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More than R613.2m was frozen as suspected proceeds of crime – FIC reports

A lot of fraudulent activity was effectively picked up together with tax-related crimes in the past financial year: Michael Masiapato of the Financial Intelligence Centre.

FIFI PETERS: If you thought that criminals would possibly be deterred by the pandemic, then you thought wrong, because it looks like the number of reports produced by the Financial Intelligence Centre, the FIC, rose by 16% in the past year. These are financial crimes related to money laundering and terrorist financing among other things.

We have Michael Masiapato, the executive manager for monitoring and analysis at the FIC joining the Market Update to tell us more. Michael, thanks so much for your time. I see that criminals themselves did not ‘waste a good crisis’, as the saying goes. They got busier.

MICHAEL MASIAPATO: Thanks Madam Fifi, and good evening to you and the listeners. Indeed, the past financial year has been a very difficult financial year. I think we are all aware of what Covid has done to the rest of us. Of course, even ourselves in the Financial Intelligence Centre, when Covid hit and we had to go on a Level 5 lockdown, we actually had to leave the offices. On that basis, we had to adjust with the space and make sure that we provided a lot of capabilities for our colleagues to be able to operate off-site. To that extent we were able to adjust as quickly as possible and ultimately achieve all of the achievements that you have read through in the annual report …

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

MICHAEL MASIAPATO: The top leading ones were mainly, I would say, corruption. That was the biggest generator of the proceeds of crime that we dealt with. But of course within the context of corruption itself, there has been a lot of fraudulent activity that we effectively picked up together with tax-related crimes that we picked up during the past financial year. I would say fraud was more prevalent around the subverting of our systems around the Covid Relief Fund as … the government put it through.

FIFI PETERS: You recovered R3.3 billion. Where were these proceeds mainly from?

MICHAEL MASIAPATO: If you look into, I would say, the environment through which most of the I would say the proceeds were coming from, most were obviously coming out of the national coffers, across the government enterprises.

But in terms of our actual operations, as the Financial Intelligence Centre, we do receive suspicious transaction reports, mainly from the banking community as the most reported of the suspicious transaction reports.

Arising from that, we send out most reports to what we call our Section 40 stakeholders. And in this instance we are talking more of, for example, I would say the Hawks. But in terms of the recovery we are looking at the three key recovery institutions in the country: that would be the Asset Forfeiture Unit, which is within the national directorate from the prosecution, together with the colleagues from the Special Investigating Unit, as well as Sars.

But most of the profits were basically being siphoned out of the government coffers, working hand-in-hand with the private sector ultimately.

FIFI PETERS: What springs to mind in most people’s minds right now as they listen to this conversation, is the number of cases that we witnessed over the past year in which there were reports of crime and corruption related to the PPE – the personal protective equipment. I suppose my question then is if the FIC was able to recover some R3.3 billion over the course of the year, how much slipped through the cracks?

MICHAEL MASIAPATO: When we look at the issue of financial crimes broadly, you will get to realise that it is a very complicated enterprise, primarily because the people who are perpetrating financial crimes are highly sophisticated. So on that particular basis, I would say there will be a lot that have been leached through the value chain,

But just to give you some kind of context, especially around the Covid corruption-related matters, I think you would be aware that during the beginning of I would say the past financial year, especially after Covid hit, we actually developed or created what we call the Fusion Centre, which we are coordinating at the FIC. And in that particular environment we have brought in almost 14 of the stakeholders from across government, more importantly from the law enforcement side of things, into the FIC environment.

And for us to be able to catch as much as possible, we also created what is called SAMLIT, the South African Integrated Anti Money Laundering Task Force, which we created together with the banking community.

We did that so we can be able to work closely with the private sector, ourselves, as well as law enforcement – in order to ensure that we do not lose or release as much as it were.

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

FIFI PETERS: One of the figures that you have revealed is the R613 million that was frozen; these individuals had their accounts frozen due to suspected crime. Can you share any details with us on that?

