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Cablegate: South Africa: Financial Intelligence Centre's

This record is a partial extract of the original cable. The full text of the original cable is not available.

UNCLAS SECTION 01 OF 03 PRETORIA 004865

SIPDIS

SENSITIVE BUT UNCLASSIFIED

EB/ESC/TFS, S/CT, INL/C, IO/PHO, TREASURY OFAC

E.O. 12958: N/A
TAGS: KTFN KVPR EFIN PTER ETTC PREL SF
SUBJECT: SOUTH AFRICA: FINANCIAL INTELLIGENCE CENTRE'S
FIRST FULL YEAR REVIEW

(U) This cable is sensitive but unclassified. Not for
Internet distribution.

1. (U) Summary. South Africa's Financial Intelligence Centre
(FIC) released its 2003-04 Annual Report in early October.
In its first full year of operation, the FIC received almost
7,500 suspicious transaction reports (STRs). The FIC is now
turning its attention to raising the quality of STRs,
recruiting and training its employees, and improving
coordination with law enforcement agencies. Still pending is
terrorist financing legislation that mandates the seizure of
terrorist assets. As they build their institution, FIC
officials seem very open to U.S. training programs and
exchanges. The complete annual report may be found at:
http://www.fic.gov.za under "Documents." End Summary.

Suspicious Transaction Reports
------------------------------

2. (U) On October 4, South Africa's Financial Intelligence
Centre (FIC) released its annual report covering 2003-04. In
its first full year of operation the FIC received 7,480
suspicious transaction reports (STRs) through March 2004.
The number of reports exceeded what was anticipated and
placed South Africa "at the higher end of international
experience." The critical statistic was how many STRs led to
criminal investigations, but the FIC was not publicizing this
figure. (Comment: We believe that this number is very low.
End Comment.)

3. (U) An FIC official admitted to Econoff that the quality
and consistency of STRs needed to be improved and that for
this to happen, training was key. While all South African
banks received general guidelines on how to train their
staff, it was up to each to implement a training program. At
the upper end, one of the largest South African banks had
managed to train nearly 95% of its employees. Training was
essential if the FIC was to obtain complete information on
suspected criminal activity.

4. (U) During the past year, the FIC averaged between 500 and
700 STRs monthly. Money remitters (i.e., wire transfer
services) and banks submitted the bulk of them -- 4,079 and
2,732 reports, respectively. Other reports came from coin
dealers, individuals, casinos, brokers, and law enforcement
agencies. These sources mirrored international experience.
Normally, financial institutions collected STR information
manually before management determined whether a suspicious
transaction should be reported. The FIC received over 90% of
all STRs electronically with the remaining sent by fax or
delivered by hand. Most South African banks were aware of
automated software that could assist them with the internal
information collection and reporting process, but have not
yet invested in it.

Complaints
----------

5. (U) Both FIC and Banking Council officials commented on
the difficulty that banks had transferring money if it went
through a U.S. institution. This difficulty was because of
the disparity between the U.S. Office of Foreign Assets
Control (OFAC) Specially Designated Nationals (SDN) List and
the U.N. 1267 Sanctions Committee List (the one that South
Africa adhered to). The danger was that if a South African
bank customer was entering into a transaction with a
U.S.-identified suspected terrorist organization or
individual, and the customer's transaction was handled in any
way by a U.S. bank, the customer's assets could be frozen by
that U.S. bank. This caused some banks to simply avoid doing
business with U.S. banks whenever possible.

6. (U) Many banks felt as if the FIC reporting obligations
were burdensome and hampered their efforts to attract new
customers. For example, "Know Your Customer" requirements
mean that account holders must present identifying documents
to their banking institutions in person or risk having their
accounts frozen. The measure was designed to prevent
suspicious transactions, but has become an administrative
nightmare. At the banks request, the South African National
Treasury extended the June 30, 2004 deadline according to a
staggered timetable wherein higher risk customers must meet
an earlier deadline and lower risk customers a later
deadline. October 31, 2004 was the deadline for banks to
report on all nonresident account holders, trusts, and
partnerships as well as 20% of high-risk clients. Meeting
this deadline was not a problem for the high-risk clients,
but it has been for trusts and partnerships, where compliance
appears to be very low. Banks have 15 days to before they
must freeze the non-compliant accounts or face large fines
and prosecution, which could result in imprisonment. The
final "Know Your Customer" deadline is September 30, 2006.

Legislation Needed
------------------

7. (U) South Africa still does not have the legal means to
deal comprehensively with suspected terrorist financing.
Banks report to the South African Reserve Bank (SARB) every
six months on any U.N.-designated terrorist activity, but
there is no law mandating that they freeze assets unless the
activity has been linked to a specific crime in South Africa.
South African law also does not currently have cash
threshold or cross-border reporting requirements for banks.
The Parliamentary Select Committee on Security and
Constitutional Affairs is debating draft legislation that
recognizes terrorist activity as a threat to the country,s
safety and mandates the seizure of terrorist assets. This
legislation could be approved by the end of the year, and
would coincide with the Financial Action Task Force's (FATF)
evaluation recommendations for South Africa put forth last
year.

Institution Building
--------------------

8. (U) When the FIC became independent from the National
Treasury in November 2003, it had to start from scratch to
create a new agency. It soon found that reaching its goal of
hiring 75 employees by March 2005 without a personnel
department was not going to happen. Now, with a personnel
department in place, the FIC has relaunched its recruitment
drive and hopes to surpass its original goal of 75 employees.

9. (U) In the last year, the FIC has made considerable
headway in building its capabilities and credibility in the
South African law enforcement community. Initially, the
FIC's nascent database on suspected criminal activities did
not contain much information and law enforcement agencies
were not aware of how the FIC might help them with their
investigations. The FIC's database is more useful now,
enabling the FIC to adopt a proactive approach toward
assisting law enforcement agencies by regularly searching for
information on a known case to support a criminal
investigation. By showing that it can add value to an
investigation, the FIC has been gaining credibility among law
enforcement agencies. During its first full year of
operation, the FIC received 161 information requests from
local (105) and international (56) law enforcement agencies.
FIC officials expect these numbers to rise.

Training: Detection of Terrorist Financing
------------------------------------------

10. (SBU) Ursula M'Crystal, Head of FIC Prevention and
Compliance, told Econoff that the FIC welcomed future
training opportunities from U.S. agencies, such as the
Financial Crimes Enforcement Network,s (FinCEN). She
specifically requested training on how to detect terrorist
financing in the absence of specific intelligence. (Note:
M'Crystal also encouraged us to proactively share any
intelligence information with the FIC that we can. End
note.)

11. (U) FIC's Annual Report highlighted the important
contribution that FinCEN,s analysis training made to FIC's
development. Other international training programs
highlighted included the British High Commission's financial
crimes investigator training and a future one-year university
certificate program in financial crimes investigation. We
would add that the videoconference on October 13 with John
Byrne of the American Bankers Association on the U.S. Patriot
Act attracted more than 100 FIC officials, bankers, and
regulators. The event was co-hosted by the Money Laundering
Forum and the Johannesburg Consulate and held at Investec (a
South African investment bank).

Comment
-------

12. (SBU) South Africa deliberately chooses to rely upon U.N.
designation lists, rather than the U.S. OFAC list. As far as
we know, the FIC does not enter our list into its database.
We will continue to encourage South Africa to use our lists
as much as possible, track pending terrorist financing
legislation in Parliament, and report on FIC's progress. The
FIC and banking industry have made significant progress in
the detection of financial crimes, but could use some help.
We believe that the FIC is open to further cooperation with
FinCEN and to participating in international training
programs.
FRAZER

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