Training obligations in terms of FICA

February 1st, 2018
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By Nkateko Nkhwashu

The Financial Intelligence Centre Act 38 of 2001 (FICA) came into effect in 2002. FICA, among others, made provision for the training of employees of accountable and reporting institutions. The objective, thereof, is to ensure proper compliance by the employees with the provisions of FICA. The duty to discharge this obligation rests (or rested) on the accountable institution itself and/or senior management. The accountable institution is required to appoint a person with the responsibility to ensure compliance and discharge this obligation. More often than not, the appointed person is a compliance officer or a money laundering reporting officer. The wording of s 43(b) of FICA used to be a source of confusion and uncertainty as it was open to different interpretations. For example, some argued that FICA placed an onerous responsibility on the appointed person as they were to ‘ensure’ compliance with FICA and not the accountable institution itself. This position has now been changed by the Financial Intelligence Centre Amendment Act 1 of 2017 (the Amendment Act). The wording of the Amendment Act makes it clear that the responsibility to ‘ensure’ compliance rests with the accountable institution (and/or top management) itself and not its appointee. The appointed person’s role is only to ‘assist’ the accountable institution (and/or top management) in complying with the provisions of FICA. I submit that this is in line with international best practice and the Generally Accepted Compliance Practice Framework of South Africa (SA).

The purpose of the paragraph above was simply to ascertain and show where the responsibility to ensure compliance with the provisions of FICA lies. It should, however, be noted that both FICA and the Amendment Act do not exempt the appointed person from personal legal liability where there is non-compliance with the law. An interesting case, with regard to personal liability, is the 2014 judgment in the case of the United States Department of the Treasury v Thomas E Haider Civ. No. 14-9987 (S.D.N.Y Dec. 18, 2014).

The main objective of this article, however, is not to discuss the role and responsibilities of the accountable institutions or staff appointees, but to question some of the reasons why the statutory obligation or need to offer staff-training has never been seriously implemented. Banks seem to be the biggest culprits in this regard, especially when dealing with the training of tellers. One only needs to step into a bank and ask a teller why there is the need to provide documentation when transacting (the often quoted FICA process). A typical response will be to say that that is how it has always been done or that is what the policy says.

Arguably tellers are the ‘first line of defence’ in the banks and as a result they are supposed to be able to know the intention behind certain legislative requirements. It is worrying to note that this has been happening under the rules-based or ‘tick-box’ prescriptive framework wherein all the relevant requirements have been spelled out by law. One then wonders what is going to happen under the new Risk-Based Regulatory Framework ushered in by the Amendment Act. Under the new regime, accountable institutions are given the discretion to choose how they will identify and verify customers. I submit that exercising such a discretion will need some form of continuous training and expertise. Furthermore, under the Amendment Act, failure ‘to provide training to … employees in accordance with Section 43’ is considered to be ‘non-compliant and is subject to an administrative sanction’. This should be considered within the context of ss 45C and 77(2)(c). The former makes provision for what constitutes an administrative sanction together with the relevant penalties. While the latter, (and most importantly) increases the prison term, as well as the financial penalty, under the Amendment Act, which are to be paid for any contravention or failure to comply with the regulations. Previously the prison term was six months and has now been increased to three years and the financial penalty was R 100 000 and has now been increased to R 1 million.

In order to understand some of the reasons why accountable institutions (bank tellers specifically) have little or limited knowledge of what the entire FICA process aims to achieve, one needs to look at some of the training programmes being offered to employees. Employees are offered the following programmes:

  • Awareness programmes, for example, videos, presentations and messages aimed at raising awareness regarding employee obligations. More often than not, employees are required to simply attend or undergo such programmes.
  • Formal training programmes – here there are clear training objectives and, on completion of the programme, employees are then assessed. Employees are required to attain an acceptable level of knowledge before they can be deemed to have successfully completed the programme.

Unfortunately, many accountable institutions opt for the first type of training programmes. Professor Louis de Koker (South African Money Laundering and Terror Financing Law (Durban: LexisNexis 2016)), who is an expert in the field of anti-money laundering and counter terrorist finance, seems to agree that one of the reasons why employees have limited knowledge of FICA, and thus are unable to discharge their obligations properly, is because ‘many institutions offer only awareness programmes’ (L de Koker (op cit) at 250). He further concedes that some of these comprehensive awareness programmes suffice to ensure compliance with the obligations of FICA, however, it becomes difficult to gauge whether the employees understand what is expected of them in terms of the law where no assessment is done at the end thereof. He also observes that ‘FICA does not prescribe the nature of the training that has to be offered’ or ‘the format of the training that has to be provided’ (L de Koker (op cit) at 250).

