PCC 58 – Interpretation of high-value goods dealers

FIC

Financial Intelligence Centre

PUBLIC COMPLIANCE COMMUNICATION

PUBLIC COMPLIANCE COMMUNICATION

No. 58

GUIDANCE ON THE INTERPRETATION OF HIGH-VALUE GOODS DEALERS, ITEM 20 OF SCHEDULE 1 TO THE FINANCIAL INTELLIGENCE CENTRE ACT, 2001 (ACT 38 OF 2001) AND POTENTIAL RISK INDICATORS

Public Compliance Communication 58 guidance on the interpretation of high value goods dealers in terms of Schedule 1 of the Financial Intelligence Centre Act and potential risk indicators.

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PCC SUMMARY

A "high-value goods dealer" (HVGD) is listed in item 20 of Schedule 1 to the Financial Intelligence Centre Act, 2001 (Act 38 of 2001) (FIC Act) as a person who carries on the business of dealing in high-value goods in respect of any transaction where such a business receives payment in any form to the value of R100 000 or more, whether the payment is made in a single operation or in more than one operation that appears to be linked, where "high-value goods" means any item that is valued in that business at R100 000 or more.

This public compliance communication (PCC) provides guidance on the practical interpretation and application of the definition of HVGD. Included as HVGDs are certain motor vehicle dealers and dealers in precious metals and dealers in precious stones.

This PCC provides an overview of certain money laundering, terrorist financing and proliferation financing vulnerabilities.

THE AUTHORITATIVE NATURE OF GUIDANCE

The Financial Intelligence Centre (the Centre) provides the guidance contained in this draft PCC in terms of its statutory function in terms of section 4 (c) of the FIC Act read together with Regulation 28 of the Money Laundering and Terrorist Financing Control Regulations (the Regulations) issued in terms of the FIC Act.

Section 4(c) of the FIC Act empowers the Centre to provide guidance in relation to a number of matters concerning compliance with the obligations in terms of the FIC Act. Guidance provided by the Centre is the only form of guidance formally recognised in terms of the FIC Act and the Regulations issued in terms of the FIC Act. Accordingly, guidance provided by the Centre is authoritative in nature and must be taken into account when interpreting the provisions of the FIC Act or assessing compliance of an accountable or reporting institution with its obligations imposed on it by the FIC Act.

It is important to note that enforcement action may emanate as a result of non-compliance with the FIC Act in areas where there have been non-compliance with the guidance

provided by the Centre. Where it is found that an accountable or reporting institution has not followed guidance which the Centre has issued, the institution must be able to demonstrate that it has complied with the relevant obligation under the FIC Act in an equivalent manner nonetheless.

DISCLAIMER

The publication of a PCC concerning any particular issue, as with other forms of guidance which the Centre provides, does not relieve the user of the guidance from the responsibility to exercise their own skill and care in relation to the users' legal position. The Centre accepts no liability for any loss suffered as a result of reliance on this publication.

COPYRIGHT NOTICE

This PCC is copyright. The material in a PCC may be used and reproduced in an unaltered form only for personal and non-commercial use within your institution.

Apart from any use permitted under the Copyright Act, 1978 (Act 98 of 1978) all other rights are reserved.

OBJECTIVE

This PCC provides guidance on the practical interpretation and application of the definition of HVGD. Included as HVGDs could be certain motor vehicle dealers, dealers in precious metals and dealers in precious stones.

Public Compliance Communication 58 guidance on the interpretation of high value goods dealers in terms of Schedule 1 of the Financial Intelligence Centre Act and potential risk indicators.

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1. INTRODUCTION

1.1. Item 20 of Schedule 1 to the FIC Act lists high-value goods dealers (HVGDs) as accountable institutions. The FIC Act does not provide for the interpretation of an HVGD, and the purpose of this PCC is to clarify the Centre's interpretation of this term.

