Chapter 3

Money-laundering Legislation

Overview

This chapter deals with the law’s response to the phenomenon of money-laundering. South African law makes provision for one of the broadest ranges of money-laundering offences in the world. This is mainly based on the fact that any underlying criminal activity can lead to a charge of one of the money-laundering offences. This is in contrast to most other jurisdictions where money-laundering offences relate only to a specified list of underlying criminal activities or, at the most to ‘serious offences’, in general.

The development of these provisions is explored by briefly considering the legislation that made provision for particular money-laundering offences. These include the offence referred to in the Drugs and Drug Trafficking Act of 1992, as the "conversion of the proceeds of a defined crime" and the money-laundering offences included in the Proceeds of Crime Act of 1996.

An analysis is made of the relevant offences included in of the Prevention of Organised Crime Act of 1998. These are money-laundering, assisting another to benefit from the proceeds of unlawful activities, the acquisition, possession or use of the proceeds of unlawful activities, and the failure to report suspicion regarding the proceeds of unlawful activities. In each case, the elements of the offence are discussed and a few examples of what may happen in practice are given.

South Africa also has a structure for the recovery of the proceeds of criminal activity that is advanced in comparison to other proceeds of crime models. The South African model comprises a conviction-based confiscation procedure, as well as a so-called civil forfeiture procedure without requiring a conviction.

This chapter also examines the procedures identified in the Prevention of Organised Crime Act for the recovery of the proceeds of criminal activity. The steps involved in these procedures are explained and the procedures are distinguished from one another.

A brief legal history

The manipulation of the proceeds of crime first drew the attention of the legislature in 1992. Since then, legislation dealing with money-laundering, as well as the forfeiture of the proceeds of criminal activities has undergone a number of changes in an ongoing process that has not yet reached a conclusion.

Drugs and Drug Trafficking Act

A specified money-laundering offence first appeared on South Africa’s statute book in the Drugs and Drug Trafficking Act of 1992. The offence in the act read as follows:

Conversion of proceeds of defined crime

No person shall convert any property, while he knows or has reasonable grounds to suspect that any such property is the proceeds of a defined crime.

"Convert" was defined in section 1 of the act:

‘convert’, in relation to property, includes -

(a) any agreement or understanding in connection with the property, whether any such agreement or understanding is legally enforceable or not; or

(b) any other act in connection with the property, whether any such act is performed independently or in concert with other persons,

which has or is likely to have the effect -

(i) of concealing or disguising the nature, source, location, disposition or movement of the property or its ownership or any interest with respect thereto; or

(ii) of enabling or assisting any person who has committed or commits, whether in the Republic or elsewhere, a drug offence or an economic offence -

(aa) to avoid prosecution; or

(bb) to remove or to diminish any property, or any part thereof, realized directly or indirectly by him as a result of the commission of the said offence, or to use it in order to obtain funds, investments or other property …

A defined crime in terms of the Drugs and Drug Trafficking Act referred to a drug offence, or the conversion of proceeds derived from a drug offence.

The definition of "convert" in the act formed the basis for future descriptions of money-laundering that were to follow in South African legislation.

The scope of this first example of a money-laundering offence in South African legislation was limited to the laundering of the proceeds of drug offences. Laundering activities that fell outside this scope did not amount to an offence unless the methods used to bring about the misrepresentation of the source of the proceeds constituted another offence such as fraud or obstructing justice.

In order to combat money-laundering in these circumstances, investigating and prosecuting authorities were constrained to rely on individual fraudulent transactions or other criminal actions that made up a money-laundering scheme. However, the separate transactions that constitute a money-laundering scheme are usually designed to appear totally innocent when seen in isolation. This method was therefore inadequate to combat money-laundering.

The fact that money-laundering was not in itself an offence had the effect that investigators were precluded from devoting time and resources to the detection and investigation of such schemes. Consequently, very little resources, if any, were devoted to develop the skills and other resources needed to investigate money-laundering, even in terms of the conversion offence stipulated in the Drugs and Drug Trafficking Act.

There are no reported cases referring to prosecutions for the conversion offence under the act and, as far as could be established, no prosecutions were ever instituted in terms of this offence.

Apart from the conversion offence, the Drugs and Drug Trafficking Act also provided for the duty to report suspicious activities:23

If any director, manager or executive officer of a financial institution has reason to suspect that any property acquired by the financial institution from any person in the ordinary course of the financial institution’s business is the proceeds of a defined crime, he shall -

(a) as soon as possible report his suspicion to any designated officer; and

(b) at the request of that designated officer, furnish the said officer with such particulars as he may have available regarding any such person.

This duty entailed the reporting of a suspicion that property acquired by an individual or institution in question is the proceeds of a drug offence. The report had to be made to a designated officer. The duty applied to directors, managers or executive officers of banks, insurers and unit trust management companies, as well as to stockbrokers.

