AML/CFT Regulations

What are AML/CFT Regulations?

AML stands for Anti-Money Laundering, while CFT stands for Countering the Financing of Terrorism. Because these two concepts are alike in several ways, they are often grouped together under the umbrella term AML/CFT. 

AML/CFT is a broad concept that refers to the laws and regulations governing how financial institutions must interact with their clients in such a way that actively addresses the threat of money laundering and terrorist financing. 

What is Anti-Money Laundering (AML)? 

Money laundering refers to the “cleaning” of criminal revenue to disguise its illegal source and facilitate its use in legitimate, everyday activities. Without money laundering, it would be impossible for criminals to spend the money they earn through criminal activity. Consequently, money laundering enables criminal activity by facilitating its profitability, continued operation and expansion. 

The term Anti-Money Laundering (AML) encompasses the vast array of laws, regulations and policies that are created and implemented to combat money laundering and other associated types of financial crime. Ultimately, these laws aim to make it impossible to make use of any revenues gained from criminal activities. 

What is Countering the Financing of Terrorism (CFT)? 

The financing of terrorism refers to the flow of capital required by terrorist organizations to buy and maintain weapons and physical assets, recruit and train new members, and plan and coordinate strategies. 

Countering the Financing of Terrorism (CFT) refers to the laws and regulations that are created and implemented to curb the financing of terrorist groups and terrorist activities. By helping to detect, track and monitor transactions linked with terrorist organizations, CFT has also played a direct role in the global fight against terrorism by effectively aiding investigations into terrorist organizations and helping to cut off sources of funding for terrorist groups. 

AML/CFT Laws and Regulations in South Africa 

In South Africa, AML/CFT legislation is overseen by the national regulator, the Financial Intelligence Centre (FIC).  

South Africa’s primary anti-money laundering law is the Financial Intelligence Centre Act, 38 of 2001 (commonly known as FICA). Together with FICA, the Prevention of Organized Crime Act (POCA) and the Prevention and Combatting of Corrupt Activities Act (PRECCA) form the bedrock of South Africa’s AML legislation. 

FICA requires businesses that are identified as Accountable Institutions (AIs) to comply with a wide range of regulatory requirements that cover due diligence, record-keeping, reporting of information to the Financial Intelligence Centre and internal compliance governance. 

AML and the Risk-Based Approach (RBA)

Because South Africa operates a Risk-Based Approach (RBA) to money laundering regulation, it is the responsibility of the Accountable Institution (AI) to identify risks and take the necessary steps to mitigate those risks. Once the AI has finalized its risk management strategy, it will be presented to the Financial Intelligence Center (FIC) for approval. 

Because South Africa applies a risk-based approach, and because every business must create its own risk management strategies, exact compliance requirements will vary. This will depend on the AI’s categorization (e.g., asset manager or FOREX), as well as how securely an AI wishes to mitigate risk above and beyond what the FIC requires.  

Sanction checks are some of the most common AML risk management and compliance solutions, as well as Know Your Client (KYC) protocols that require the identification and verification of individual identities. 

ThisIsMe offers a wide range of world-class KYC, enhanced due diligence and remote-onboarding solutions. To experience our full suite of services and see how we can help your business ensure its regulatory compliance, book a demonstration by contacting our team here.

AML/CFT and Politically Exposed Persons (PEPs)

Corruption has seriously undermined national AML/CFT agencies. In their report on South Africa’s AML/CFT measures, the Financial Action Task Force noted how badly the State Capture saga had undermined the country’s anti-money laundering agencies. Pervasive corruption alienates policy makers, impairs prosecution, and stifles efforts to create and enact new AML/CFT legislation. If sufficient AML laws do get passed, underfunded and ill-trained police forces are often unable to enforce them. Nevertheless, there is immense value in laws that place additional scrutiny on Politically Exposed Persons (PEPs). 

South Africa broadly defines a PEP as any individual who is, or has in the past, been entrusted with prominent public functions in a particular country. Due to the interwoven nature of politics and private capital, PEPs are seen to pose a greater threat of corruption and represent an increased money-laundering risk. 

To account for this heightened risk, PEPs are subjected to enhanced due diligence and KYC procedures that are designed to scrutinize the connections between a PEP’s political power and their financial transactions. The goal is to make it as hard as possible for PEPs to abuse their power and be corrupt. 

AML/CFT Screening Process and Monitoring 

AML screening refers to the processes employed by an accountable institution that analyses clients and assesses their associated risk for financial crimes such as money laundering. The screening process is employed to check whether a client is, for example, featured on a sanction list or is a politically exposed person (PEP). 

