Introduction

As we all know, in a pointless attempt to avoid grey listing, the Financial Intelligence Centre Act was amended in December 2022.  Amongst the changes was the expansion of the list of people obliged to register as accountable institutions with the Financial Intelligence Centre (Centre) and then comply with the 7 key compliance pillars of FICA to include high value goods dealers (HVGD) and people carrying on business as credit providers.  

In January 2023, the Centre published draft Public Compliance Communication 119 (PCC 119).  Although it is still only a draft, PCC119 gives us a glimpse of the Centre’s likely approach to the HVGD definition. 

Are you "Dealing" in High-Value Goods?

PCC 119 explains that the Centre interprets "dealing" in high value goods as meaning "to trade, sell, or buy with a focus in the retail sector." Following the approach outlined in its Consultation Paper on the Amendments to Schedule 1, Schedule 2 and Schedule 3 of FICA, PCC 119 confirms that the retail sector has been identified as giving rise to high risks of involvement in money laundering, terrorist financing, and proliferation financing. While the wording of Schedule 1 of FICA does not limit the definition of a HVGD to a dealer supplying the retail sector, the Centre’s approach to the HVGD definition in this regard is sensible and risk based.

PCC 119 makes it clear that to qualify as a HVGD, a firm must trade in high-value goods as part of its regular business. The Centre does not consider firms which make incidental sales of high-value goods to be HVGD.  For example a consulting firm selling a fleet of vehicles when downsizing is not dealing in high value goods.

Examples of High-Value Goods Dealers

PCC 119’s list of examples of HVGD includes dealers in Kruger Rands, valuable coins, motor vehicles (new or second-hand), trailers, caravans, precious metals, precious stones, diamonds, antiques, fine art, aircraft, helicopters, luxury boats, and yachts. The Centre emphasizes that this list is not exhaustive.

Comparing Approaches: UK, EU and South Africa

The European Union and the United Kingdom have different approaches to HVGD. The UK Money Laundering Regulations define a "high-value dealer" as any entity trading in goods that receives cash payments totalling at least 10,000 Euros, irrespective of the type of goods involved. In the European Union, the 4th EU Directive against Money Laundering (DIRECTIVE (EU) 2015/849) applies a similar approach applying to everyone who trades in goods and who makes or receives cash payments of EUR 10 000 or more, in one or more linked operations. In South Africa, the HVGD definition does not focus on the method of payment for high value goods and the only issue is whether the goods have a value of R100 000 or more.  This is an opportunity missed as the relatively low value in the HVGD definition may well result in many more businesses which pose little money laundering risk having to register as accountable institutions and bear the significant and costly burden of compliance.

While the Centre’s risk based approach in draft PCC 119 is to be welcomed, it would be far preferable if our lawmakers ensured that FICA itself was clearly drafted and provided certainty to those HVGD who have to register as accountable institutions. 

The Centre’s approach to credit providers 

Schedule 1 of FICA also defines as accountable institutions people who carry on business as credit providers, whether in terms of the National Credit Act, 2005 (NCA) or excluded from its scope. PCC 23A, another draft public compliance communication published by the Centre strangely interprets "business" very widely adopting the view that credit providers include entities whose primary business is not that of providing credit such as incidental credit providers and employers making occasional loans to employees.   Essentially, the NCA defines incidental credit as charging a fee or interest to customers who don’t pay on time. As almost every business in South Africa is an incidental credit provider, this very broad interpretation of Schedule 1 to FICA may require almost every business in South Africa that charges interest on overdue accounts to register and comply with FICA as an accountable institution.

Challenges and Implications

The Centre’s very wide interpretation of the inclusion of people who carry on the business of credit providers in Schedule 1 to FICA presents several challenges and concerns.

The approach adopted by the Centre in PCC 23A is the opposite of that applied to the definition of HVGD, an inconsistency that creates uncertainty and an unreasonable and expensive compliance burden on businesses which pose very little money laundering risk.  This not only wastes the Centre’s precious and scarce resources but also distracts its attention from credit providers which are at real risk of being used for money laundering.

PCC 23A is not aligned with FICA's risk-based methodology as it requires registration by businesses regardless of whether or not those businesses pose a high money laundering and terrorist or proliferation financing risk.

Conclusion

The amendments to Schedule 1 to FICA including HVGD and persons carrying on business as credit providers raise critical (and expensive) compliance questions for South African businesses. The Centre’s inconsistent and conflicting approaches to the interpretation of those inclusions in the draft public compliance communications creates confusion and uncertainty. Effectively combating money laundering and terrorist and proliferation financing is essential if South Africa is ever to escape FATF’s grey list but this means that we need a clear, reasonable and risk-based regulatory regime which encourages compliance so that we can all fight back against criminals.