Discussions with officials of the SAPS who dealt with reports in terms of this provision and employees in financial institutions indicated that it was applied in practice. Reports were mainly received from banks, a fact which is borne out by figures for 1994 given at a money-laundering seminar:

The Drugs and Drug Trafficking Act also contained a procedure for the confiscation of the proceeds of drug-trafficking and of the conversion offence.25 It could only be instituted after an accused was convicted of a drug offence. The confiscation order that the court could make was for the payment of a sum of money. The amount of this order, based on the court’s belief, represented the accused’s benefit from the offence. As far as could be established, this provision was applied once in April 1995 in the Pretoria Regional Court.26

The provision for the confiscation procedure was repealed by the Proceeds of Crime Act of 1996. The conversion offence and the reporting duty of the Drugs and Drug Trafficking Act were repealed by the Prevention of Organised Crime Act of 1998.

Proceeds of Crime Act

The next step in the legislative process was the introduction of a range of offences to deal with money-laundering activities as enacted in the Proceeds of Crime Act of 1996. The first of these was money-laundering27, which is defined as follows:

Money laundering

28. Any person who, knowing or having reasonable grounds to believe that property is or forms part of the proceeds of crime -

(a) enters into any agreement or engages in any arrangement or transaction with anyone in connection with that property, whether such agreement, arrangement or transaction is legally enforceable or not; or

(b) performs any other act in connection with such property, whether it is performed independently or in concert with any other person,
which has or is likely to have the effect -

(i) of concealing or disguising the nature, source, location, disposition or movement of the said property or its ownership or any interest which anyone may have in respect thereof; or

(ii) of enabling or assisting any person who has committed or commits an offence, whether in the Republic or elsewhere -

(aa) to avoid prosecution; or

(bb) to remove or diminish any property acquired directly or indirectly as a result of the commission of an offence,

shall be guilty of an offence.

The Proceeds of Crime Act also introduced two new offences: assisting another to benefit from the proceeds of crime, and the acquisition, possession or use of such proceeds:28

Assisting another to benefit from proceeds of crime

29. Any person who knowing, or having reasonable grounds to believe, that another person has obtained the proceeds of crime, enters into any agreement with anyone or engages in any arrangement whereby –

(a) the retention or the control by or on behalf of the said other person of the proceeds of crime is facilitated; or

(b) the said proceeds of crime are used to make funds available to the said other person or to acquire property on his or her behalf or to benefit him or her in any other way,
shall be guilty of an offence.

Acquisition, possession or use of proceeds of crime

30. Any person who acquires or uses or has possession of property knowing, or having reasonable grounds to believe, that it is or forms part of the proceeds of crime of another person, shall be guilty of an offence, unless such a person reports his or her suspicion or knowledge as contemplated in section 31.

The money-laundering offence as identified in the Proceeds of Crime Act can therefore be described as the performing of any act that may result in concealing the nature of the proceeds of crime, enabling a person to avoid prosecution, or diminishing such proceeds.

With the provision for the money-laundering offence, the Act introduced the principle that the laundering of proceeds from any type of underlying criminal activity should be punishable. This extended the scope of the money-laundering offence considerably in comparison to the conversion offence of the Drugs and Drug Trafficking Act.

This offence could be applicable, on the one hand, to a criminal who had committed some criminal activity and, after obtaining proceeds from the activity, entered into a transaction to launder these proceeds. On the other hand, it could also apply to an individual who did not initially obtain such proceeds, but who laundered the proceeds through a transaction with the criminal who acquired the proceeds.

The offences of assisting another to benefit from the proceeds of crime, and of the acquisition, possession or use of such proceeds were introduced to deal with individuals who became involved in some of the later stages, or some of the isolated parts of a money-laundering scheme.

There are no reported cases referring to prosecutions for the money-laundering offence or the two related offences under the Proceeds of Crime Act and, as far as could be established, no prosecutions were ever instituted in terms of these money-laundering offences.

The Proceeds of Crime Act also extended the reporting duty first introduced by the Drugs and Drug Trafficking Act:29

Failure to report suspicion regarding proceeds of crime

31(1) Any person who carries on a business or is in charge of a business undertaking who has reason to suspect that any property which comes into his or her possession or the possession of the said business undertaking forms the proceeds of crime, shall be obliged to report his or her suspicion and the grounds on which it rests, within a reasonable time to a person designated by the Minister and shall take all reasonable steps to discharge such obligation: Provided that nothing in this section shall be construed so as to infringe upon the common law right to professional privilege between an attorney and his or her client in respect of information communicated to the attorney so as to enable him or her to provide advice, to defend or to render other legal assistance to the client in connection with an offence under any law, of which he or she is charged, in respect of which he or she has been arrested or summoned to appear in court or in respect of which an investigation with a view to instituting criminal proceedings is being conducted against him or her.