The exact regulatory requirements will vary depending on a wide variety of factors (e.g., the specific country in question as well as the categorization of the business/institution/organization). However, there are several protocols and mechanisms for AML/CFT screening that are commonplace. They are: 

  • Identity Verification: All money laundering screening processes will entail some degree of identity verification. These checks ensure that an institution knows exactly who a client is before conducting business with them. 
  • Enhanced Due Diligence: In some cases, individuals/entities that represent a higher risk of money laundering (such as politically exposed persons) will be subjected to heightened levels of due diligence. 
  • Ongoing Monitoring: In some instances, individuals and/or entities may pose a high enough AML/CFT risk to justify their continued monitoring by the AI. For example, individuals and businesses with a high degree of political exposure are legally required to be subjected to ongoing monitoring designed to ensure the continued legitimacy of their transactions.  
  • AML/CFT Risk Management and Mitigation: An Accountable Institution (AI) is obligated to mitigate any AML/CFT risks that may arise during the initial screening process, as well as any risks that may arise long after the client has been screened. For example, if a client cannot be verified, an accountable institution cannot simply let them proceed – instead, the AI must take the necessary steps to mitigate the AML/CFT risk posed by that individual, such as restricting them from opening an account and conducting financial transactions. Or, in another instance, if ongoing monitoring of a client suddenly reveals highly suspicious transactions, it is the obligation of the AI to deal with the situation in such a way that aligns with regulatory requirements and successfully mitigates the associated risk. 

Online AML Screening and Compliance Solutions

Today, the AML screening process has been completely automated. Companies can seamlessly integrate their AML screening process using advanced APIs that can easily conduct advanced screening protocols and enhanced due diligence on individuals and entities alike. 

Online AML screening protocols can instantly cross-check an identity against a vast number of databases and watchlists and return results in only minutes, thereby ensuring that businesses can efficiently conduct world-class AML screening at a moment’s notice. 

In addition to their speed and ease of use, online/digital solutions for AML compliance have made such protocols far more accessible by drastically lowering their costs and allowing for the creation of solutions designed to fit a wide variety of needs. 

To find out more about how ThisIsMe can help your business easily meet its AML compliance obligations, contact our team here

Penalties for Non-Compliance with AML/CFT Regulations 

Across the world, government regulators impose penalties for non-compliance with AML/CFT regulations. These penalties vary in severity depending on a number of factors, including the degree of non-compliance and whether or not that non-compliance facilitated any criminal activity. 

In South Africa, penalties for non-compliance are serious and can lead to the handing out of fines and even jail time, although the severity of the punishment will depend highly on the severity of the specific incident of non-compliance.  

Global AML Policy Guidelines 

The Financial Action Task Force is a leading intergovernmental organization founded to develop policies to combat money laundering. These policies are known as the FATF 40 Recommendations and are widely regarded as the global standard for anti-money laundering policy. 

South Africa has been a FATF member since 2003. Recently, in October 2021, the FATF released its Mutual Evaluation Report. The report evaluated South Africa’s AML/CFT practices, analyzed South Africa’s compliance with the FATF 40 Recommendations, criticized shortcomings and inconstancies, and provided valuable recommendations regarding how the country’s current systems can be strengthened. 

In addition to being an FATF member, South Africa is part of the Eastern and Southern African Anti-Money Laundering Group (ESAAMLG) – a regional body of the FATF which that supports countries in the region to implement the global AML/CFT standards. Although global bodies like the FATF provide great authority, regional bodies like the ESAAMLG are greatly valuable in their ability to help countries share resources and expertise in a bid to overcome mutual problems. 

For example, many developing nations share the challenge of regulating large, informal, cash-based economies, which can easily conceal illicit transactions and harbor money laundering. South Africa is no different. The cash-based nature of these economies also makes it difficult to implement and enforce globally accepted AML policies. However, the rapid development of accessible digital banking services presents an opportunity to help secure and regulate these economies to protect against money laundering. 

AML/CFT Compliance Solutions in South Africa 

Although the fight against financial crime is generally spearheaded by government agencies and regulators, the private sector also has a vital role to play in combating financial crime. Compliance with laws and regulations, coupled with proper risk management and enhanced due diligence procedures, hold the key to an economy in which transactional trust is the norm, not the privileged exception. 

As South Africa’s leading provider of world-class due diligence and remote-onboarding solutions, ThisIsMe is proud to be at the forefront of a trust-based and privacy-compliant digital world. We offer a wide range of FICA-compliant KYC services that encompass politically exposed person checks, account verification services, and company sanction and credit checks. To experience our full suite of due diligence solutions and see how we can help your business meet its AML/CFT regulatory obligations, book a demonstration by contacting our team here.