South Africa
Financial Intelligence Centre Act, 2001
Exemption from section 21(2), 2004
Government Notice R749 of 2004
- Published in Government Gazette 26487 on 21 June 2004
- Assented to on 17 June 2004
- Commenced on 30 June 2004
- [This is the version of this document from 21 June 2004.]
1. Interpretation
In this Schedule "the Act" means the Financial Intelligence Centre Act, 2001 (Act No 38 of 2001), and any expression to which a meaning has been assigned in the Act shall have that meaning, and—“prescribed steps” means the prescribed steps referred to in section 21(2) of the Act, read with the Regulations;“risk-framework”, in relation to an accountable institution, means the framework referred to in paragraph 2(2)(a) below, of that accountable institution; and"the Regulations" means the Money Laundering Control Regulations promulgated under section 77 of the Act by Government Notice No. R 1595 in Gazette No. 24176 of 20 December 2002.2. Exemption for banks from section 21(2) of Act 121 of 2001
3. Exemption for members of exchanges from section 21(2) of Act 121 of 2001
4. Exemption for investment managers from section 21(2) of Act 121 of 2001
Explanatory memorandum to the exemptions in terms of the Financial Intelligence Centre Act, 2001
Involving the financial system in money-laundering schemes necessarily means involving those institutions that serve as intermediaries to the financial system. Involvement of financial institutions in criminal activity erodes public confidence and undermines the stability of the financial system. Indifference to this fact may cause financial institutions to suffer losses through fraud and the adverse effects of being associated with criminals.Consequently the Basel Committee on Banking Supervision at the Bank for International Settlements stated the following:“[T]he first and most important safeguard against money laundering is the integrity of banks’ own managements and their vigilant determination to prevent their institutions becoming associated with criminals or being used, as a channel for money laundering”and“The adoption of effective know-your-customer (KYC) standards is an essential part of banks' risk management practices. As discussed in the Customer due diligence for banks (CDD) paper, banks with inadequate KYC standards may be subject to significant risks, especially legal and reputational risk. Sound KYC policies and procedures not only contribute to a bank's overall safety and soundness, they also protect the integrity of the banking system by reducing the likelihood of banks becoming vehicles for money laundering, terrorist financing and other unlawful activities."The “know your client” provisions of section 21 of the Financial Intelligence Centre Act, 2001, (“the Act”) require accountable institutions (which include banks and other financial institutions) to establish and verify the identities of their clients. This requirement currently applies in respect of all new clients who have started doing business with these institutions since 30 June 2003.Accountable institutions are also prevented by section 21(2) of the Act from transacting with their existing clients after 30 June 2004, if these institutions have not verified the identities of those clients in accordance with the Act and the Money Laundering Control Regulations made under it.Certain institutions have approached the Minister for more time to continue transacting with existing clients while updating the verification on those clients. These institutions have indicated that they are encountering difficulty in obtaining the required information concerning their clients before 30 June 2004. These institutions expect to be unable to transact legally with large numbers of clients as from 1 July 2004.Through the exemption powers under the Act, these institutions can be accommodated by granting them an appropriately structured exemption on terms that would seek to move them to full compliance through a series of specific targets and objectives. These exemptions apply to certain sectors of the financial services industry, such as the banking sector and certain providers of investment services.These exemptions in no way allow institutions to suspend their efforts to obtain and verify the required information concerning their clients. The exemptions merely create a window of opportunity for the institutions in question to continue, and even increase, their efforts to establish and verify the identities of existing clients while allowing these institutions to continue doing business with clients on a legitimate basis.It is important to note that certain conditions to the exemptions are imposed to minimise the risk of abuse of the financial system during the period of these exemptions. Compliance with these conditions will be carefully monitored. Where an accountable institution does not adhere to a condition the exemption in question will cease to apply to that institution. When this happens the accountable institution in question would contravene the law if it continues transacting with its clients whose identities have not been verified in accordance with the Act and the Money Laundering Control Regulations.The exemptions will lapse on certain specified dates in the future. Once the exemptions have lapsed all accountable institutions will be expected to comply fully with the law in respect of all clients to which their obligations apply.History of this document
30 June 2004
Commenced
21 June 2004 this version
17 June 2004
Assented to