1. FINANCIAL INTELLIGENCE CENTRE
REPUBLIC OF SOUTH AFRICA
FINANCIAL INTELLIGENCE CENTRE
Presentation to Trade and Industry Portfolio Committee
22 August 2007

2. financial intelligence centre
REPUBLIC OF SOUTH AFRICA
Provide background information on the Financial Intelligence Centre and money laundering
Provide examples as to how interactive gambling may be used for money laundering purposes
Propose mitigating measures for combating the threat of money laundering in the interactive gambling industry

3. FINANCIAL INTELLIGENCE CENTRE
REPUBLIC OF SOUTH AFRICA
FINANCIAL INTELLIGENCE CENTRE
Objectives:
Principle objective of the Centre is to identify the proceeds of unlawful activities
Combat money laundering activities and the financing of terrorist and related activities
Make information collected by it available to investigating authorities, intelligence agencies and the South African Revenue Services
Exchange information with similar institutions in other countries

4. MONEY LAUNDERING financial intelligence centre
REPUBLIC OF SOUTH AFRICA
MONEY LAUNDERING
Is the process through which the proceeds of crime are made to appear as legitimately acquired funds or assets
Is done through a series of steps with the combined effect of concealing or disguising the true nature, source, location, disposition or movement of the proceeds

5. MONEY LAUNDERING financial intelligence centre B Crime generates money
REPUBLIC OF SOUTH AFRICA
MONEY LAUNDERING
Crime generates
money B
Funds from bank accounts used in host of transactions
Funds from various locations converged in apparently legitimate businesses B
Money deposited into various bank accounts
Funds from businesses enjoyed by criminals or re-invested in further crime

6. WHY COMBAT MONEY LAUNDERING
financial intelligence centre
REPUBLIC OF SOUTH AFRICA
WHY COMBAT MONEY LAUNDERING
It is inextricably linked to criminal activity
Undermines the integrity of the banking and financial systems
Undermines democracy and the rule of law
Takes the profit / incentive out of crime

7. MEASURES TO COMBAT MONEY LAUNDERING
financial intelligence centre
REPUBLIC OF SOUTH AFRICA
MEASURES TO COMBAT MONEY LAUNDERING
Identify customers
Keep records of customers and transactions
Report suspicious and unusual transactions
Institute internal controls

8. INTERNATIONAL STANDARD ON SUPERVISION
financial intelligence centre
REPUBLIC OF SOUTH AFRICA
INTERNATIONAL STANDARD ON SUPERVISION
Casinos must be subject to a comprehensive regulatory and supervisory regime
Casinos must be licensed to prevent criminals from having a controlling interest in a casino
Casinos must be effectively supervised for compliance with requirements to combat money laundering
This applies to all casinos, whether on-line or land-based

9. USE OF INTERACTIVE GAMBLING
financial intelligence centre
REPUBLIC OF SOUTH AFRICA
USE OF INTERACTIVE GAMBLING
Use of gaming facilities by on-line punters to transfer funds from one person to another and/or from one location to another
Use of on-line casino by operator as a front to receive funds from and to persons and/or locations

10. USE OF INTERACTIVE GAMBLING
financial intelligence centre
REPUBLIC OF SOUTH AFRICA
USE OF INTERACTIVE GAMBLING
Transfer from one account to another
Person instructs
on-line casino
to transfer
funds from
gambling account
to different
bank account
Person transfers
funds into
his on-line
gambling account
from a bank
account
Person conducts
minimal or
no gambling
Funds have moved from one account
and possibly from one person
and/or location to another with a
break in the transaction trail
in the on-line casino’s records

11. USE OF INTERACTIVE GAMBLING
financial intelligence centre
REPUBLIC OF SOUTH AFRICA
USE OF INTERACTIVE GAMBLING
Combination of on-line and land-based casino
Person draws credit
from on-line gambling
account in chips
while associate buys
small amount
of chips
Person transfers
funds into
his on-line
gambling account
from a bank
account
Person and
associate goes
into land-based
casino
Funds have moved from one
person and/or location to
another with a break in
the transaction trail
in the casinos’ records
Person hands chips to associate
who cashes out and receives a
cheque or bank transfer
from the casino

