Of watchdogs, bloodhounds and guidedogs

Accountancy SA,  Sep 2003  by Agulhas, Bernard,  de Koker, Louis

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June 2003 was a very important month from the perspective of money laundering control. The main administrative money laundering control duties took effect on 30 June 2003, thereby changing many of the business practices that were part of the South African business landscape. In the same month, South Africa gained membership of the Financial Action Task Force (FATF) which is the main international standard-setting body in respect of money laundering control. At the meeting where South Africa's membership was endorsed, the FATF also adopted a new and more stringent set of money laundering control standards that all countries will have to meet. As South Africa is implementing its money laundering control legislation, thought must therefore be given to amendments that may be required to comply with the new set of international standards. In this state of flux, accountants and auditors have a very important role to play. Not only do they have to comply with the legislation but they will also be required to provide guidance to those clients who are bewildered by the new requirements. Obviously auditors will also have to consider non-compliance with these laws when planning and carrying out an audit.

HOW ARE REGISTERED ACCOUNTANTS AND AUDITORS AFFECTED? I Registered accountants and auditors are directly affected by the money laundering control laws. An enhanced duty for all persons in business to report certain suspicious transactions came into effect on 3 February 2003. This duty under the Financial Intelligence Centre Act 38 of 2001 (FICA) replaced the earlier and more limited duty under the Prevention of Organised Crime Act 121 of 1998 (POCA). Administrative money laundering control obligations for certain institutions and persons, the so-called "accountable institutions", came into effect on 30 June 2003. These duties include the duty to identify clients, verify certain particulars, keep records, train employees and appoint a compliance officer. Many, if not all, accountants and auditors have the duty to report suspicious transactions and some qualify as accountable institutions on account of the type of business that they conduct.

The money laundering control legislation raises many questions. The ambit of certain provisions is unclear and many accountants and auditors are not always certain about the impact of the legislation on their work or practice. In an attempt to bring greater clarity, the Public Accountants' and Auditors' Board (PAAB), which is designated as a supervisory body for purposes of FICA, issued a guide entitled Money laundering control: A guide for registered accountants and auditors in June 2003. This guide provides guidance in respect of the money laundering control compliance duties of registered accountants and auditors and the responsibility of auditors when conducting an audit. The publication also highlights areas of uncertainty and provides registered accountants and auditors with the interpretation and perspectives of the PAAB on certain contentious issues. The PAAB intends this guide to be reworked and continuously updated to provide registered accountants and auditors with relevant and current guidance.

This article highlights relevant aspects of the guide and considers whether the auditor's responsibilities have changed with the introduction of the new legislation.

WHAT IS MONEY LAUNDERING CONTROL? I In an attempt to stamp out crime, especially organised and drug-related crime, the international community committed itself in a number of international instruments to combating money laundering. In general, money laundering control legislation criminalizes attempts at disguising the true nature of ill-gotten gains. It also forges a crime combating alliance between the business community and law enforcement. Those businesses that are the most vulnerable to abuse for laundering purposes are required to implement administrative measures to assist them to correctly identify their customers and to keep record of their particulars. In addition, businesses are required to be vigilant and to report any transactions that they know or suspect involves dirty money or property to law enforcement. These measures ensure that criminals are facing increased difficulties to enjoy the fruits of their crimes and that law enforcement is strengthened by the high quality intelligence produced by the business community.

South Africa adopted POCA and FICA to empower law enforcement to combat crime in general, including tax evasion, and to meet international standards and obligations. POCA creates the main money laundering offences and FICA gives rise to the administrative money laundering control obligations of businesses in general and of accountable institutions.1

POCA I POCA creates serious offences relating to money laundering. These offences include the rendering of assistance or advice to a criminal to assist him to launder money or to control, acquire, use or possess the proceeds of the crime of another. These offences can also be committed by a person who negligently fails to recognise the true nature of a money laundering transaction. The money laundering offences carry severe penalties. Fines range up to R1 billion and offenders may be imprisoned for life.