(2) Any person who fails to comply with an obligation contemplated in subsection (1) shall be guilty of an offence.

(3)(a) No obligation as to secrecy and no other restriction on the disclosure of information, whether imposed by any law, the common law or any agreement, shall affect any obligation imposed by subsection (1).

(b) No liability based on a breach of an obligation as to secrecy or any restriction on the disclosure of information, whether imposed by any law, the common law or any agreement, shall arise from a disclosure of any information in compliance with any obligation imposed by subsection (1).

The duty in terms of section 31 of the Proceeds of Crime Act applied to every individual involved in or in charge of a business undertaking. The duty entailed that all such persons had to report their suspicions that property coming into their possession is the proceeds of crime.

Reports in terms of this provision were made to the Commercial Crime Branch of the SAPS. Similar to reports under the Drugs and Drug Trafficking Act, the majority of reports were received from banks.

The Proceeds of Crime Act also contained a procedure for the confiscation of the proceeds of crime.30 This procedure is similar to that in the Drugs and Drug Trafficking Act. It could only be instituted after the conviction of an accused of a profit-generating crime such as fraud, theft, drug-trafficking and others. The court could make a confiscation order for the payment of a sum of money. The amount of this order, in the court’s belief, represented the accused’s benefit from the offence.

The confiscation procedure of the Proceeds of Crime Act was applied at least three times. In one of the cases the Durban and Coast Local Division of the High Court made an order for the confiscation of R1.2 million, representing the benefit derived from contraventions of import and export regulations.31

The law in other African countries

There are a number of African countries where money-laundering in one form or another is criminalised.

In Botswana, the Proceeds of Serious Crime Act, no 19 of 1990, criminalises the laundering of property derived from serious offences. The Zimbabwean Serious Offences (Confiscation of Profits) Act, no 12 of 1990, criminalises money-laundering in respect of property derived from serious offences. In Zambia, the Dangerous Drugs (Forfeiture of Property) Act, no 7 of 1989, criminalises money-laundering in respect of drug-trafficking. In Tanzania, the laundering of the proceeds of serious offences is criminalised in the Proceeds of Crime Act, no 25 of 1991. The Drug Control Act of 1993 in The Gambia criminalises the laundering of property derived from drug-trafficking. The same approach is followed in the Money Laundering Decree of 1995 of Nigeria that criminalises money-laundering in respect of the proceeds of drug-trafficking.

It is interesting to note that all of the money-laundering offences referred to above predate the definition of money-laundering offences of the South African Proceeds of Crime Act.

The current law in South Africa: Prevention of Organised Crime Act

The current provisions dealing with the manipulation of the proceeds from unlawful activities are contained in the Prevention of Organised Crime Act of 1998. With the promulgation of the act, the whole of the Proceeds of Crime Act was repealed. The majority of the provisions of the Proceeds of Crime Act were incorporated into the Prevention of Organised Crime Act, some with slight amendments.

Money-laundering

One of the provisions that has been included in the Prevention of Organised Crime Act is the offence of money-laundering.32 The offence is defined in the act as follows:

Money laundering

4. Any person who knows or ought reasonably to have known that property is or forms part of the proceeds of unlawful activities and -

(a) enters into any agreement or engages in any arrangement or transaction with anyone in connection with that property, whether such agreement, arrangement or transaction is legally enforceable or not; or

(b) performs any other act in connection with such property, whether it is performed independently or in concert with any other person,

which has or is likely to have the effect -

(i) of concealing or disguising the nature, source, location, disposition or movement of the said property or the ownership thereof or any interest which anyone may have in respect thereof; or

(ii) of enabling or assisting any person who has committed or commits an offence, whether in the Republic or elsewhere -

(aa) to avoid prosecution; or

(bb) to remove or diminish any property acquired directly, or indirectly, as a result of the commission of an offence,

shall be guilty of an offence.

This laundering offence is generally applicable and widely defined. It is not limited by referring to the type of underlying criminal activity from which the laundered proceeds are obtained, nor to the method used to launder these proceeds.

The action, which is one of the elements of the offence, is either to enter into an agreement or arrangement in connection with certain property, or to perform another action in connection with the property. In short, this could be anything done in respect of the property in question.

The qualification of the action is that it must have a certain consequence, or it must be at least likely to have a certain consequence. The consequence can be one of three alternatives:

to conceal or disguise the nature, source, location, disposition or movement of the property, or its ownership or any interest that anyone may have in it;



to enable or assist an offender to avoid prosecution; or



to enable or assist an offender to remove or diminish the proceeds of some criminal activity.