1.2. HVGDs are vulnerable to abuse by criminals for money laundering, terrorist financing and proliferation financing (ML, TF and PF). Trends indicate criminals often seek to buy high-value goods with the proceeds of crime. Therefore, it is vital to regulate the HVGD sector which includes certain sub-sectors; motor vehicle dealers, dealers in precious metals and dealers in precious stones (DPMS) amongst others, refer to paragraph 3 below.

1.3. Listed previously in the FIC Act as reporting institutions, motor vehicle dealers and Krugerrand dealers are removed under Schedule 3 to the FIC Act and in certain instances are included as accountable institutions.

Definition of an HVGD

1.4. An HVGD includes “a person who carries on the business of dealing in high-value goods in respect of any transaction where such a business receives payment in any form to the value of R100 000,00 or more, whether the payment is made in a single operation or in more than one operation that appears to be linked, where “high-value goods” means any item that is valued in that business at R100 000,00 or more”.

1.5. There are various requirements in this definition that must be met by a person, before that person is considered to be an HVGD and as such, an accountable institution. These requirements include:

1.5.1. “A person”, which includes both natural and legal persons.

1.5.2. “Carries on the business of dealing” – this term is not defined in the FIC Act. The ordinary meaning of the term, within the context of the FIC Act is applied.

Public Compliance Communication 58 guidance on the interpretation of high value goods dealers in terms of Schedule 1 of the Financial Intelligence Centre Act and potential risk indicators.

1.5.3. “Business” is that of a commercial activity or institution, as opposed to a charitable undertaking or government institution. A person is an HVGD where the entity's commercial activity is to trade in high-value goods as part of their ordinary course of business, and

1.5.4. “Dealing” means to trade, sell or buy in the retail or the wholesale sector. The term dealing includes both scenarios, where entities deal in goods valued at a R100 000 or more regardless of whether the entity operates as a retailer or a wholesaler. The Centre, however, notes, that the ML/TF/PF risk in the retail sector may possibly be higher than in the wholesale sector.

1.5.5. There may be scenarios where a HVGD uses third party services providers to facilitate the trade of the HVGD item, where the third-party service provider is paid a service fee. The third-party service provider does not receive or pay the amount due for the HVG. In this scenario the third-party service provider is not in the business of dealing in HVGs but is merely facilitating the trade and is therefore not an accountable institution. Further, intermediary buyers and brokers who deal in (either buy or sell) HVGs, are included as a HVGD and therefore an accountable institution.

**Example 1 – “Business of dealing” is not met**

A consulting firm sells their fleet vehicles for R120 000 per vehicle, as part of downsizing. This activity does not form part of their ordinary course of business; therefore the consulting firm is not regarded as a high-value goods dealer.

1.5.6. “High-value goods” means that a particular item is valued at R100 000 or more and not a few separate items where the total combined value amounts to R100 000. The value is the amount at which the high value good is sold or traded.

1.5.7. The Centre is of the view that high-value goods include movable, immovable and tangible items, e.g. vehicles, vehicle parts, precious metals and precious stones where the value of each item or unit is valued at R100 000 or more. The high value good, may even be a living good (e.g. animals). This is not an exhaustive list.

Public Compliance Communication 58 guidance on the interpretation of high value goods dealers in terms of Schedule 1 of the Financial Intelligence Centre Act and potential risk indicators.

Public Compliance Communication 58 guidance on the interpretation of high value goods dealers in terms of Schedule 1 of the Financial Intelligence Centre Act and potential risk indicators.

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Example 2 – when a high-value good is a unit

A second-hand dealer in precious metals buys a unit of scrap metal, consisting of several bits of scrap metal, the unit price amounts to R120 000. The unit is regarded to be one single high-value good. This activity forms part of their ordinary course of business, therefore the second-hand dealer in precious metal is regarded as a high-value goods dealer.

Where a Krugerrand (and or other numismatic coins) dealer sells 50 Krugerrand coins, each item prices at below R100 000 and the total combined price amounts to R1 420 000, this transaction would not qualify such a Krugerrand dealer as a high-value good dealer. However, where a Krugerrand (and or other numismatic coins) dealer sells a single Krugerrand coin or a series of coins (bundled goods), that are not sold mutually exclusive, that is priced at R100 000 or higher, such a dealer is considered a HVGD.

