, including those with controlling ownership interest and those who control management.
• Take reasonable steps to verify the identity of the beneficial owner.

Different ways to get additional information:

• Checking if the vehicle can be registered in the correct name.
• Sharing information with other accountable institutions, such as finance houses.
• Reviewing documentary information related to shareholding and public databases.
• Check public available data and information online where applicable such as CIPC, Department of Social Development, etc

• Examining complex large transactions and unusual patterns:

• The Donford Group will scrutinize complex or unusually large transactions and transactions with no apparent lawful purpose.
• Different factors need to be considered in these transactions that include:
  • the nature of the vehicle
  • legislation and regulations
  • amounts involved
  • sourcing of funds
  • mismatched vehicles
  • multiple bank accounts
  • large deposits without business activities
  • unusual payment instructions
  • large transactions for new entities without economic reason
  • transactions inconsistent with the client’s profile or status

•  Terminating existing business relationships:

• The Donford Group will not establish a relationship or conclude a transaction if unable to establish and verify the client’s identity, obtain necessary information, or perform ongoing due diligence.
• If unable to meet the above requirements for an existing client, the relationship will be terminated, and a report may be considered under the FIC Act.

•  Dealing with domestic prominent influential persons or foreign prominent public officials:

• If a prospective client or their beneficial owner is a domestic prominent influential person (DPIP), The Donford Group will:
  • Obtain senior management approval.
  • Establish the source of wealth and funds.
  • Conduct enhanced ongoing monitoring.
• The Donford Group will verify if a potential client is a DPIP by obtaining confirmation and conducting online searches.
• Factors considered include the risk profile of the DPIP, understanding the client’s wealth profile, and obtaining required approvals.

The Appendix contains a checklist of DOMESTIC PROMINENT INFLUENCIAL PERSONS.

• Assessing Risks:

We need to understand the risks associated with the services we provide and the money deposited into our accounts. The risks depend on the specific services we offer. The assessment process helps us understand the client and the following aspects:

• Client or potential client knowledge.
• Regulatory requirements if applicable.
• Nature and location of the business structure.
• Reason behind the business structure and controlling mechanisms.
• Details of the beneficial owner.
• Details of the client’s representative if applicable.

Service-related Risks:

Examples of risks associated with the sale of HVG include:

• Criminals using HVG transactions to launder funds from illegal activities.
• Criminals hiding their identities or proceeds of crime within complicated legal structures or shelf companies.
• Criminals using intricate transactions to facilitate the flow of illegal funds.
• Criminals appointing attorneys as directors or trustees in trust-related services to create a sense of legitimacy for concealed criminal activities.
• Deceased criminals transferring proceeds of unlawful activities through structures created under their wills.

Higher Risk Factors:

We consider the following factors for determining higher risk clients that need to be taken into consideration:

Conducting business with domestic prominent influential persons or their close associates.

Engaging in business relationships under unusual circumstances.

Obscuring the identity of beneficial owners through shelf companies or nominee shares.

All prospective clients are to be screened against the TFS list on the FIC website and records will be kept on file. As there are currently no South Africans on the TFS list, it will only be necessary to print and keep a record of clients not being on the TFS list if they are not South African. The TFS list is to be checked monthly for any South Africans to ensure this measure continues to be adequate. If any prospective client is identified as being Target on the TFS list, the transaction is to halted immediately and all funds frozen until further instruction is received from the FIC.

• Enabling company formation and asset administration across multiple countries without legitimate reasons.
• Engaging in transactions with complex ownership or control structures lacking an economic purpose.
• Using new technologies that may be exploited by criminals.
• Operating non-profit organizations involved in transactions with no logical economic purpose.
• Acting on behalf of undisclosed persons.
• Using virtual assets mainly for anonymity without a clear motivation.
• Offering unusually high fees for services without legitimate reasons.
• Engaging in transactions with unexplained and unusually high levels of assets or amounts.
• Engaging in transactions beyond our understanding of the client’s business or economic situation.
• Suspected involvement in falsifying or misleading activities.
• Deviating from industry norms in terms of business operations and staff numbers.
• Seeking advice for arrangements indicating tax evasion purposes.
• Providing incorrect or insufficient information.

Transaction Risks:

We consider the following services as presenting higher risks:

• Receiving and transmitting funds through our accounts for clients’ refund transactions.
• Clients requesting financial transactions outside their own bank accounts, using our general, personal, or business accounts.
• Services that represent or assure clients’ reputation and credibility to third parties without appropriate knowledge of the client’s affairs.
• Services that facilitate the concealment of beneficial ownership from competent authorities.
• Services outside our expertise, unless referred to trained professionals.
• Services heavily relying on new technologies vulnerable to exploitation by criminals.
• Payments received from unfamiliar or unknown third parties, including unconventional cash payments.
• Transactions involving inadequate consideration and lacking legitimate reasons.
• Deceased estates involving persons convicted of proceeds-generating crimes.