12. USE OF INTERACTIVE GAMBLING
financial intelligence centre
REPUBLIC OF SOUTH AFRICA
USE OF INTERACTIVE GAMBLING
Opposing losing and winning bets
One person then
deliberately loses
to the other
Two persons play
on-line poker in
a game where the
bets are not large
They place large
enough bets
to scare off
the other players
Funds have moved from one
person and/or location to
another with a break in
the transaction trail
in the casino’s records
The “winner” has the funds
paid into the bank
account of his choice

13. USE OF INTERACTIVE GAMBLING
financial intelligence centre
REPUBLIC OF SOUTH AFRICA
USE OF INTERACTIVE GAMBLING
Use by operator as a front
Criminal
associates register
as “gamblers”
Person acquires
domain and sets
up “on-line
casino” for
registered punters
only
Person opens
bank account for
on-line casino
Funds have moved from one
person and/or location to
another with a break in
the transaction trail
in the casinos’ records
“Gamblers” lose to the casino
and transfer funds from bank
accounts to casino account

14. AREAS OF CONCERN financial intelligence centre
REPUBLIC OF SOUTH AFRICA
AREAS OF CONCERN
International concerns over interactive gambling relate to features of an on-line casinos as internet-based (virtual) entities:
Non-face-to-face acquisition of customers
Ongoing relationship with customers in a virtual environment
Uncertainties about jurisdiction over business of virtual entities

15. AREAS OF CONCERN financial intelligence centre
REPUBLIC OF SOUTH AFRICA
AREAS OF CONCERN
Identification and verification of clients
Conventional methods of identifying clients cannot be applied where interaction takes place in a non-face-to-face environment
Possibility that individuals other than the account holder will be able to perform transactions on the account
Record-keeping
Impediments to ongoing money laundering investigations if records of electronic transfers and other South African financial transactions are located in foreign jurisdictions
Reporting of suspicious and unusual transactions
Absence of human intervention means less or no possibility to detect suspicious or unusual activity through on-line casino’s facilities

16. AREAS OF CONCERN financial intelligence centre Jurisdiction
REPUBLIC OF SOUTH AFRICA
AREAS OF CONCERN
Jurisdiction
Operators based outside South Africa where South African laws do not apply
Not always possible to determine where operator is based or which country has jurisdiction over activities
Supervision and enforcement
Capacity and resources to enforce licensing requirements and legal obligations on rogue or unlicensed operators
Difficulty to carry out probity checks if information is located off-shore
Impossible to carry out compliance examinations and checks where operation is located off-shore
Impossible to institute criminal investigation and prosecution against off-shore entities

17. RECOMMENDED MITIGATION MEASURES
financial intelligence centre
REPUBLIC OF SOUTH AFRICA
RECOMMENDED MITIGATION MEASURES
Require strict application of probity checks to ensure that criminals do not acquire a controlling interest in on-line casinos
Require methods preventing rogue or unlicensed on-line casinos from making (or continuing to make) their services available in South Africa
Require methods of preventing money flow to rogue or unlicensed on-line casinos
Require methods of forcing licensed operators to subject their operations to the jurisdiction of all South African laws
Require methods of forcing operators to establish a presence in South Africa which includes a locally based gateway to provide services to South African based gamblers

18. RECOMMENDED MITIGATION MEASURES
financial intelligence centre
REPUBLIC OF SOUTH AFRICA
RECOMMENDED MITIGATION MEASURES
Require methods of ensuring that compliance by on-line casinos with legal obligations such as customer identification will be supervised including the ability to examine compliance through inspection of on-line casino’s systems and records
Require methods of ensuring that supervisors can take action against licensed on-line casinos where they fail to comply with their legal obligations
Require methods to ensure that transaction related information will be held in South Africa where it can be accessed by South African law enforcement agencies

19. THANK YOU FOR YOUR ATTENTION!
financial intelligence centre
REPUBLIC OF SOUTH AFRICA
THANK YOU FOR YOUR ATTENTION!