1.5.8. Excluded from the definition of high-value goods are non-tangible items e.g. shares, trading stock, commodities investments. In other words, the high-value good must be an actual physical item.

1.5.9. Further, high-value goods can include both new, used and/or second-hand goods.

Example 3 – Items that do meet the definition of high-value goods

A dealer in precious metals and precious stones (DPMS) has items that are valued at R100 000 or more per single item (such as diamond rings at R100 000) and many items valued below R100 000 (such as watches at R20 000). Given that there are goods where each of the items are valued at R100 000 or more per item, the DPMS would meet the definition of HVGD.

Example 4 – Items that do not meet the definition of high-value goods

A motor vehicle dealership stocks vehicles which are valued at R60 000 maximum per vehicle. The motor vehicle dealership would not meet the definition of an HVGD,

even if there were multiple vehicles in the lot, as it does not sell or buy any vehicles where each vehicle is valued at R100 000 or more.

1.5.10. “A business receives payment in any form to the value of R100 000”

1.5.10.1. The receipt of funds is linked to the trade of the high-value good, where the high-value good is **sold** at R100 000 or more per single item or unit and the entity receives funds as part of the ordinary course of business. The **selling price** of the HVG must be considered to determine whether a person is a HVGD.

1.5.10.2. The definition does not specify the form in which the payment for the HVG is made, and therefore includes all payment types e.g. cash, cheque, electronic funds transfers, credit card payments, and crypto payments. This list is not exhaustive.

1.5.10.3. Where the business receives payment of R100 000 or more through extending credit for a HVG to the client, that business would be deemed both a credit provider and HVGD. In this scenario a dual registration is required. Refer to paragraph 2.3. below.

1.5.11. “Whether the payment is made in a single operation or in more than one operation that appears to be linked”

1.5.11.1. The amount of R100 000 or more can be paid or received in a lump sum (e.g. once-off payment of the full amount) or paid and received in several smaller amounts which add up to an amount of R100 000 or more e.g. a deposit paid of R20 000 and then the remaining R80 000 in a later transaction.

Practical application of the definition of an HVGD

1.6. The FIC Act obligations that apply to accountable institutions are ringfenced to scenarios where the full definition of an HVGD is met.

1.7. Where any high-value good is below the threshold amount of R100 000 such a transaction or business relationship would not attract the full obligations as applicable to the HVGD.

Public Compliance Communication 58 guidance on the interpretation of high value goods dealers in terms of Schedule 1 of the Financial Intelligence Centre Act and potential risk indicators.

1.8. However, reporting of suspicious and unusual transaction in terms section 29 of the FIC Act remains a mandatory obligation regardless of whether a transaction or business relationship meets the criteria of an HVGD.

1.9. Further, the legal obligation in terms of section 26B of the FIC Act prohibiting any persons from dealing with persons and entities sanctioned by the United Nations Security Council remains an obligation regardless of whether or not a transaction or business relationship meets the definition of an HVGD.

Example 5 – application of HVGD definition: items of varying value

A DPMS has items that are valued at R100 000 or more per single item (e.g. a diamond ring at R100 000) and many items valued below R100 000 (e.g. watches at R20 000). Given that there are goods where each of the items is valued at R100 000 and more per item, the DPMS would meet the definition of an HVGD.

The DPMS would be required to register with the Centre and have a risk management and compliance programme (RMCP) in place, including training of staff, appointing a compliance officer and keep records.

When entering into the transaction relating to the diamond ring (valued at R100 000), the DPMS must apply all the FIC Act obligations in relation to this client.

When entering into the transaction relating to the watch (valued at R20 000), the DPMS need not apply the FIC Act obligations in relation to this client. Should this transaction be considered suspicious or unusual, there would be a regulatory reporting obligation in terms of section 29 to the FIC Act. Further, should the client be listed on a sanctions list, the DPMS would not be permitted to continue with the transaction.

