Cross-Border Financial Flows Financial Surveillance Department September 2015

The role of the Financial Surveillance Department Delegated functionary of the Minister of Finance Responsible for the monitoring of cross-border transactions to prevent the loss of foreign currency resources constitute an effective system of control over the inward and outward movement of financial and real assets avoid interference with the efficient operation of the commercial, industrial and financial system Powers and functions in terms of the Exchange Control Regulations promulgated under the Currency and Exchanges Act, 1933 (Act No. 9 of 1933) Supervisory body in terms of the Financial Intelligence Centre Act, 2001 (Act No. 38 of 2001) 2

Relevant powers and functions Requirement that all foreign exchange transactions are reported by Authorised Dealers Investigation of unauthorised foreign exchange transactions “Freezing” of bank accounts Recoupment of capital exported illegally Forfeiture of funds/assets to the National Revenue Fund Seizure of unauthorised currency at ports of entry/exit Wide discretion to impose conditions in respect of cross-border transactions prior approvals for specific transactions entered into Prohibit certain transactions e.g. online gambling 3

Illicit financial flows Illicit financial flows versus capital flight illicit financial flows involve criminal activity or breach of a statutory duty/law capital flight not necessarily related to criminal activity Trade misinvoicing/mispricing misrepresenting the price or quantity of imports or exports in order to hide or accumulate money in other jurisdictions motivated by tax evasion, avoiding Customs duties, transfer a kick-back or launder money 4

Successes and challenges Dramatic increase in the detection of IFF, especially relating to trade mispricing in excess of R100 million blocked over the past nine months deterred further IFF several matters referred to other agencies Challenges Preservation of audit trail versus removal of red tape Legal barriers in setting up effective multi-agency task teams and sharing of information Proactive approach versus reactive approach (need to act immediately when possible IFF or BEPS identified) 5

Possible future role of the South African Reserve Bank Flexibility in our legal framework – can incorporate anti-BEPS and IFF measures e.g. tax clearance; disclosure of beneficial ownership of legal entities; exchange of information; prohibition of loop structures consider a general provision in the Regulations that transactions concluded for the purpose/intention of BEPS is void ab initio As the regulator of cross-border transactions, SARB is well positioned to play a more prominent role in the detection, deterrence and disruption of illicit financial flows 6