Draft sector risk assessment for company service providers

Draft sector risk assessment for company service providers

• 19 December 2023
• Money Laundering
• South African Accounting Academy

The sector risk assessment for company service providers provides information on the money laundering and terrorist financing risks facing these institutions when conducting business. 

This sector has been included in item 2 of Schedule 1 of the Financial Intelligence Centre Act, 2001 (Act 38 of 2001) since amendments to the Schedules were implemented in December 2022. 

The sector risk assessment serves to assist such company service providers in understanding their money laundering and terrorism financing risks and introduce measures that can be adopted by the sector to mitigate and manage such risks. 

In its definition of Designated Non-Financial Businesses and Professions (DNFPBs), FATF Recommendations 2023 states in paragraph (f) that the term trust and company service providers ”refers to all persons or businesses that are not covered elsewhere under these Recommendations, and which as a business, provide any of the following services to third parties: 

• Acting as a formation agent of legal persons 

• Acting as (or arranging for another person to act as) a director or secretary of a company, a partner of a partnership, or a similar position to other legal persons 

• Providing a registered office; business address or accommodation, correspondence or administrative address for a company, a partnership, or any other legal person or arrangement 

• Acting as (or arranging for another person to act as) a trustee of an express trust or performing the equivalent function for another form of legal arrangement 

• acting as (or arranging for another person to act as) a nominee shareholder for another person.”

Although the risks associated with trust service providers and company service providers are related, this document focuses only on company service providers.

Company service providers can also take different forms, from individual firms to subsidiaries of large financial institutions. Criminals may seek company service providers’ services to help them retain and expand control of the proceeds of their crimes while disguising the origin and ownership of these assets. Through the creation of shell companies or trusts, criminals can conceal their ownership and control, and create a veneer of legitimacy

Comments were due by close of business on 7 December 2023.

Click here to download the Draft SRA:

https://www.fic.gov.za/wp-content/uploads/2023/11/2023.11-Sector-Risk-Assessment-Company-service-providers.pdf 

Relevance to Auditors, Independent Reviewers & Accountants:

• The Financial Intelligence Centre Act (FICA) is yet another piece of legislation that your clients must comply with, and which you must assess compliance with.  Suppose they don’t comply with the relevant laws and regulations. In that case, you have certain reporting obligations in terms of NOCLAR (Non-Compliance with Laws And Regulations) – this could include reporting to management, qualifying your audit opinion, reporting a Reportable Irregularity, etc.

• As an auditor and independent reviewer, you need to consider amendments, regulations and guidance that the FIC publishes.

• As an accountant, you should be aware of the inherent money laundering and terrorist financing risks for accountants, and how to assess these risks.

Relevance to Your Clients:

• Relevant entities (specifically accountable institutions) must comply with the FIC Act, otherwise they could be held liable.

• Relevant entities should be aware of amendments, regulations and guidance that the FIC publishes.

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