The agreement does not have to be legally enforceable. Even when a criminal wants to launder proceeds from a criminal activity through illegal gold transactions or unenforceable gambling transactions, for example, would the action be committed. Such cases would not constitute an attempt to commit money-laundering, but would be regarded as the actual offence.

The relevant consequences do not have to be realised, as long as it is likely that the agreement or arrangement could have resulted in one of those consequences. The court will have to determine what is likely to result from a specific agreement or arrangement. It is suggested that the court will do this by referring to what can be generally, and according to reasonable experiences, expected to result from an agreement or arrangement. The use of the word ‘likely’ indicates that it is not any result, however remote, that is intended here.

The fact that the agreement or arrangement does not have to be legally enforceable and that the relevant consequence does not need to have been realised means that in almost any circumstance will the actual offence be committed. It is only where the agreement or arrangement was initiated but not concluded where there would be room for a charge of attempt to commit money-laundering.

The individual performing the action can either be a person who had committed some criminal activity and obtained the proceeds from it, or a person who did not initially obtain the proceeds but who laundered the proceeds through a transaction with the criminal who had derived the proceeds.

The property that is involved in the action to be performed must be the ‘proceeds of unlawful activities’. This phrase is defined as follows in the Prevention of Organised Crime Act:33

‘proceeds of unlawful activities’ means any property or any service advantage, benefit or reward which was derived, received or retained, directly or indirectly, in the Republic or elsewhere, at any time before or after the commencement of this Act, in connection with or as a result of any unlawful activity carried on by any person, and includes any property representing property so derived …

The factors referred to in this definition can be objectively determined. The property in question must have been derived from unlawful activities. These could have taken place anywhere and at any time. Furthermore, the individual obtaining the property in question does not have to be the same person who committed the underlying unlawful activity that generated the proceeds.

The required form of guilt is expressed in the phrase ‘knows or ought reasonably to have known’. To make sure that there can be no doubt about the meaning of this phrase, the knowledge element is described in section 1 of the Prevention of Organised Crime Act:34

(2) For purposes of this Act a person has knowledge of a fact if -

(a) the person has actual knowledge of that fact; or

(b) the court is satisfied that –

(i) the person believes that there is a reasonable possibility of the existence of that fact; and

(ii) he or she fails to obtain information to confirm the existence of that fact.

(3) For the purposes of this Act a person ought reasonably to have known or suspected a fact if the conclusions that he or she ought to have reached are those which would have been reached by a reasonably diligent and vigilant person having both -

(a) the general knowledge, skill, training and experience that may reasonably be expected of a person in his or her position; and

(b) the general knowledge, skill, training and experience that he or she in fact has.

The description of the concept ‘knowledge’ is in accordance with the knowledge element of ‘intent’ as a form of guilt. It includes actual knowledge, as well as constructive knowledge of a fact. Constructive knowledge exists where a court is satisfied that a person believed that there is a reasonable possibility that a fact exists, but fails to obtain information to confirm the existence of the fact.

In practical terms, this means that an individual who believes that there is a possibility that the property dealt with is the proceeds of criminal activities, but turns a blind eye to the possibility, may expose him or herself to liability.

The description of ‘ought reasonably to have known’ is in accordance with the manner in which the knowledge element relates to negligence as a form of blameworthiness. The phrase refers to a fact of which a diligent and vigilant person would be aware. The general knowledge, skill, training and experience are attributed to such an individual in the position in question, as well as the actual knowledge, skill, training and experience of the person whose actions are under consideration.

To put this in practical terms, an individual ought to be aware of the fact that he or she is dealing with the proceeds of criminal activities if a reasonably diligent and vigilant person in his or her position, with the knowledge, skill, training and experience that may be expected of such a person, would have been aware of dealing with illegally obtained property.

The definition of the money-laundering offence in the Prevention of Organised Crime Act clearly includes both intent and negligence as required forms of guilt. These may appear to be technical or legalistic issues, but could have serious consequences for people or organisations that do not take due note of their inclusion in the Act.

The Prevention of Organised Crime Act now clearly defines the knowledge element to include facts that a person believes may possibly exist, without having actual knowledge of such facts. It means that there is more room for a court to conclude from the surrounding circumstances of a case that a person was aware of the existence of such facts. The effect is that whenever something appears to be out of the ordinary, a person can no longer ignore it and avoid liability in this manner.

Furthermore, by expressly describing negligence, the Prevention of Organised Crime Act places a duty of diligence on every person and organisation that are at risk of coming into contact with the proceeds of criminal activities. This duty entails that persons should acquire the knowledge, skill and experience and undergo the training that will be necessary to identify situations where they may be dealing with the proceeds of criminal activities. The duty also requires that persons should, in fact, constantly apply their knowledge, skill, training and experience to ensure that they are alert when coming across something out of the ordinary.

