How Fica now applies to high-value purchases

How Fica now applies to high-value purchases

CONSUMERS buying expensive and luxury goods, such as a car, valuable artwork or expensive piece of jewellery, can no longer walk out of the shop with their new acquisition after doing a five-minute transaction. High-end purchases now involve similar paperwork to opening a bank account or buying a SIM-card for a cellphone.

As part of the government’s anti-money-laundering and anti-terrorism-funding drive in 2022, which was not sufficient to prevent South Africa being greylisted by the international Financial Action Task Force last year, amendments were made to Schedule 1 of the Financial Intelligence Centre Act (Fica) that expanded the categories of accountable institutions to include high-value goods dealers (HVGDs).

Accountable institutions are businesses and organisations identified in Fica that need to register with the Financial Intelligence Centre (FIC) and provide regular reports on compliance and risk management, including flagging suspicious transactions.

The requirements are onerous. Among other things they must:

• Verify the identity of a client and his/her address or location;

• Obtain information regarding the economic sector or occupation of the client;

• Develop a risk-rating scheme to categorise clients;

• Check data against third-party data sources;

• Identify the source of the client’s funds; and

• Identify whether the client or related party is on a sanctions list or has appeared in any adverse media or is in a position of political power or influence.

In January 2023, the FIC published draft Public Compliance Communication (PCC) 119 that provided suggestions on the definition of an HVGD. PCC 58, published on March 28 this year, finalised the definition and clarified how it should be interpreted and applied.

According to a blog by Jennifer Finnigan, a partner at Shepstone & Wylie Attorneys specialising in corporate and commercial law, the communication makes it clear that to qualify as a HVGD, a firm must trade in high-value goods as part of its regular business.

“The FIC does not consider firms which make incidental sales of high-value goods to be HVGDs. For example, a consulting firm selling a fleet of vehicles when downsizing is not dealing in high-value goods,” Finnigan says.

She says the FIC’s examples of HVGDs include dealers in Krugerrands, valuable coins, motor vehicles (new or second-hand), trailers, caravans, precious metals, precious stones, diamonds, antiques, fine art, aircraft, helicopters, luxury boats and yachts.

High-value goods are defined as goods that sell for more than R100 000 per item, but the Fica requirements extend to items of lower value under certain conditions. Hawken McEwan, director at compliance firm DocFox, says: “Even for items below the R100 000 threshold, the dealer must conduct customer due diligence if they suspect the transaction is unusual or linked to a politically exposed person.”

Excluded from the definition of high-value goods are non-tangible items such as shares. In other words, only actual physical items qualify. Further, high-value goods can include both new and second-hand goods.

Dealers in high-value goods were added to the list of accountable institutions because criminals often target them as a convenient means to launder illicit funds or support terrorist activities, McEwan says.

“Research shows that criminals often actively seek high-value items they can quickly convert to cash, exchange between parties, and move between cities or countries,” he says.

The FICA requirements also apply to structured payments that split the cost into multiple payments, as with a new car, for instance.

“It is the value of the item, not the method of payment, that counts,” McEwan says.

Although the obligations may seem cumbersome to begin with, he believes consumers will soon get used to them, just as they did when the Rica requirements for applying for a cellphone contract were introduced.

“As time goes on, the process will become easier and more seamless, thanks to technology that enhances the customer experience. We anticipate consumers will be more willing to embrace it because of its broader purpose.

“As financial crimes continue to make headlines and frustrate people, there is an increasing recognition of the importance of identifying those responsible for illicit transactions.

“Even individuals purchasing a new TV or car are contributing to the fight against financial crime and helping South Africa move away from being greylisted,” McEwan says.

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