Wednesday, January 26

More than R613.2m were frozen as suspected proceeds of crime: FIC reports

FIFI PETERS: If you thought the pandemic could deter criminals, then you thought wrong, because it appears that the number of reports produced by the Center for Financial Intelligence, the FIC, increased by 16% last year. These are financial crimes related to money laundering and terrorist financing, among others.


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We have Michael Masiapato, executive manager of monitoring and analysis of the FIC who joins Market Update to tell us more. Michael, thank you very much for your time. I see that the criminals themselves did not “waste a good crisis”, as the saying goes. They got busier.

MICHAEL MASIAPATO: Thank you, Mrs. Fifi, and good evening to you and to the listeners. In fact, the past year has been a very difficult one. I think we are all aware of what Covid has done to the rest of us. Of course, even ourselves at the Financial Intelligence Center, when Covid attacked and we had to go to a Level 5 lockdown, we actually had to leave the offices. On that basis, we had to adapt to the space and make sure to provide plenty of capabilities so that our colleagues could operate off-site. To that extent, we were able to adjust as quickly as possible and ultimately achieve all the accomplishments you have read in the annual report …

FIFI PETERS: And what were the most prominent types of financial crimes that occurred in the last financial year?

MICHAEL MASIAPATO: The main leaders were mainly, I would say, corruption. That was the biggest generator of proceeds of crime we were faced with. But of course, within the context of corruption itself, there has been a great deal of fraudulent activity that we actually detected alongside the tax-related crimes that we detected over the past financial year. I’d say fraud was most prevalent around the subversion of our systems around the Covid Relief Fund when … the government did.

FIFI PETERS: You recovered 3.3 billion rand. Where does this income mainly come from?

MICHAEL MASIAPATO: If you look at, I would say, the environment through which most of the profits, I would say, came, most obviously came out of the national coffers, through government companies.

But in terms of our actual operations, as a Financial Intelligence Center, we receive suspicious transaction reports, primarily from the banking community, as the most informed of the suspicious transaction reports.

From there, we send most of the reports to what we call our Section 40 concerned parties. And in this case we are talking more about, for example, I would say the Hawks. But in terms of recovery, we are looking at the three key recovery institutions in the country: that would be the Asset Confiscation Unit, which is within the National Prosecutor’s Office, along with colleagues from the Special Investigation Unit, as well as Sars.

But most of the profits were being drawn primarily from government coffers, ultimately working hand-in-hand with the private sector.

FIFI PETERS: What comes to mind in most people’s minds right now while listening to this conversation is the number of cases we witnessed over the past year where there were reports of crime and corruption related to the PPE – the team of personal protection. I guess my question then is if the FIC was able to recover about R3.3 billion over the course of the year, how much leaked through the cracks?

MICHAEL MASIAPATO: When we look at the topic of financial crime in general, you will find that it is a very complicated business, mainly because the people who commit financial crimes are very sophisticated. So on that particular basis I would say there will be a lot that has seeped through the value chain,

But just to give you some kind of context, especially around Covid corruption-related matters, I think you’ll know that during the beginning of last financial year, especially after the Covid coup, we actually developed or created what we wanted. call the Fusion Center, which we are coordinating at the FIC. And in that particular environment, we have brought nearly 14 of the stakeholders from across government, most importantly on the law enforcement side, to the FIC environment.

And so that we can capture as much as possible, we also created what is called SAMLIT, South Africa’s Integrated Anti-Money Laundering Task Force, which we created together with the banking community.

We did it so we can work closely with the private sector, ourselves, and law enforcement to ensure that we don’t lose or release as much as we used to.

I can give you the numbers in terms of what the Fusion Center was able to do. We did all of that to make sure we didn’t lose that much, but I can assure you that sometimes there are actions that we couldn’t. [take].

FIFI PETERS: One of the figures it has revealed is the R613 million that were frozen; these people had their accounts frozen due to an alleged crime. Can you share any details with us about it?

