Page 93 - Profile's Unit Trusts & Collective Investments - March 2026

Legislation and guidelines Chapter 5

Money laundering
FICA defines money laundering (or money laundering activity) as an activity which has or is
likely to have the effect of concealing or disguising the nature, source, location, disposition
or movement of the proceeds of unlawful activities or any interest which anyone has in such
proceeds, and includes any activity which constitutes an offence in terms of FICA or the Prevention of
Organised Crime Act of 1998.
Money laundering usually involves three phases. The first is called placement, when a criminal places
dirty money (eg, cash from drug dealing) into the formal financial system. The second is layering
or concealment, the process by which the criminal attempts to hide the link between the money in
the financial system and the original unlawful activities, usually by entering into a series of complex
transactions which move money in and out of various systems. The third is integration or re-entry, when
money is reintegrated into the formal financial system so that it appears to be clean and legitimate.
Once the funds are “clean” they can be used for legitimate transactions: property investments, purchase
of luxury goods, or business investments.
Money laundering is also often associated with tax evasion.

Accountable institutions are required to report suspicious transactions and tax evasion to the
Financial Intelligence Centre (FIC) and their compliance is monitored by supervisory bodies,
whereas reporting institutions report directly to the FIC.
FICA places onerous duties and obligations on all accountable institutions. These include:
R The establishment and verification of the identities of clients
R Maintenance of detailed records about clients, business relationships and transactions
R An obligation to make such records available to the FIC
R An obligation to inform the FIC, on request, of the existence of a current or past mandate
R An obligation to report suspicious transactions
FICA stipulates that any person who carries on a business, including a manager or employee, who
knows or suspects certain transactions may be of a suspicious or unusual nature, is obliged to report
this to the FIC. Even more burdensome is the obligation to report on a potential transaction even if
this comes to nothing (ie, where there is an enquiry with an accountable institution but no transaction
takes place). To complicate the relationship between service providers and clients, there is also in
the Act a prohibition against disclosure by the reporting person that a report to FIC has been made.

Risk-based monitoring
As mentioned above, the FICA amendments promulgated in 2017 have shifted the process of
monitoring and reporting clients and transactions from a rules-based approach to risk-based
approach.
Under the 2003 FICA Act, accountable institutions were required to establish internal rules
to ensure compliance with the legislation. An entity’s rules included the process of appointing a
compliance officer, definitions of the information to be recorded and stored in respect of each client,
staff training regimes, and the steps to be taken in the event of suspicious transactions.
Following the implementation of the amendments, accountable institutions must now assess
the potential risks of each client and every transaction in the context of each account’s history. For
example, an entity’s rules may have required staff to alert compliance about any large transaction
above a defined threshold, even though transactions of that size would have been routine for certain
large clients. The new approach allows accountable institutions to green-flag accounts that follow
stable patterns, even where large transactions are involved. Conversely, however, an accountable
institution is now required to red-flag much smaller transactions where they are unusual in terms of
an account’s history.
Since the 2017 FICA amendments, accountable institutions have had to develop, maintain and
document Risk Management and Compliance Programmes. This risk-based approach allows

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