In short, the definition of the money-laundering offence makes it clear that a person will not be allowed to excuse him or herself by claiming, "I did not know."

It may be helpful to give an example of what may happen in practice to illustrate some of the points made above:

Mr X, a member of an organised criminal group, approaches an insurance agent for assistance in disguising an amount of cash in excess of R1 million. The cash was obtained by members of the group through the sale of contraband. The agent suggests that Mr X purchases a single premium endowment policy. Mr X uses the cash derived from the illegal activity of selling contraband to pay the premium on the policy.

Once the contract to sell the insurance policy is concluded and the premium is paid, the policy becomes an instrument representing the original proceeds of the criminal activity. In this way, the illegally derived cash is converted into a legal financial instrument. This instrument now conceals the nature and source of the illegally derived cash. It also serves to conceal the identity of those with an interest in the illegally derived property, since it is only Mr X’s name that is reflected in the contract.

Even if these consequences did not realise from the insurance contract, it is likely that any of them, or of the other consequences discussed above could realise from the contract.

Both Mr X and the insurance agent can be liable in terms of the money-laundering offence as defined in the Prevention of Organised Crime Act.

The cash used to pay the premium must be the actual proceeds of unlawful activities as defined in the act.

The accused must know or ought reasonably to have known that the cash is the proceeds of unlawful activities.

In Mr X’s case, this does not present a problem. Being a member of the organised criminal group, he will have actual knowledge of this fact.

The agent may have constructive knowledge of this fact. If circumstances such as the large amount in cash in small denominations used to pay the premium raised his suspicions over the legal source of the money and he chose to ignore this and continued to conclude the contract, he will be regarded as having knowledge of its illegal source.

If these circumstances did not raise any suspicions in the agent, but a reasonable person in the same circumstances would have become suspicious and desisted from entering into the contract, the agent will be regarded as being negligent.

Assisting another to benefit from the proceeds of unlawful activities

The Prevention of Organised Crime Act covers the offence of assisting another to benefit from the proceeds of unlawful activities:

Assisting another to benefit from proceeds of unlawful activities

5. Any person who knows or ought reasonably to have known that another person has obtained the proceeds of unlawful activities, and who enters into any agreement with anyone or engages in any arrangement or transaction whereby -

(a) the retention or the control by or on behalf of the said other person of the proceeds of unlawful activities is facilitated; or

(b) the said proceeds of unlawful activities are used to make funds available to the said other person or to acquire property on his or her behalf or to benefit him or her in any other way,

shall be guilty of an offence.

The action described in this offence constitutes entering into an agreement or arrangement with another person regarding certain property. The agreement or arrangement is qualified by one of two consequences. The first consequence is that the retention or control of the proceeds of criminal activities by the other person is facilitated. The other is that the proceeds of the criminal activities are used in one of three ways:

to make funds available to the other person;

to acquire property on his or her behalf; or

to benefit him or her in any other way.

In the first case, the facilitation of the retention or control of the proceeds of criminal activities must have been realised for the actual offence to be completed. If this consequence did not realise, the accused may be convicted of an attempt to commit this offence.

In the second case, it is important to note that the consequence is not that the funds are made available to the person in question, that the property is acquired on his or her behalf, or that he or she has benefited in some way. The required consequence of the agreement or arrangement entered into is only that the proceeds of the criminal activity have been put to use to achieve one of these purposes. The offence will have been completed once the proceeds are used with one of these purposes in mind, regardless of whether the purpose is in fact achieved.

The individual performing the action must be somebody other than the person who initially obtained the proceeds. It can be anyone who launders the proceeds by entering into a transaction with either the criminal who had derived the proceeds, or another person who has control over these proceeds or stands to benefit from them.

The property used to perform the action must be the ‘proceeds of unlawful activities’. The definition of such in the Prevention of Organised Crime Act will apply in this respect.35 This means that the court will have to refer to facts presented in evidence that can be objectively determined when considering the nature of the property involved. These facts would have to show that the nature of the property falls within the definition.

With regard to the property, it is important to note that the description of the offence does not require the terms of the agreement or arrangement directly to involve the property in question. This means that the agreement or arrangement does not have to refer in any way to the property that forms the proceeds of unlawful activities.

It may be helpful again to refer to the earlier example of what may happen in practice to illustrate the points made above about the relationship between the agreement or arrangement entered into and the proceeds of unlawful activities:

Mr X, a member of an organised criminal group, approaches an insurance agent for assistance in disguising an amount of cash in excess of R1 million. The cash was obtained by members of the group through the sale of contraband. The agent suggests that Mr X purchase a single premium endowment policy.

The agreement entered into between the agent and Mr X will be a standard form insurance contract. Its terms will not refer to the source from which the premium is to be paid. Mr X, however, will use the cash derived from the illegal activity of selling contraband to pay the premium.