• Reportable information

If an employee knows or reasonably suspects any of the following, they must immediately report it to the Risk Officer or Reporting Officer:

• The business has received or is about to receive money obtained from illegal activities or property related to financing terrorist activities. (MUST BE REPORTED WITHIN 1 DAY)

The business is involved in one or more transactions that:

• Helped or are likely to help transfer money obtained from illegal activities or property related to financing terrorist activities.
• Are complicated, involve unusually large amounts of money, don’t seem like regular business transactions, or don’t serve any legal purpose.
• Were intentionally designed to avoid reporting requirements. May be connected to an investigation into actual or attempted tax evasion.
• Are linked to the financing of terrorist activities.

The business has been or is about to be used for money laundering, terrorist financing, or proliferation financing (MUST BE REPORTED WITHIN 1 DAY)

There has been a transaction with the business where a cash payment of R50,000.00 or more is made to or received from a client, their representative, or principal. (MUST BE REPORTED WITHIN 3 DAY)

The business has made a cash payment of R50,000.00 or more. (MUST BE REPORTED WITHIN 3 DAY)

If an employee knows or suspects an unsuccessful attempt to do something that would have resulted in any of the above consequences, they must provide a written report to the Risk Officer.

If an employee knows (not just suspects) that the business possesses or controls property associated with anyone on List 1267, the TFS List, or any person or entity involved in terrorist activities, they must provide a written report to the Risk Officer.

The Reporting Officer, upon receiving a report from an employee, must report it to the Financial Intelligence Centre (FIC) using the FIC’s electronic reporting platform on their website.

When reporting to the Risk Officer and the FIC, employees must not inform the subject of the report directly or indirectly about the upcoming or submitted report, nor disclose the content of the report.

• Mitigating Risks:

The Donford Group understands that the risk profile of clients can change over time, especially in long-term relationships. To ensure the safety of our services, we regularly assess and monitor the risk profile of our clients.

To mitigate risks related to anti-money laundering and counter-terrorism financing, The Donford Group implements relevant policies. Some specific measures we consider include:

• Increasing automated transaction monitoring using the “Customer Due Diligence Risk Rating” calculator.
• Conducting more frequent reviews of client information.
• Utilizing more or higher quality sources to verify information.
• Involving senior management in decisions to onboard clients.
• Assigning dedicated specialists to manage enhanced due diligence for specific clients.
• Limiting reliance on controls from other accountable institutions.

For lower-risk situations, we apply simplified due diligence procedures as determined by HVGT.

Training and Recruiting

When we recruit and train staff in “High Risk” positions, we will check for characteristics of honesty and integrity. Additionally, where appropriate, we will screen people in these positions on the sanctions list.

•  Record-keeping and reporting

Regarding record-keeping and reporting, The Donford Group maintains records as required by the Act. These records include:

• Verification of client details.
• Information about the nature and purpose of the business relationship, as well as the source of funds used in transactions during the relationship.
• Details of each transaction, including the amount, currency, parties involved, date of the transaction, and relevant business correspondence.

In accordance with section 29 of the FIC Act, employees of The Donford Group are required to report suspicious and unusual transactions related to unlawful activities connected to our business. Reporting to the FIC may be necessary if:

• We have received or are about to receive proceeds from unlawful activities or property connected to financing terrorist and related activities.
• We are involved in a transaction that facilitates or is likely to facilitate the transfer of proceeds from unlawful activities or property related to financing terrorist and related activities, has no business purpose, or is designed to avoid reporting obligations under the FIC Act.
• Our business has been or is about to be used for money laundering purposes or to facilitate offenses related to financing terrorist and related activities.

Additionally, when the client, someone representing the client, the beneficial owner, a transaction participant, or the end user of the client’s goods or services is a sanctioned individual listed on a TFS list, and DFS has possession or control over the sanctioned person’s property (including funds, vehicles, etc.), we are required to promptly freeze the sanctioned person’s property. You can search for people on the sanctioned list on the below

https://www.fic.gov.za/International/sanctions/Pages/search.aspx

If our employees have knowledge or suspicions related to the above scenarios, they are required to report the grounds for their knowledge or suspicion and provide the necessary details about the transactions within the prescribed timeframe.