MICHAEL MASIAPATO: What basically happened in terms of that figure you are referring to is basically what the FIC Law, Section 34, allows us to do. What we do is, as we work with the banking community, they can give us an alert to indicate that they suspect that a particular transactional activity contains the proceeds of crime. From that, we activated Section 35 of the Law of the Financial Intelligence Center. And that provision allows us to interact with the bank and make sure it stops the transaction based on that particular suspicion.

Just to give context, if you look at the financial year 2019/2020, you will realize that we only managed to do the freeze order, which is for 10 days of only R70 million, but in the last financial year alone, it jumped to 630 million. rand.

That’s a 767% increase and it gives you an indication of the intensity of financial crime that we observed over the course of the last fiscal year, as shown in our annual report. And that’s basically the context that shows you that [with] all the measures we put in place, in particular the establishment of the Fusion Center, along with the establishment of SAMLIT, to ensure that there is a closer working relationship between us and the banking community that we can capture much of this nefarious activity transactional financial.

FIFI PETERS: And how many arrests have there been?

MICHAEL MASIAPATO: If, therefore, we can reflect on the basis of the arrests only in the context of the work around Covid corruption, I can point out to you now, for example, that within the Fusion Center, we are analyzing more than 276 cases.

Working together with law enforcement, as I have indicated, we are analyzing about 740 people and we are analyzing 705 companies that we are actually working on.

But up to this point, if you can appreciate the fact that we deal with financial crimes, which are complex, just in one financial year we were able to have around 33 being charged in connection with 18 criminal cases. And to that extent, you could see that there has been some movement in terms of arrests that have actually happened. But in terms of both complicated cases, we are currently busy with the investigation.

I think you may have seen a lot of work done by the Special Investigation Unit, especially on this matter. You will find that behind the work they do, we are actually working with them to provide them with financial intelligence, as well as financial analysis in terms of how the money has moved, to make sure they move quickly in terms of asset recovery. .

So what we’ve chosen to do, Fifi, in this case is … because of the length of time it takes (for) the criminal investigation, we have to hit hard in terms of asset recovery, and that’s why you see this big rebound in terms of asset recovery. But we continue with the investigations. There are those who get arrested by the Hawks…. And those are the kind of hits that came out of this work.

FIFI PETERS: Lastly, how many of these financial crimes were carried out with cryptocurrencies? There is an opinion that in some corners this is done a lot, and the cryptocurrency and the world of the blockchain allow much more things to escape through the cracks of the system due to the lack of transparency in it. How much did you see in terms of cryptocurrency space?

MICHAEL MASIAPATO: If you look at the scheme in terms of cryptocurrencies, we can say now, not just in South Africa but globally, that the issue of money laundering is starting to move out of mainstream financial activities and is being pushed into the crypto environment. . That is a very sophisticated environment, as you may know.

So, in that case, we have built a capability within the Financial Intelligence Center, and we call it an open source hub. Part of the work they do is being able to enter the Dark Web and be able to monitor some of the activities that are taking place.

But in terms of directly answering your question on how much in terms of what we have worked on … I will say that the environment is a work in progress. But we have success stories.

For example, in the last financial year alone, we have also seen a situation where people were defrauded in another jurisdiction close to us here in South Africa. The money moved to South Africa. He entered a normal bank account. From that bank account, it was then downloaded via cryptocurrency in three countries. But at least we were able to interact with the crypto asset service provider in this case and we were able to get some money back.

But in terms of Covid corruption, because this has been made less complicated by criminals, it did not enter the crypto space much, it was mainly in normal fiat currency.

FIFI PETERS: It’s okay. Thanks for being with us. I and certainly the listeners understand the complexity of your work, and that you have a lot of work to do given the number of cases that are still pending. But we hope we can report on those developments, sir.

Michael Masiapato is the executive director of monitoring and analysis at the FIC.

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