Once the contract is concluded and the premium is paid, the insurance policy becomes an instrument representing the original proceeds of the unlawful activity. This instrument now facilitates Mr X’s control over the proceeds.

The policy can be used to make funds available to Mr X, for example, by surrendering the policy. It can also be used to acquire property by using the policy as security for a credit agreement. The fact that the policy is offered as security is sufficient proof that it is used as required to be regarded as an offence, even if the credit is not extended on the security of the policy.

The required form of guilt is expressed in the phrase ‘knows or ought reasonably to have known’. This is the same phrase that is used in the money-laundering offence in section 4 of the Prevention of Organised Crime Act. The descriptions of the knowledge requirement and the ‘ought to have known’ requirement that appear in section 1 of the act also apply to this offence.

The definition of this offence in the Prevention of Organised Crime Act clearly includes both intent and negligence as required forms of guilt. The remarks made above about the duties of diligence and vigilance placed on persons and organisations that are at risk of coming into contact with the proceeds of criminal activities also apply in respect of this offence.

Acquisition, possession or use of the proceeds of unlawful activities

The last of the money-laundering related offences contained in the Prevention of Organised Crime Act is that of acquiring, possessing or using the proceeds of unlawful activities:

Acquisition, possession or use of proceeds of unlawful activities

6. Any person who -

(a) acquires;

(b) uses; or

(c) has possession of,

property and who knows or ought reasonably to have known that it is or forms part of the proceeds of unlawful activities of another person, shall be guilty of an offence.

This offence consists of one of three actions undertaken with the proceeds of unlawful activities:

acquiring the proceeds of unlawful activities;

using the proceeds of unlawful activities; or

possessing the proceeds of unlawful activities.

The property must be the proceeds of unlawful activities as defined in the Prevention of Organised Crime Act. Somebody other than the person acquiring, using or possessing these proceeds must have committed the unlawful activities from which the property has been derived.

The required form of guilt is expressed in the phrase ‘knows or ought reasonably to have known’. This is the same phrase used in section 4 and section 5 of the act. The descriptions of the knowledge and ‘ought to have known’ requirement that appear in section 1 of the act also apply to this offence.

As is the case with the money-laundering and assisting offences, the definition of this offence clearly includes both intent and negligence as required forms of guilt. The remarks made above about the duties of diligence and vigilance placed on persons and organisations that are at risk of coming into contact with the proceeds of unlawful activities also apply in respect of this offence. In fact, these remarks are probably more pertinent to this offence than to the money-laundering and assisting offences. Most organisations in the financial sphere will come into contact with proceeds of unlawful activities at some stage in their existence. They are therefore even more likely to fall victim to this offence than to the other two discussed above.

Reporting of information

The Prevention of Organised Crime Act also provides for a reporting duty.36 The reporting duty defined in the Act is somewhat wider than its predecessor in the Proceeds of Crime Act:

Failure to report suspicion regarding proceeds of unlawful activities

7.(1) Any person who carries on a business or is in charge of, or manages a business undertaking or who is employed by a business undertaking and who suspects or ought reasonably to have suspected that -

(a) any property which comes into his or her possession or the possession of the said business undertaking is, or forms part of, the proceeds of unlawful activities;

(b) a transaction to which he or she or the business undertaking is a party will facilitate the transfer of the proceeds of unlawful activities; or

(c) a transaction to which he or she or the business undertaking is a party and which is discontinued -

(i) may have brought the proceeds of unlawful activities into possession of the person or business undertaking; or

(ii) may have facilitated the transfer of the proceeds of unlawful activities, had that transaction been concluded,

must report his or her suspicion and all available information concerning the grounds on which it rests, within a reasonable time to a person designated by the Minister and shall take all reasonable steps to discharge such obligation.

(2) A report under subsection (1) shall be accompanied by copies of documentation directly relevant to that suspicion and the grounds on which it rests.

(3) A person to whom a report may be made under subsection (1) may, in writing, require the person making the report to provide him or her or an official identified in the request with -

(a) particulars or further particulars of any matter concerning the suspicion to which the report relates and the grounds upon which it rests; and

(b) copies of all available documents concerning such particulars or further particulars.

(4) When a person receives a request under subsection (3) he or she shall furnish the person who made the request with the requested particulars or further particulars and copies of documents to the extent that such particulars or documents are available to him or her within a reasonable time.

(5)(a) No obligation as to secrecy and no other restriction on the disclosure of information as to the affairs or business of another, whether imposed by any law, the common law or any agreement, shall affect any obligation imposed under this section to report or disclose information or to permit access to any registers, records or other documents unless that obligation of secrecy or other restriction is based on the common law right to professional privilege between an attorney and his or her client in respect of information communicated to the attorney so as to enable him or her to provide advice, to defend the client or to render other legal assistance to the client in connection with an offence under any law in respect of which the client is charged, in respect of which he or she has been arrested or summoned to appear in court or in respect of which an investigation with a view to institute criminal proceedings is being conducted against him or her.