Appendix

The FIC Act ascribes the following meaning to the following definitions:

‘unlawful activity’ -“conduct which constitutes a crime or which contravenes any law, whether such conduct occurred before or after the commencement of this Act and whether such conduct occurred in the Republic or elsewhere.

‘Money laundering’ or ‘money laundering activity’ means an activity which has or is likely to have the effect of concealing or disguising the nature, source, location, disposition or movement of the proceeds of unlawful activities or any interest which anyone has in such proceeds, and includes any activity which constitutes an offence in terms of section 64 of this Act or section 4, 5 or 6 of the Prevention of Organised Crime Act, contains the following definitions:

‘Money laundering’ – any person who knows or ought reasonably to have known that property is or forms part of the proceeds of unlawful activities and-

(a) enters into any agreement or engages in any arrangement or transaction with anyone in connection with that property, whether such agreement, arrangement or transaction is legally enforceable or not; or (b) performs any other act in connection with such property, whether it is performed independently or in concert with any other person, which has or is likely to have the effect-

(i)         of concealing or disguising the nature, source, location, disposition or movement of the said property or its ownership or any interest which anyone may have in respect thereof; or

(ii)        of enabling or assisting any person who has committed or commits an offence, whether in the Republic or elsewhere- (aa) to avoid prosecution; or (bb) to remove or diminish any property acquired directly, or indirectly, as a result of the commission of an offence, shall be guilty of an offence.

‘Assisting another to benefit from proceeds of unlawful activities’ – means any person who knows or ought reasonably to have known that another person has obtained the proceeds of unlawful activities, and who enters into any agreement with anyone or engages in any arrangement or transaction whereby-

(a)        the retention or the control by or on behalf of the said other person of the proceeds of unlawful activities is facilitated; or

(b)        the said proceeds of unlawful activities are used to make funds available to the said other person or to acquire property on his or her behalf or to benefit him or her in any other way, shall be guilty of an offence.

The term “terrorist activity” and the offence of terrorism and offences associated or connected with terrorist activities were introduced into FIC Act when the Protection of Constitutional Democracy Against Terrorist and Related Activities Act (POCDATARA) was enacted. With the enactment of POCDATARA, FIC Act imposes a reporting obligation in connection with property associated with terrorist and related activities which may come into the dealerships/HVGT’s possession or under its control.

DOMESTIC PROMINENT INFLUENCIAL PERSONS	YES	NO
President or Deputy President of South Africa
Government minister or deputy minister
Premier of a province
Member of the Executive Council of a province
Executive mayor of a municipality
Elected in terms of the Local Government: Municipal Structures Act
Leader of a political party registered in terms of the Electoral Commission Act, 1996
Member of a royal family or senior traditional leader as defined in the Traditional Leadership and Governance Framework Act, 2003
Head, accounting officer or chief financial officer of a national or provincial department or government component, as defined in section 1 of the Public Service Act, 1994
The municipal manager of a municipality or chief financial officer
Chairperson of the controlling body, the chief executive officer, or a natural person who is the accounting authority, the chief financial officer or the chief investment officer of a public entity listed in Schedule 2 or 3 to the Public Finance Management Act. List inserted below.
the chairperson of the controlling body, chief executive officer, chief financial officer or chief investment officer of a municipal entity as defined in section 1 of the Local Government: Municipal Systems Act, 2000
a constitutional court judge or any other judge as defined in section 1 of the Judges’ Remuneration and Conditions of Employment Act, 2001
an ambassador or high commissioner or other senior representative of a foreign government based in the Republic
an officer of the South African National Defence Force above the rank of major- general
chairperson of the board of directors; chairperson of the audit committee;executive officer; orchief financial officer, of a company, as defined in the Companies Act, 2008 (Act No. 71 of 2008), if the company provides goods or services to an organ of state and the annual transactional value of the goods or services or both exceeds an amount determined by the Minister by notice in the Gazette; or
the position of head, or other executive directly accountable to that head, of an international organisation based in the Republic.

Additional Reading list:

1. Financial Sector Conduct Authority AML/CFoT. Body of Knowledge, April 2022;
2. Media Release Cash Threshold reporting now R50’000.00, Financial Intelligence Centre; October 2022
3. Amendments to Money Laundering and Terrorist Financing Control regulations,2002 in terms of Fic act,2001, Threshold increase to R49’999.99
4. South Africa Financial Sector Assessment Program, Anti-Money Laundering and Combating the Financing of Terrorism (AML/CFT)—Technical Note, International Monetary Fund, March 2015
5. Definition of a Motor Vehicle Dealer for the purpose of Schedule 3 of the FIC act.
6. FIC Amendment Act MLTFC Regulations introducing High Value Goods Traders. HVGT.