PRICEWATERHOUSECOOPERS

ESSENCE OF COMBATING MONEY LAUNDERING

Centrality of KYC
· Around the world, efforts to combat financial crime and money laundering increasingly emphasise suspicious transaction reporting systems

· The reporting of suspicious transactions, patterns of transactions, or unusual customer behaviour hinges on Know Your Customer ("KYC") principles

Objectives of KYC
· To collect sufficient information to develop a transaction profile of the client
· To check the transaction profile against all transactions of the


CASH TRANSACTIONS ABOVE A PRESCRIBED LIMIT (Section 28)
Recommend that this provision be removed from the FIC Bill for the following reasons:

· Considerable compliance costs to providers of information (American Bankers Association estimated cost of between $3 and $15 per report)

· Considerable costs to input, process, analyse and store data
Indicative FlU Performance Analysis (1998)
country US UK Netherlands Australia
GDP (USC M) 7 552000 1 387 400 378 300 363 600
No of staff 165 15 21 93
Budget (USC M) 25 2 2 5
Tots disciosures 13938500 14129 20 023 6226184

· Monitoring of compliance can be costly

· Most of the data collected is a legitimate activity - only a small percentage may relate to illegal activity

· Only 4 of the 31 members of FATF have mandatory cash threshold reporting

Recommend that a provision for "Geographic Targeting Orders" be inserted in the FIC Bill.

· Director of the Centre (with proper authority) may impose requirement for reporting cash transactions above a prescribed limit

- for a specific period of time
- for certain accountable institutions

- for a specific geographical area

Efficient Use of limited resources

SUSPICIOUS TRANSACTIONS (Section 29)
Recommended that the provisions of the FIC Bill be expanded to include:
· patterns of transactions and/or networks of transachons';

· "unusual transactions"' and

· "unusual customer behaviour"

Satisfy Recommendation 14 of the FATF

Increase the effectiveness of the control system

Link the reporting requirement to the Accountable Institutions' control systems which entail monitoring customers activities against a transaction profile

PRESCRIBED BACKGROUND INFORMATION ON CUSTOMER (Sections 21 & 22)
Recommend that a provision be inserted into the FIC Bill requiring Accountable Institutions to gather prescribed background information on their customers

· In order to report what is suspicious or unusual about a customeCs activities, it is necessary to know what is usual for that customer

· Build transaction profile
· Monitor transactions against profile


ELECTRONIC TRANSFERS OF MONEY TO OR FROM THE REPUBLIC (Section 30)
Recommend that this provision be removed from the FIC Bill for the following reasons:
· Majority of transactions reported are legitimate
· Cost of processing, analysis and storage of vast quantities of data can be considerable

CONVEYANCE OF CASH TO OR FROM THE REPUBLIC (Section 32)
Recommend that this provision from the FIC Bill for the following reasons:
· Can be exploited by criminals actually to "explain" source of funds

· Costs incurred by enforcement I compliance agencies (mainly customs)

· Costs incurred for input of reports (normally hard copy reports) Difficult to achieve outbound enforcement

· Difficult to enforce compliance when currency is shipped or mailed


TAX EVASION (Section 29)
· Recommended that a specific provision be included in the FIC Bill to require the mandatory reporting of any suspicion of tax evasion

· Tax evasion is not necessarily the "source" or "cause" of the proceeds -therefore it is considered that there is no requirement to report any suspicion of tax evasion in terms of the FIC Bill

· Will bring our law in line with similar legislation in the US and Australia

REPORT BY REPORTING ACCOUNTANT
Recommend that a provision be inserted into the FIC Bill requiring the Reporting Accountant to evaluate the Accountable Institution's compliance with the FIC Bill for the following reasons:

· The Centre must supervise compliance with the FIC Bill

· The Centre will probably have resource constraints and not be able to perform this duty properly

· The Centre can adopt a risk-based approach when deciding which Accountable Institutions to visit and what aspects of compliance to test

· Reporting accountant's cost to be borne by Accountable Institutions