(b) No liability based on a breach of an obligation as to secrecy or any restriction on the disclosure of information, whether imposed by any law, the common law or any agreement, shall arise from a disclosure of any information in compliance with any obligation imposed by this section.

(6) A person who is a party to a transaction in respect of which he or she forms a suspicion which in his or her opinion should be reported under subsection (1), may continue with that transaction and must ensure that all records relating to that transaction are kept and that all reasonable steps are taken to discharge the obligation under this section.

(7) Any person who fails to comply with an obligation contemplated in this section shall be guilty of an offence.

The reporting duty applies to all individuals engaged in a business, as well as persons managing or employed by a business.

This duty deals with three different scenarios where reporting must take place. The first is where property comes into the possession of the person or business concerned. In this case, a suspicion that the property was derived from unlawful activities must be reported.

The second is when a specific transaction involving the person or business concerned, takes place. In this case, the suspicion that the transaction will facilitate the transfer of the proceeds of unlawful activities must be reported.

The third is when a transaction that involves the person or business concerned has been discontinued. In this case, a suspicion that the transaction, had it been concluded, may either have brought the proceeds of unlawful activities into the possession of the person or business, or may have facilitated the transfer of these proceeds, must be reported.

In terms of the Prevention of Organised Crime Act, reporting must be directed to a person designated by the minister for Justice and Constitutional Development. The designation of the Commercial Crime Branch of the SAPS, made under section 31 of the Proceeds of Crime Act, remains in force.37

The reporting duty entrenched in the Prevention of Organised Crime Act also provides for procedural matters concerning the report. Copies of the documentation directly relevant to the suspicion and the grounds on which it rests must accompany the report. This will vary from case to case, but may typically include deposit slips, invoices, order forms, and other relevant documentation.

The person to whom the report is made, may request, in writing, that the person making the report furnishes particulars regarding the suspicion and the grounds upon which it rests, as well as copies of documentation containing these particulars.

A person disclosing any information in terms of this reporting duty is protected from liability based on a breach of confidentiality or secrecy. Conversely, an obligation of secrecy or confidentiality does not absolve any person from disclosing such information. The only exception to this is the common law privilege between a client and an attorney where the attorney is defending the client in criminal proceedings.

The Prevention of Organised Crime Act provides specifically that a person who has reported a suspicion about a transaction to which he or she is a party may continue with the transaction. He or she must then ensure that all records relating to the transaction are kept and that the obligations of this reporting duty are further discharged. The records referred to here are all those that would be created in the normal course of the business of the particular organisation where the transaction takes place. This provision does not create a new obligation on persons or organisations to create records of transactions.

Figure 2: Money-laundering offences in the Prevention of Organised Crime Act of 1998

Reporting defence

The Prevention of Organised Crime Act provides for the defence of persons making reports in terms of section 7 of the Act.38

Defence

7A. If a person is charged with negligently committing an offence under section 2 (1) (a) or (b), 4, 5 or 6, that person may raise as a defence the fact that he or she had reported a suspicion in terms of section 7.

The fact that a person has reported a suspicion that property may be the proceeds of unlawful activities will be a defence against a charge that he or she had negligently committed a money-laundering offence, and possibly also an offence of racketeering in terms of section 2 of the Prevention of Organised Crime Act.

If a person is charged with intentionally committing one of these offences, he or she will not be able to rely on the reporting defence of the Prevention of Organised Crime Act. If the accused’s defence is based on an absence of intent, the fact that he or she had reported a suspicion may be tendered to support this claim. The mere fact that the report had been made, however, should not exclude the possibility that the court may find that the accused had nevertheless intended to commit the money-laundering offence.

Confiscation and forfeiture

The recovery of the proceeds of criminal activity can have a significant impact on the ability of organised criminal groups to perpetuate their criminal activities. For this reason, combating money-laundering, on the one hand, and recovering the proceeds of criminal activity, on the other, should form two components of a larger strategy to combat organised crime.

The Prevention of Organised Crime Act contains two separate procedures for depriving criminals of the proceeds of their activities: the confiscation procedure,39 and the civil forfeiture procedure.40

The confiscation procedure may only be instituted once a person is convicted of an offence.41 The procedure consists of an enquiry instituted by the trial court at the request of the public prosecutor. The purpose of the enquiry is to determine the benefit which the offender has derived from the offence of which he or she is convicted, as well as from other related unlawful activities. This enables the court to order the confiscation of property to the value of the benefit through issuing a confiscation order.42 The confiscation order is similar to a judgment for the payment of a sum of money and is made in addition to any other sentence that the court may impose.

