RETIREMENT FUNDS RISK BEING USED FOR MONEY LAUNDERING
The FIC Act contains a number of control measures aimed at facilitating the detection of money laundering and terrorist financing, and imposes specific responsibilities on 'accountable institutions' that relate to their business relationship with clients. Interestingly, a fund established under the Pension Funds Act 24 of 1956 is not an accountable institution for the purposes of the FIC Act and is not subject to the majority of its obligations, for example, verifying the identities of its 'clients', the fund members.
However, this does not mean that retirement funds are exempt from complying with the FIC Act. Section 29 of the Act imposes a broader reporting of "suspicious and unusual transactions" obligation on any "person who carries on a business or is in charge of a business or who is employed by a business", which would include the business of a retirement fund, to file a prescribed report with the FIC. The boards of retirement funds and their administrators need to appreciate that, like any other financial institution, funds could be used for money laundering purposes. Members should be alerted to the fact that funds have these legal obligations.
This would serve two purposes: if inquiries are made of members, they will understand the fund's reasons for doing so; and, to discourage potential money laundering by making it clear that the fund is aware of its legal obligations. Funds should not 'blindly' accept deposits from members and should be alert to suspicious and unusual transactions. These could include additional voluntary contributions on a regular basis or a large lump sum contribution soon before a member's retirement date, or soon before the member leaves the fund for other reasons.
What is important is that funds have appropriate control measures to pick up suspicious financial activity before making the necessary inquiries. They could, for example, ask their administrators to flag deposits above a certain amount or made in specific circumstances.
Members should be requested to disclose the source of the funds, or the circumstances that have enabled them to make additional deposits - for example, the redemption of another investment, the sale of property, or the consolidation of retirement fund savings. Funds should also request supporting documentation.
Most of the time, members have legitimate reasons for making additional deposits. However, in order to comply with their legal obligations under the FIC Act, funds do need to have the necessary procedures in place and make the necessary inquiries when circumstances warrant it.