MICHAEL MASIAPATO: What basically happened in terms of that figure you are referring to is basically what the FIC Act, Section 34, allows us to do. What we do is, as we work with the banking community, they are able to give us an alert to indicate that they suspect that a particular transactional activity is containing the proceeds of crime. Arising from that, we activate Section 35 of the Financial Intelligence Centre Act. And that provision allows us to interface with the bank and make sure that they stop the transaction on the basis of that particular suspicion.

Just to give context, if you look at the 2019/2020 financial year, you will realise that we only managed to do the freezing order, which is for 10 days of only R70 million, but just in the past financial year, it jumped to R630 million.

That is a 767% increase and gives you an indication of the intensity of the financial crimes that we observed during the course of the past financial year as contained in our annual report. And that is basically the context that shows you that [with] all of the measures that we put on the ground, particularly the establishment of the Fusion Centre, together with the establishment of SAMLIT, to make sure that there is a closer working relationship between ourselves and the banking community we’re able to catch a lot of this nefarious financial transactional activity.

FIFI PETERS: And how many arrests have there been?

MICHAEL MASIAPATO: If we can thus reflect on the basis of arrests only in the context of the work around Covid corruption, I can indicate to you now, for instance, that within the Fusion Centre, we are looking at over 276 cases.

Working together with law enforcement, as I’ve indicated, we are looking at around 740 individuals and we’re looking at 705 companies that we’re actually working on.

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

I think you might’ve seen a lot of work that has been taking place by the Special Investigating Unit, especially on this matter. You will realise that behind the work that they do we are actually working with them in providing financial intelligence, as well as financial analysis in terms of how the money has moved, in making sure that they move with speed in terms of asset recovery.

So what we have opted to do, Fifi, in this instance is … because of the length that it takes (for) criminal investigation, we need to hit hard in terms of asset recovery, and that’s why you see this big pick-up in terms of asset recovery. But we are continuing with investigations. There are those that get to be arrested by the Hawks…. And those are the kind of successes that came out of this work.

FIFI PETERS: Just lastly, how much of these financial crimes were conducted with cryptocurrencies? There is a view that in some corners this is actually done quite a lot, and the cryptocurrency and the blockchain world actually enables a lot more to slip through the cracks in the system because of the lack of transparency therein. How much did you see in terms of the cryptocurrency space?

MICHAEL MASIAPATO: If you look at the sketch in terms of cryptos, we are able to say now, not just in South Africa but globally, that the issue of money laundering is starting to move out of conventional financial activities and they are pushing it into the crypto environment. That is a very sophisticated environment, as you will be aware.

Therefore, in that instance, we have created a capacity within the Financial Intelligence Centre, and we call it an open-source centre. Part of the work that they do is to be able to enter into the Dark Web and be able to monitor some of the activities that are taking place.

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

For instance, just in the past financial year, we’ve also seen a situation where people were defrauded in another jurisdiction that’s close to us here in South Africa. Money moved into South Africa. It went into a normal banking account. From that banking account it then was flushed out through cryptocurrency into three countries. But at least we were able to interface with the crypto asset service provider in this instance and we were able to retrieve a bit of money.

But in terms of Covid corruption, because this has been done by less complicated criminals, it didn’t go much into the crypto space, it was mainly in the normal fiat currency.

FIFI PETERS: All right. Thank you for joining us. I and certainly the listeners understand the complexity of your work, and that you have your work cut out given the number of cases that are still outstanding. But we look forward to reporting on those developments, sir.

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

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Only 600 million. Some companies have half billions in PPE scandals. This number is garbage.

This number is a drop in the bucket considering what has been stolen… And then we have no assurance that the recovered funds are directed to where they were intended. For all we know, those funds are never correctly accounted for and make their way into other Cadre’s pockets. The ANC has proven it cannot be trusted at any point, through any process or for any period of time… and these are the people the poor and uneducatable keep voting for.

End of comments.





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