We have detected that the browser you are using is no longer supported. As a result, some content may not display correctly.
We suggest that you upgrade to the latest version of any of the following browsers:
close notification
Date
: 17/06/2004
Source: Ministry of Finance
Title: T Manuel: Financial institutions identification of existing
clients
STATEMENT ON THE IDENTIFICATION OF EXISTING CLIENTS IN TERMS OF THE
FINANCIAL INTELLIGENCE CENTRE ACT, NO.38 OF 2001, MR TREVOR A.
MANUEL, MP, MINISTER OF FINANCE, 17 June 2004
The Financial Intelligence Centre Act was passed by Parliament in
November 2001 to provide us with another weapon to fight crime. The
Money Laundering Control Regulations, promulgated under the Act in
order to provide more substance to the "know your client"
provisions of the Act, were published in December 2002. The "know
your client" provisions of the Act and the Regulations in respect
of new clients took effect six months later on 30 June 2003 in
order to afford institutions an opportunity to prepare for their
implementation. The same provisions in respect of existing clients
will take effect on 1 July 2004.
Today I had a meeting with the Money Laundering Advisory Council.
The purpose was for me to take advice from it's members on
proposals regarding the requirements for accountable institutions
to comply with the section of the Financial Intelligence Centre Act
whereby accountable institutions need to identify their existing
clients by 30 June 2004.
Some of the accountable institutions, mainly banks, but also
providers of investment services have had difficulties in meeting
their obligations to know their existing customers. As a result
they made submissions to me requesting exemptions. After the
discussion today, given the difficulties that many of them have
had, and not wanting to create an unnecessary burden for their
clients, the ordinary citizens of our country, I have decided to
respond as follows:
I have decided to grant the banks an extension of time within which
they will be required to do this. But such an extension will only
be granted with certain strict conditions.
These conditions include the following provisions:
* Banks will be required to submit a risk-based framework by the
end of July to the Registrar of Banks for his consideration and
approval.
* Thereafter, banks will be required to complete verification in
respect of categories of clients, according to a series of time
frames. This process will be completed by 30 September 2006.
* They are also required to make quarterly progress reports to the
Registrar.
In addition to the banks, brokers and investment managers will be
exempt for a period of 12 months until 30 June 2005, with certain
similar conditions. These industries will report to the JSE
Securities Exchange and the Registrar of Financial Markets.
The following table is a summary of the salient features to the
conditions on which this extension is based:
* 31 July 2004: Banks complete risk-framework
* 31 October 2004: Banks complete all trusts, partnerships and to
20% of individuals and corporates. Brokers and investment managers
complete all trusts, partnerships and to 20% of individuals and
corporates
* 31 December 2004: Banks complete all other high-risk
clients
* 30 April 2006: Brokers and investment managers complete next 30%
of individuals and corporates
* 31 May 2005: Banks complete 50% of medium risk clients
* 30 June 2005: Brokers and investment managers complete all other
clients
* 30 September 2005: Banks complete all other medium risk
clients
* 30 September 2006: Banks complete all low risk clients
I have also tasked the financial intelligence Centre to liase
closely with the relevant Supervisory Bodies to ensure that
accountable institutions meet their obligations.
Should accountable institutions not complete this verification of
clients' process and thereafter continue transacting with
unidentified clients, they will face the possibility of 15 years
imprisonment or a R10 million fine.
The extension affords the affected institutions a window of
opportunity to obtain the required information while continuing to
transact legally with their clients. This means that relations
between clients and institutions will not be disrupted as from 1
July 2004, and the institutions will be able to continue doing
business with their clients as normal without fear of breaking the
law. The extension does not negate any provision of the
legislation. The extension is simply a mechanism to ease the
implementation of the legislation. The institutions have to make
use of this additional period to obtain the information they may
still need. For this they would still require the assistance of
their clients in this process.
The Act intends to minimise the chances of money resulting from
criminal activities being introduced into the financial system -
for example, into banks and insurance companies, or being used to
buy property. Money launderers view the financial system as a
device to transfer the proceeds of their crime and to legitimise
their activities. When they involve the financial system in money
laundering schemes, they necessarily involve the institutions that
provide access to the system. This can lead to the involvement of
financial institutions in criminal activity, even if unknowingly.
It can result in the erosion of public confidence of our financial
institutions and undermine the stability of the system. If
financial institutions are indifferent to this, it may cause them
to suffer losses through fraud and the effects of being associated
with criminals. None of us - not the banks, not ordinary citizens -
want this to happen.
The Act therefore requires banks and other financial institutions
to implement "Know your Customer" policies and procedures. The
"know your customer" policies will help contribute to the overall
safety and soundness of these institutions. They will also help to
protect the integrity of the banks and prevent them from becoming
vehicles for money laundering. Our aim is for as clean a financial
system in this country as is possible.
In addition to this extension of the relevant time-frames I also
discussed with the Council issues concerning the implementation of
the legislation in general and the impact it has on their
relationships with certain clients. We specifically discussed the
issue of the impact this has on so-called low-risk clients. I have
asked the Council to report back to me by October 2004 on options
to adapt the current set of provisions in a way that will
facilitate the provision of financial services to potential clients
who are currently excluded there from, while preserving the need
for compliance with the general requirements for financial
institutions to know who they are doing business with.
It is my belief that all relevant institutions will continue
working together to implement this legislation so that we minimise
the risk of banks and other institutions being undermined by
criminals and syndicates. I therefore call on all customers and
clients to continue assisting their institutions to meet their
obligations under the legislation.
The provisions I have outlined will be published shortly in the
Government Gazette.
Related Articles
