The cash threshold refers to the total amount that an individual or entity can receive, carry around, or payout in the form of cash.
Cash transaction makes the first stage of money laundering known as Placement practical.
This is where the 'dirty money' is injected into legitimate sectors. Cash has always been attractive to criminals as it can be easily moved to another party without passing through the regulatory windows or financial institutions. On cash transactions, we can only know the cash holder and it gets a bit complex to identify the source or the intended beneficiary.
A cash threshold limit allows monitoring of a customer’s transacting patterns to ensure that it’s within the customer’s acceptable risk profile such as occupation, salary scale, and geographical location. If there is a mismatch, then it calls for closer monitoring and application of adequate measures.
Section 39 of the Financial Intelligence Act 2022 (FI Act) read together with its Regulation 20 (1) that any cash transaction equivalent to or above P10,000 should be filed with the Financial Intelligence Agency (FIA). Specified parties must satisfy these obligations by reporting to the FIA within five days of the reporting period. A specified party is an entity or person listed under Schedule I of the Act and it includes branches or subsidiaries of that person, for example, money service providers, car dealerships, attorneys, accountants, and so forth.
Common cash-intensive businesses (specified parties)
Car dealerships: appear to have increased risk if cash payment is acceptable since car prices are large. This is buttressed by inadequate regulatory oversight, as some are registered with bank accounts while others are not. Criminals having a large amount of cash often prefer to buy cars with cash thereby evading scrutiny that comes with bank transfers. Some dealers may not have controls in place to monitor such cash transactions or worse may condone such transactions for a premium.
Furniture shop: Sale representatives are driven by sales and they strive to meet monthly targets for commission. This opens room for vulnerabilities. A walk-in client, for example, coming with P20,000 may not be KYC-compliant adequately because of the sales representative's interest in earning commissions even with Customer Due Diligence (CDD ) processes in place. The furniture shop’s failure to establish the source of the funds and filing the over-threshold report with the FIA may attract regulatory sanctions (fines and revocation of trading licence). Therefore, before any business transaction is processed a client must go through due diligence to determine and verify the source of funds among others.
Art Market: Artworks often come with expensive pricing due to the prestige, creativity, and sentimental value attached to them. As such, they may be used as a store of value, especially because of their appreciating value over time. Famous paintings have been sold for millions of dollars through auctions, and auctioneers are regarded as high-risk businesses because they deal with a high net worth of customers who may be of illicit backgrounds. It is common for criminals to purchase artworks to launder their ill-gotten proceeds. Without proper customer due diligence, the art sector together with auctioneers can be used as a channel to clean illicit funds.
Retail and Wholesalers: This is particularly common in the country. Clients buy groceries for Metshelo/credit/savings societies with large amounts of cash collected from members. If appropriate controls are not put in place these societies may be vulnerable to being used by criminals seeking to clear off illicit origins of their money.
Mobile Money Services: Technology comes with convenience and zero-financial inclusions for everyone to transact and save money unlike before. Today's world allows everyone irrespective of their livelihood and geographic location to send and receive money through their mobile phones in real-time. The speed of these transactions and the relative ease at which customers can open these cloud accounts (through cellphone numbers) makes mobile money services vulnerable to being used by criminals who want to launder funds through the financial system. A walk-in client with excess cash may claim that it is from a street vendor business and many times only proof of identity 'Omang' is requested. It is a rare case where the cashier will request solid proof of source of income before the cash deposit. This is risky as criminals can place proceeds without being caught for instance in small retailer shops or tuckshops with rights to operate a mobile money service business.
Carrying cash across borders Travellers into and out of Botswana are required to declare, at the port of entry or exit, any hard cash in their possession equivalent to or exceeding P10,000 and provide proof of the source of money. Some people can cross the border with profits made from illicit activities like drug trafficking, car hijacking, and so on. Failure to detect that from the entry point will allow lawbreakers to later enjoy their criminal proceeds freely in another jurisdiction.
Transaction Monitoring as a critical measure Specified parties are obliged to conduct an assessment to identify and evaluate risks (vulnerabilities and threats) they are exposed to, to be able to embed effective controls in their Risk Management Programme to curb such identified risks. Understanding customers is the first step to building up concrete risk profiles for correct risk acceptance metrics. Transaction Monitoring as a control helps to scrutinise transactions to allow organisations to spot potential financial crimes. The data obtained from transaction monitoring is vital for filing Suspicious Activity Reports (SAR) and threshold reporting obligations. Any suspicious transaction without reasonable explanation must be filed as a suspicious transaction with the FIA for further investigation.
*Certified Anti-Money Laundering Specialist (CAMS)
