Sanctions and politically exposed persons

Scope of this policy

This policy covers two things that are often confused. Sanctions are legal prohibitions: dealing with a listed person or entity is an offence, and there is no risk appetite to set. Politically exposed person status is not a prohibition at all: it is a risk factor that requires additional work before and during a relationship.

Both apply to clients, to the persons who control a client, to beneficial owners, to authorised representatives, and to the counterparties on the other side of a transfer. Both are applied continuously, not once at onboarding.

The lists we screen against

Our primary screening sources are the United Nations Security Council Consolidated List and the Targeted Financial Sanctions list published by the Financial Intelligence Centre. In South Africa, UN Security Council resolutions adopted under Chapter VII have direct effect through the FIC Act and the Protection of Constitutional Democracy against Terrorist and Related Activities Act 33 of 2004; the Centre publishes the list that accountable institutions are required to apply.

We also screen against other major sanctions regimes — including those administered by the United States Office of Foreign Assets Control, the United Kingdom and the European Union — because our banking and liquidity counterparties are exposed to them, and because a transaction that is clean in Pretoria and blocked in New York is still a failed transaction. Where a foreign regime restricts a party but South African law does not, we treat it as a commercial and operational risk decision rather than as a legal prohibition, and we say which of the two is driving the answer.

Screening also covers adverse media and blockchain analytics attribution, so that a wallet address associated with a listed entity is caught even where the client's own name is not.

When screening happens

Screening is run at four points:

• At onboarding, before a relationship is established or a single transaction is concluded.
• At the point of transaction, against the counterparty, the destination address and any intermediary named in the instruction.
• Continuously, against the client base, so that a new listing is caught when it is published rather than at the next annual review.
• On any change to a client's controllers, beneficial owners, banking details or jurisdiction.

The list changes without notice to anyone. A client screened clear last month is not screened clear this month by virtue of having been screened clear last month.

A confirmed match: freeze, do not return

Where a match against a targeted financial sanctions listing is confirmed, the legal position in South Africa is not "decline politely and send the money back". Property connected to a designated person must be frozen. We must not deal with it, transfer it, convert it or make it available directly or indirectly to or for the benefit of the designated person, and that includes returning it to the address or account it came from.

In that situation we will:

• stop the transaction immediately and take no further instruction on the property;
• preserve the property and all records relating to it;
• file the report required by section 28A of the FIC Act — property associated with terrorist and related activities, and property of persons or entities identified under a UN Security Council resolution;
• file a section 29 report where a suspicion also arises;
• comply with any direction subsequently given by a competent authority.

We cannot tell you that a section 28A or section 29 report has been filed. Section 29(3) makes that disclosure an offence. Where property has been frozen, the route to release it is through the relevant authority and, if you have one, your own attorney — not through us.

False positives and how they are cleared

Most screening alerts are not matches. Common surnames, transliterated names, shared dates of birth and stale data all generate them. An alert is reviewed by a person, not closed by software, and clearing one usually needs nothing more than a document you already have — an identity document, a proof of address, or a note confirming that you are not the person on the list.

A false positive is resolved and recorded so that the same alert does not stop your next transaction. If you have been mistaken for a listed person before, tell your dealer at onboarding. It saves a day.

Politically exposed persons (sections 21F to 21H)

The FIC Act deals with three overlapping categories:

• Foreign prominent public officials (section 21F) — persons entrusted with a prominent public function by a foreign state: heads of state or government, senior politicians, senior judicial, military or executive officials, senior officials of state-owned enterprises and of international organisations.
• Domestic prominent influential persons (section 21G) — the South African equivalents listed in Schedule 3A, including members of the Cabinet and provincial executives, senior officials, heads and executives of municipalities and organs of state, board members and executives of major state-owned entities, and office bearers of political parties, together with persons holding senior positions in companies above a prescribed procurement threshold.
• Immediate family members and known close associates (section 21H) — spouses, civil partners, children and their spouses, parents, siblings, and persons in a close business or personal relationship with the person concerned.

Being any of these is not a problem and is not an accusation. It is a status that attracts higher scrutiny, because public office creates opportunities for bribery, corruption and the movement of the proceeds of both. Refusing to deal with PEPs as a class is not the law and is not our policy.

Where the status applies, the FIC Act requires:

• Senior management approval before the business relationship is established, and again before it is continued once the status is discovered;
• Reasonable measures to establish the source of wealth and the source of funds — not just where this transaction's money came from, but how the wealth behind it was accumulated, supported by documents;
• Enhanced ongoing monitoring of the relationship, with a shorter file-review cycle and closer transaction review.

The practical effect is that a PEP file takes longer to open and asks for more paper. We would rather say that at the start than halfway through a large trade. Declaring the status at onboarding makes the process faster, not slower; discovering it later resets it.

Jurisdictions and counterparties we will not deal with

We do not deal, in any direction and at any size, with:

• any person or entity on the UN Security Council Consolidated List or the FIC Targeted Financial Sanctions list, or any entity owned or controlled by one;
• any person acting for or on behalf of a listed person;
• counterparties in, or funds sourced from, jurisdictions subject to a FATF call for action;
• counterparties in jurisdictions subject to comprehensive territorial sanctions under a regime our banking or liquidity partners are bound by;
• crypto asset service providers that operate without a licence where one is required, that do not apply the travel rule, or that market themselves on the absence of customer due diligence;
• mixing and tumbling services, coin-join services used to break traceability, and known no-KYC swap services;
• addresses attributed by blockchain analytics to darknet markets, ransomware campaigns, sanctioned entities, terrorist financing or large-scale fraud.

Where a jurisdiction is under FATF increased monitoring rather than a call for action, we do not apply a blanket refusal. We apply enhanced due diligence, and the answer depends on the file. South Africa's own experience of that list between February 2023 and its removal is a reason to treat the distinction carefully rather than as a proxy for guilt.

This list works together with the prohibited use policy, which deals with the conduct we will not facilitate regardless of where the client sits.

Records, review and contact

Screening results, alert reviews, PEP determinations, senior management approvals and source-of-wealth material are recorded and kept for five years under sections 22 and 23 of the FIC Act, in the same way as all other due diligence records.

This policy is owned by the compliance officer, compliance officer — to be confirmed, reviewed at least annually, and updated when a listing regime, a directive or a statutory schedule changes. Questions go to support@conexus-crypto.com. If you believe you have been screened incorrectly and the matter was not resolved by your dealer, use the complaints procedure — it has fixed time limits and a review stage.