1.10. Where an entity structures a deal for a high-value goods item in a manner that is intended to evade the threshold so that it may not fall within the definition of an HVGD, the entity may be found non-compliant with their obligations in terms of the FIC Act.

Public Compliance Communication 58 guidance on the interpretation of high value goods dealers in terms of Schedule 1 of the Financial Intelligence Centre Act and potential risk indicators.

Public Compliance Communication 58 guidance on the interpretation of high value goods dealers in terms of Schedule 1 of the Financial Intelligence Centre Act and potential risk indicators.

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2. ACCOUNTABLE INSTITUTIONS' OBLIGATIONS

Registration

2.1. An HVGD is required to register as an accountable institution in terms of section 43B of the FIC Act. In terms of section 61A of the FIC Act, any accountable institution that fails to register with the Centre in terms of section 43B is non-compliant and is subject to an administrative sanction.

2.2. Where the business has not yet dealt with a high-value goods item at the threshold of R100 000 or more but has a reasonable expectation that it will deal in such high-value goods, it must register as an accountable institution and not wait until it deals in an item at the prescribed threshold. At this point the business must implement controls to meet the obligations as set out in the FIC Act. This will ensure that the HVGD is in a position to effectively comply with the FIC Act prior to entering into a transaction or business relationship with the client and would not unnecessarily delay their business.

2.3. There may be instances where a HVGD also provides credit for the sale of goods, as discussed in paragraph 1.5.10.3 above. In the scenario where the entity meets the definition of both a HVGD and a credit provider, that entity would be subject to a dual registration obligation. (Credit providers are accountable institutions in terms of item 11 of Schedule 1 to the FIC Act.)

2.4. Businesses other than accountable institutions, must register as a "business entity" on goAML, where they need to submit a suspicious and unusual transaction or activity report in terms of section 29 of the FIC Act. Refer to PCC 5D.

Transitional registration requirements

2.5. All motor vehicle dealers and Krugerrand dealers that were registered as reporting institutions on the Centre's registration and reporting platform, goAML, in terms of the repealed Schedule 3 to the FIC Act have been automatically converted to item 20 to Schedule 1 of the FIC Act.

2.6. Should a motor vehicle dealer or Krugerrand dealer **meet** the definition of an HVGD, they are urged to review their registration profile on goAML to update and confirm:

2.6.1. Their specific business category (select the specific applicable category made available)

2.6.2. The person responsible for compliance (i.e. compliance officer and money laundering and reporting officer as per goAML role profiles). Note, this may be the same person who is currently registered, and if so, no changes would be required, and

2.6.3. Any other information that may have changed.

2.7. A motor vehicle dealer or Krugerrand dealer that is registered as an accountable institution on the Centre's registration and reporting platform, goAML must de-register their HVGD item profile and provide sufficient motivation and supporting documentation should they not meet the definition of an HVGD.

2.8. Failure to update registration information with the Centre amounts to a contravention of Directive 1 as issued by the Centre.

2.9. Entities are encouraged to consult PCC 5D to read the registration considerations applicable to accountable institutions.

Customer due diligence

2.10. Customer due diligence (CDD) obligations relate to Part 1 of Chapter 3 of the FIC Act and include the obligation to ensure that they do not engage with an anonymous client, must obtain client information and documentation in accordance with their RMCP, conduct ongoing due diligence and apply processes regarding politically exposed persons (PEPs).

2.11. CDD obligations arise when the factual requirements as per item 20 of Schedule 1 are met. In other words, an HVGD must perform CDD on a client when entering into a transaction or business relationship that relates to a high-value good(s).

2.12. The person is not considered to be an accountable institution for purposes of transactions conducted that do not meet the full definition of a HVGD. As such, where an HVGD does not deal with high-value goods at an amount of R100 000 or more per

Public Compliance Communication 58 guidance on the interpretation of high value goods dealers in terms of Schedule 1 of the Financial Intelligence Centre Act and potential risk indicators.

item with a client, the HVGD does not have to conduct CDD on that client (please refer to example 5 above for practical consideration).