Although the confiscation enquiry may only be instituted after conviction, the procedure to be followed at the enquiry is a civil procedure.43 This means that the rules of evidence applicable in civil proceedings apply at such an enquiry and that the burden of proof is one of a balance of probabilities.

For a confiscation order to function effectively, it must be supported by a proactive measure to obtain control over the offender’s realisable property before issuing a confiscation order. This is necessary to prevent a person who may be subjected to a confiscation order from disposing of property that may be used to satisfy the order, or from diminishing its value before the confiscation order is issued. Such an order is referred to as a restraint order.44 The aim of the restraint order is to freeze the financial position of the offender or suspected offender, and may be granted even if the investigation is still pending.

The civil forfeiture procedure allows for the forfeiture of property without first obtaining a conviction, or indeed instituting a criminal prosecution, against any person. It is a procedure based on the nature of the affected property itself and is therefore sometimes referred to as an action in rem. The property in question must be tainted, either by being the proceeds of unlawful activities, or being used in the commission of an offence.45

The procedure is initiated by issuing a preservation of property order.46 This order serves to gain control over property that may have to be forfeited to the state, similar to a restraint order in the confiscation procedure.

A hearing to determine whether the property is indeed tainted follows the preservation of property order.47 This must be proven during the hearing on a balance of probabilities. A person with an interest in the property concerned may participate in the forfeiture hearing in one of two ways. He or she may oppose the application on the basis that the property is not tainted. Alternatively, he or she may apply for the exclusion of his or her interest in the property on the basis that he or she was unaware that the property is tainted.48 If the court finds that the property is tainted, it issues an order which declares the property forfeit to the state.49

This is potentially a very powerful tool with which to combat organised crime. Since the action is in rem (based on the nature of the property in question), the evidence in support of this type of forfeiture does not have to relate directly to the activities of a specific person. It is therefore possible to act against the illegally obtained property of the members of an organised criminal group without linking their activities directly to a specific offence.

The proceeds of criminal activities that are confiscated or forfeited in terms of the Prevention of Organised Crime Act are deposited into a special account of the National Revenue Fund, called the Criminal Assets Recovery Account.50 The proceeds of criminal activities that are deposited into this account must be used for:

the allocation of property and money from the account to specific law enforcement agencies; and



the allocation of property and money to institutions, organisations or funds that render assistance in any manner to victims of crime.

Both these elements are defined in the Prevention of Organised Crime Act:52

‘enterprise’ includes any individual, partnership, corporation, association, or other juristic person or legal entity, and any union or group of individuals associated in fact, although not a juristic person or legal entity;

‘pattern of racketeering activity’ means the planned, ongoing, continuous or repeated participation or involvement in any offence referred to in Schedule 1 and includes at least two offences referred to in Schedule 1, of which one of the offences occurred after the commencement of this Act and the last offence occurred within 10 years (excluding any period of imprisonment) after the commission of such prior offence referred to in Schedule 1 …

This means that, in respect of all racketeering offences, the existence of an enterprise has to be established. The enterprise can be one that operates legally or a criminal enterprise. In other words, the enterprise can be a legitimate business concern or an organised criminal group.

In the majority of cases where the enterprise is an organised criminal group, the establishment of an enterprise will hinge on an association or union of individuals. This means that the enterprise will consist of a group of persons with some structure or hierarchy in the relations between the persons associated with the group.53

It may be necessary to make use of a variety of investigative techniques in order to establish the existence of an enterprise and a particular person’s association with such an enterprise. These techniques may include covert investigative techniques such as electronic surveillance, undercover operations and the use of informants.

The pattern of racketeering activity should be easier to establish, since the elements of such a pattern are widely defined in the Prevention of Organised Crime Act.

The advantage of the structure of the racketeering offences is that the persons who are normally removed from the actual execution of criminal activities by the organised criminal group can be connected to these offences through their involvement in the group. The two most important racketeering offences in this regard are the conducting of the enterprise’s affairs through a pattern of racketeering activity while being associated with an enterprise,54 and the managing of the operation of an enterprise knowing that other persons associated with the enterprise participate in its affairs through a pattern of racketeering activity.55

The racketeering and money-laundering offences included in the Prevention of Organised Crime Act are seen in a very serious light by the legislature. This is clearly demonstrated by the maximum penalties prescribed for these offences. The racketeering offences carry a penalty of R1 000 million or imprisonment for life.56 This is the highest penalty ever prescribed in a South African statute. The penalty for any of the three money-laundering offences is R100 million or imprisonment for 30 years.57 The penalty for the failure to report the suspicion that criminal proceeds are involved in a transaction is a fine of R300 000 or imprisonment for 15 years.58