While the world is moving towards a cashless environment, cash transactions remain prevalent among SA’s informal sectors. The cash-intensive environment in the country exposes accountable institutions, as service providers, to the risk of money laundering and terrorist financing.
The movement of cash in transactions is inherently difficult to trace, making it an attractive channel for criminals to conceal the source of their funds and wealth. The difficulty in detecting the flows of cash also create a challenge for accountable institutions to establish the true source of the funds involved in some cash business transactions.
In its 2021 mutual evaluation report, the Financial Action Task Force (FATF) made a finding on SA’s heightened level of money laundering and terrorist financing risk due to the prevailing use of cash. The FATF found that the “use of cash is prevalent in SA and it has been assessed as high risk from a money laundering and terrorist financing perspective, including cross-border movement”. It is for this reason that accountable institutions need to be vigilant and apply appropriate measures when providing goods or services to customers that deal with cash.
The leaning towards using cash for transactions increases the vulnerability of SA’s financial system to money laundering and terrorist financing risks. Money laundering and the financing of terrorism thrive when the movement of proceeds of crime goes undetected and uninterrupted. The laundering and moving of illicit cash including across borders heightens the need for enhanced risk mitigation measures by accountable institutions.
To manage the risk, accountable institutions listed in Schedule 1 of the Financial Intelligence Centre (FIC) Act are required to conduct customer due diligence and establish their source of funds. Where a customer is considered a high risk, accountable institutions must take reasonable measures to establish the customer’s source of wealth. Refer to the FIC guidance note 7A for more information.
Section 28 of the FIC Act requires cash transactions in excess of R49,999.99 to be reported to the FIC by accountable institutions. A cash threshold report (CTR) must be submitted within three business days of the transaction.
Before they can file a CTR, an accountable institution must first register on goAML, the FIC’s reporting platform. Refer to the goAML registration guide and FIC guidance note 5C on CTRs.
Where a cash transaction raises suspicion, accountable institutions and other business entities are required to file a section 29 suspicious and unusual transaction report (STR) as soon as possible without delay and no later than 15 days of the suspicious activity. Refer to FIC guidance note 4B on STRs.
The ubiquitous use of cash continues to pose a risk to SA’s financial system due to the lack of transparency of transactions and the risks of money laundering and terrorist financing. Compliance with the FIC Act by accountable institutions remain the best countermeasure to these threats.
More information and guidance for accountable institutions can be found on the FIC website. Alternatively, contact the FIC’s compliance contact centre on 012 641 6000 or log an online compliance query.
This article was sponsored by the FIC.
