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Financial Intelligence Centre Act, 2001 (Act No. 38 of 2001)

Notices

Guidance Note 4 on Suspicious Transaction Reporting

Part 5 - What are the Implications of making a STR?

 

Can an institution continue transacting with a customer after a STR has been made?

 

5.1 Section 33 of the FIC Act provides that a reporter may continue with and carry out a transaction in respect of which a report is required to be made unless the Centre directs the reporter not to proceed with the transaction in terms of section 34.

 

5.2 The Centre may issue a directive ("an intervention order") in writing not to proceed with a transaction after consultation with the institution or person concerned. The Centre must have reasonable grounds to suspect that a transaction may involve the proceeds of unlawful activities or property which is connected to an offence relating to terrorist financing, or may in some other way constitute money laundering terrorist financing. The intervention order may require the institution or person not to proceed with the transaction which gave rise to the Centre's belief or any other transaction in respect of funds that are affected by the particular transaction. The intervention order is valid for a period not exceeding five days excluding weekends and public holidays.

 

5.3 One of the main purposes of an intervention order is to prevent the dissipation of funds or property which may be the proceeds of unlawful activity. A typical example of where this may be the case is where funds or assets are due to be transferred from one location to another or from one person to another, especially where the transfer will have the effect of moving the funds or assets out of South Africa. Reporters are encouraged to indicate to the Centre at the time of making a report under section 29 if they believe that the funds or assets involved in a transaction or series of transactions may be dissipated. The same also applies if a report has been filed with the Centre and the reporter subsequently becomes aware that the suspected proceeds may be dissipated. In such cases the reporter may contact the Centre quoting their reference number and informing the Centre of the activities within such account.

 

Confidentiality and Privilege

 

5.4 Section 37(1) of the FIC Act overrides secrecy and confidentiality obligations in South African law. No duty of secrecy or confidentiality prevents any institution or person from complying with an obligation to file a report under the FIC Act.

 

5.5 Section 37(2) protects the common law right to legal professional privilege as between an attorney and an attorney's client in respect of communications made in confidence between:
• the attorney and the attorney's client for the purposes of legal advice or litigation which is pending or contemplated or which has commenced; or
• a third party and an attorney for the purposes of litigation which is pending or contemplated or has commenced.

 

The reporter enjoys legal protection concerning a report submitted to the Centre

 

5.6 Section 38 of the FIC Act protects persons who participate in making reports to the Centre. No legal action, whether criminal or civil, can be instituted against any natural or legal person who complies in good faith with the reporting obligations of the FIC Act.

 

5.7 In addition to protection against legal liability, the FIC Act also protects the identities of those involved in making a report to the Centre. A person involved in the making of a report cannot be forced to give evidence in criminal proceedings concerning such a report. However, such a person may choose to do so voluntarily. If a person elects not to testify, no evidence regarding that person's identity is admissible as evidence in criminal proceedings.

 

Tipping off

 

5.8 A person involved in the making of a report may not inform anyone, including the customer or any other person associated with a reported transaction, of the contents of a suspicious transaction report or even the fact that such a report has been made.

 

5.9 Section 29 of the FIC Act prohibits any reporter as well as any other person who knows or suspects that a report has been made from disclosing any information regarding that report except for information disclosed:
• within the scope of the powers and duties of that person in terms of any legislation,
• for the purpose of carrying out the provisions of this Act,
• for the purpose of legal proceedings, including any proceedings before a judge in chambers, or
• in terms of an order of court.

 

5.10 Contravening these prohibitions constitutes offences in terms of the FIC Act that carry maximum penalties of imprisonment for a period up to 15 years or a fine up to R10 million.

 

Are there any defences associated with the reporting obligation?

 

5.11 In terms of Section 69 of the FIC Act if a person who is an employee, director or trustee of, or a partner in, an accountable institution, is charged with not reporting suspicious or unusual transactions, that person may raise as a defence that he reported the matter internally to the person responsible for ensuring compliance by the accountable institution with its duties.

 

5.12 In certain cases an employee may simply report the matter to a superior and, if that can be proved, the person will have a valid defence if he or she is charged with not reporting the transaction to the Centre directly.

 

5.13 In many situations the fact that a suspicion is formed and a report made to the Centre implies that a business could possibly be dealing with the proceeds of unlawful activities in a way that would fall within the scope of the money laundering offences of section 4, 5 and 6 of the POCA. In order to allow persons to report their suspicions freely while carrying on their business without exposing them to criminal liability for their involvement in the reported transaction a defence is provided in section 7A of the POCA against racketeering charges under section 2(1)(a) or (b) of the POCA and money laundering charges under sections 4, 5 and 6 of that Act. This defence applies both where a person has made a report to the Centre or has made a report in terms of the internal rules or arrangements of the institutions by which the person is employed.

 

Reactive reporting

 

5.14 Reactive reporting refers to the submitting of a STR to the Centre following an external prompt without a prior suspicion having been formed on the basis of the circumstances in which a particular transaction or series of transactions have been conducted. Examples of the prompts that may give rise to reactive reporting are:
• receiving a subpoena in terms of section 205 of the Criminal Procedure Act, 1997 (Act No 51 of 1997) or a similar process to provide evidence concerning matters relating its business dealings with a particular customer;
• receiving a request to confirm whether a person is a customer of an institution in terms of section 27 of the FIC Act in respect of a particular customer;
• receiving an intervention order in terms of section 34 of the FIC Act in connection with a transaction involving a particular customer;
• receiving a monitoring order in terms of section 35 of the FIC Act concerning the transactions of a particular customer;
• receiving other types of enquiries from government agencies such as investigating authorities or the South African Revenue Service about a particular customer;
• seeing information in the media that may adversely affect a particular customer.

 

5.15 With regard to these external factors it is important to bear in mind that the obligation to file a STR with the Centre arises where a person becomes aware of certain facts or in situations which should give rise to a suspicion, as discussed in Part 2, above. External factors such as those referred to here, may contribute to the forming of a suspicion, but in all cases these factors should be considered in conjunction with all other factors pertaining to a particular transaction or series of transactions. These factors should, not in and of themselves, form the reason for submitting a report to the Centre in absence of any suspicion formed.