In addition to the observations and concerns raised above, it should be noted that in terms of FICA, accountable institutions (banks specifically), are regulated and supervised by both the Financial Intelligence Centre (FIC) and South African Reserve Bank (SARB), respectively. It is then worrying to note that this lax or limited compliance has been taking place under this dual ‘oversight’ or supervisory scheme.

I submit that one way to ensure that the statutory obligation to offer staff-training is taken seriously by accountable institutions is by way of touching on the nature or format of training that is to be provided, in either primary law itself or relevant secondary legislation. Increasing penalties for contravention of and/or failure to comply with the law is but one step in this process. For instance, the recently issued Anti-Money Laundering Draft Guidance for the Accountancy Sector (in the United Kingdom (UK), August 2017), makes provision for matters, which specifically speaks about training. On the other hand SA’s recently issued Guidance Note 7 on The Implementation of Various Aspects of The Financial Intelligence Centre Act, 2001 (Guidance Note 7) (www.fic.gov.za, accessed 15-1-2018) is silent in relation to training or matters connected therewith. The Amendment Act does, however, provide for on-going training of employees, which is good and in line with international best practice and standards. The UK’s draft guidance goes on further to talk to the frequency of training while also noting some of the reasons or factors, which may influence the frequency of such training including ‘changes in legislation, regulation, professional guidance, case law and judicial findings (both domestic and international), as well as by changes in the business’s risk profile and procedures’.

The UK draft guidance further goes on to state that ‘[i]n addition to training, businesses are encouraged to mount periodic [anti-money laundering] awareness campaigns to keep staff alert to individual and firm-wide responsibilities’. It should be noted that this guidance has been drafted within a risk-based environment and though high-level and not too detailed (as it should be) it provides some level of certainty and direction to those who are required to comply with the law. It further goes on to show that in the UK awareness campaigns or programmes are supplementary to the training obligation provided for in the law as opposed to the current situation in SA wherein accountable institutions may choose whichever method of training to use. Furthermore, in an environment wherein a risk-based approach is being introduced for the first time, in SA for instance, it would surely be helpful to have something similar in place (eg, within Guidance Note 7) in order to ensure the effectiveness of the entire framework.

Advantages of training employees

Before looking at some of the few advantages, which emanate from complying with the statutory obligation of training employees, it is important to note the following quote from the UK’s draft guidance which bears resemblance to the South African position:

‘The overall objective of training is not for “relevant individuals” to develop a specialist knowledge of criminal law. However, they should be able to apply a level of legal and business knowledge that would reasonably be expected of someone in their role and with their experience, particularly when deciding whether to make a report to the [Money Laundering Report Officer] MLRO.’

Complying with the statutory training of employees is advantageous to both the accountable institution  and employees themselves. In general, training employees is good for the accountable institution in that it then complies with the law and ‘limits its risks of being abuse[d] for money laundering purposes and its general exposure to fraud’ (L de Koker (op cit) at 250). For senior management and the appointed compliance officer, on the other hand, it protects them from exposure to personal liability where an administrative fine is imposed against the accountable institution by the relevant authorities. Where training is offered only through awareness programmes without assessments at the end thereof, it is in an employee’s best interest that they endeavour to really understand what is expected of themselves. The reason for this is there are legal risks, which an employee may be exposed to, for instance, ‘if an employee fails to identify and report a suspicious or unusual transaction, the contents of the programme may serve as evidence against him’ (L de Koker (op cit) at 250).  Furthermore ‘in terms of POCA [Prevention of Organised Crime Act 121 of 1998] and FICA a person’s knowledge, skill, training and experience is considered as part of the test to determine whether he or she acted negligently’ (L de Koker (op cit) at 250).

Conclusion

Training is regarded as one of the ‘7 pillars of compliance’ within FICA. I, however, submit that this obligation has not been implemented with the seriousness it deserves under the previous rules-based or ‘tick-box’ regulatory framework. One of the key reasons for this lax or limited compliance has been the fact that many accountable institutions always opted to offer awareness programmes with no assessments done at the end thereof in order to ascertain whether the trained employees have attained an acceptable level of knowledge in relation to their duties and obligations. Furthermore, the law together with relevant legal instruments offered little, to absolutely no guidance on this issue. The new ss 42A, 43 and 62 are a step in the right direction. However, Guidance Note 7, should have made provision (and elaborated a bit) on this obligation as well. Now with the coming into effect of the risk-based regulatory framework wherein accountable institutions and employees will be required to exercise discretion when implementing certain provisions of the law, the need for on-going training is more distinct than ever.

Nkateko Nkhwashu LLB (University of Venda) LLM (UJ) Cert in Legislative Drafting (UP) Cert in Compliance Management (UJ) Cert in Money Laundering Controls (UJ) Cert in Policy Development (Pro Active College) is an advocate at Empowerment Dynamics Consulting in Centurion. Mr Nkhwashu writes in his personal capacity.

This article was first published in De Rebus in 2018 (Jan/Feb) DR 30.

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