2.13. Where the HVGD conducts a single transaction above the single transaction threshold of R5 000 as set out in the Money Laundering and Terrorist Financing Control Regulations, or establishes a business relationship with a client, where in both instances the single item is less than R100 000 the entity would not have a CDD obligation in respect of that client.

2.14. Where a client returns on a regular basis to purchase items where the value per item is under R100 000 the entity would not be regarded as an accountable institution and would not have to conduct CDD on that client.

2.15. The Centre recommends that an HVGD conducts CDD on clients where the high-value good is less than the threshold, but the HVGD becomes aware of a suspicious or unusual transaction or activity.

**Example 6: examples of when a CDD obligation does not arise**

An HVGD that is a motor vehicle dealer has a parts department and a car sales department. The car sales department sells motor vehicles above and below R100 000. The parts department sells parts varying in value, but no single item exceeds the amount of R100 000. The HVGD must register as an accountable institution by virtue of the sale of high-value goods above the threshold.

Where Client X purchases two vehicles, each at R50 000 totalling R100 000 for the two items, the entity does not have to conduct CDD on this client. Client Y returns occasionally to buy parts of more than R5 000 from the parts department. The entity does not have to conduct CDD on this client.

Client Z buys a motor vehicle at a purchase price of less than R100 000; the entity does not have to conduct CDD this client.

Public Compliance Communication 58 guidance on the interpretation of high value goods dealers in terms of Schedule 1 of the Financial Intelligence Centre Act and potential risk indicators.

Public Compliance Communication 58 guidance on the interpretation of high value goods dealers in terms of Schedule 1 of the Financial Intelligence Centre Act and potential risk indicators.

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Reporting – cash threshold and terrorist property reporting considerations

2.16. Similar to the CDD obligations discussed above, an HVGD’s reporting obligations relating to cash threshold reports (CTRs) in terms of section 28 and terrorist property reports (TPRs) in terms of section 28A of the FIC Act only arises in a transaction or business relationship relating to a high-value good with a client.

2.17. A CTR or TPR regulatory reporting obligation does not arise for transactions or business relationships relating to items that are not high-value goods (i.e. where the item is less than R100 000). e.g. if an HVGD enters into a transaction and pays less than R100 000 per item, and they receive cash, this would not be reportable, unless it is a suspicious or unusual transaction.

2.18. Should an HVGD enter into a transaction in relation to a high-value good, and the client pays a portion of the R100 000 or more in cash which meets the CTR reporting threshold of R50 000 and above, the cash element remains reportable to the Centre as a CTR.

Example 7: CTR considerations for when a portion of the funds are in cash

The HVGD sells a vehicle valued at R100 000 to client X, and client X then proceeds to pay the HVGD an amount of R60 000 in cash and the remaining balance of R40 000 via an EFT payment.

The HVGD has an obligation to file a CTR report to the Centre on the cash part of the payment, as it exceeds the prescribed cash threshold for CTRs. Refer to Guidance Note 5C.

Examples of business activities that fall within the HVGD category

3.1. The following list provides examples of HVGDs:

3.1.1. Dealers in precious metals and dealers in precious stones, which include any person who as a regular feature of his/her business, deals in jewellery, ornaments or watches, who are likely to sell an item (bundled or not, discounted or not) that is R100 000 or more, irrespective of the value of the turnover of the dealer. The

dealer of precious metals and precious stones can have products that include but are not limited to gold, platinum, silver, diamonds, rubies, or emeralds, etc.

3.1.2. Dealers in valuable coins e.g. numismatic dealers – those dealing in any valuable coins in precious metals.

3.1.3. Dealers in precious metals and dealers in precious stones, which include any persons who is a dealer in the metal gold, any metal of the platinum group and the ores of such metals, and any other metal that the relevant Minister has declared by notice in a Government Gazette to be a precious metal for the purposes of the Precious Metals Act, 2005 (Act 37 of 2005), and the ores of any such metal, as defined in such Act.

3.1.4. Second-hand dealers in precious metals and stones, including but not limited to metals such as gold, iron ore, platinum and copper.

3.1.5. Diamond dealers, which include any persons who holds a diamond dealer license in terms of section 26 of the Diamonds Act, 1986 (Act 56 of 1986).

3.1.6. Motor vehicle dealers, which include any person who is engaged in the business of buying, selling, or exchanging any new, used and/or second-hand self-propelled vehicle, including a vehicle having pedals and an engine, or an electric motor as an integral part thereof or attached thereto and which is designed or adapted to be propelled by these means on land, as well as any trailer and caravan.

3.1.7. Antique dealers which include any persons who deal in goods representing a previous era in human society and which are collected or desirable because of age, rarity, condition, utility, or other unique features, as defined in the Second-Hand Goods Act, 2009 (Act 6 of 2009).

3.1.8. Fine art dealers which include any persons who as a business sell works of art that are valued at R100 000 or more.

3.1.9. Aircraft and helicopters dealers which include any persons who is engaged in the business of buying, selling or exchanging any new and second-hand self-propelled aircrafts or helicopters.

3.1.10. Luxury boat or yacht dealers which include any person who is dealing in any type of vessel capable of navigation by water including a barge or other floating vessel; a structure that is able to float or be floated and is able to move or be moved from one place to another, and a dynamically supported craft.

Public Compliance Communication 58 guidance on the interpretation of high value goods dealers in terms of Schedule 1 of the Financial Intelligence Centre Act and potential risk indicators.

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3.1.11. Dealers in animals which includes any person in the business of trading livestock, game (including game breeders), exotic animals, and exotic plants.

3.1.12. Dealers in luxury clothing, bags, shoes, etc. as high-end retail items.

3.2. The above list of HVGDs is not exhaustive, where a person fulfils the definition as set out in item 20 of Schedule 1 to the FIC Act, then that person is an accountable institution.

4. POTENTIAL MONEY LAUNDERING, TERRORIST FINANCING AND PROLIFERATION FINANCING RISK INDICATORS

4.1 HVGDs must conduct a risk assessment of their business, to identify and assess the particular ML, TF and PF risk that they face. Public compliance communication 53 (PCC53) and Guidance Note 7 provides detailed guidance on how this is to be done as well as general factors to consider when compiling a risk management and compliance programme (RMCP).

4.2 There are additional specific ML, TF and PF risk indicators that an HVGD should consider, these are expanded on below:

Potential heightened risk indicators

HVGDs could consider the following potential heightened risk indicators:

- Unusual sales or purchase activity by client

- Unusually linked transactions

- Goods purchased by suspected criminal syndicates

- A potential sale or purchase of goods does not appear to be normal business practice, does not have a valid commercial reason or makes no economic sense.

- A client seeks to structure cash payments in a manner aimed at avoiding detection of cash threshold reporting

- High-value cash payments

- A new customer with minimal history in dealing in precious metals and stones making numerous payments

- Goods purchased far away from residential or business area with no rational reason

Public Compliance Communication 58 guidance on the interpretation of high value goods dealers in terms of Schedule 1 of the Financial Intelligence Centre Act and potential risk indicators.

- The transaction involves a foreign politically exposed person or high-risk domestic politically exposed person, prominent influential person, their immediate family member or known close associate(s).

- Cash payment followed by cancellation and request for a refund via electronic funds transfer

- Cash payments in large denominations.

- Payments from high-risk jurisdictions.

- Refer to the sector risk assessment published by the FIC for further indicators of money laundering, terrorist financing and proliferation financing.

5. COMMUNICATION WITH THE CENTRE

5.1. The Centre has a dedicated compliance contact centre geared to assist accountable institutions to understand their registration obligations in terms of the FIC Act. Please call the compliance contact centre on 012 641 6000 and select option 1.

5.2. Compliance queries may also be submitted online by clicking on: [FIC Act compliance queries](FIC Act compliance queries) or visiting the Centre’s website and submitting an online compliance query.

Issued By:

The Acting Director

Financial Intelligence Centre

28 March 2024

Public Compliance Communication 58 guidance on the interpretation of high value goods dealers in terms of Schedule 1 of the Financial Intelligence Centre Act and potential risk indicators.