The Financial Intelligence Centre (FIC) has dished out hundreds of sanctions to legal practices and estate agencies that have failed to heed a call to file risk and compliance returns (RCRs) to the watchdog on time. These returns are required to help the FIC ready the country to exit the grey list in 2025.
Executive manager Christopher Malan said that to date the watchdog has issued 302 notices of intention to sanction, with particular emphasis on legal practitioners and estate agents, and that further notices will be issued in due course. The sanctioned firms were not named.
“The FIC’s public drive to raise levels of support from particularly estate agents and legal practitioners has realised marginal response levels from the two sectors. As of March 22, the rate of risk and compliance returns submissions stood at 57% for estate agents and 64% for legal practitioners,” Malan said.
Affected businesses in these sectors have not provided reasons for their lack of compliance. Those that have not submitted have breached directive 6 of the Financial Action Task Force (FATF).
This continues to paint South Africa in a negative light and is raising the bar against the country exiting the grey list
— Christopher Malan, FIC executive manager
“The FIC has had to submit its report on the current status to the Financial Action Task Force on Friday March 22. Unfortunately, we have had to communicate the weak compliance in the two sectors to FATF. This continues to paint South Africa in a negative light and is raising the bar against the country exiting the grey list.”
South Africa was greylisted by the FATF in January 2023 over deficiencies in rules relating to fighting money laundering, terrorism financing and proliferation financing. The country has set a January 2025 target to get off the grey list.
Malan said estate agencies and legal firms were considered high risk for money laundering and terrorist financing abuse. By completing and submitting risk and compliance return forms they can have a much clearer picture of the levels of risk they face.
Lerato Lamola, associate director at Webber Wentzel, said the firm had complied with the FIC’s requirement for the submission of risk and compliance returns but acknowledged that the wider legal sector was experiencing challenges in complying.
“Some of the challenges include a misunderstanding of the compliance requirements of the directive, with accountable institutions relying on head offices to submit RCRs on behalf of the whole organisation,” Lamola said.
“The legal practice and the FIC are struggling to find an impactful manner to reach out to the thousands of differing types of law firms scattered across the country, as well as accountable institutions, only submitting one RCR when they should be submitting returns for each category of accountable institution they fall under in terms of ... the Financial Intelligence Centre Act.”
In terms of the relevant legislation, Lamola said the FIC can impose a financial penalty not exceeding R10m on individuals and R50m on legal persons, with penalties imposed on a case-by-case basis.
Real Estate Business Owners of South Africa (Rebosa) CEO Jan le Roux said the act was “complicated and difficult to implement” for estate agencies. He also challenged the FIC's figures.
“We do believe that the statistics quoted by FIC might be incorrect as many estate agencies have closed over the past few years and may have failed in advising [it] of such closure, including dormant estate agencies, which would of course skew the statistics negatively,” Le Roux said.
Rebosa considered even R10,000 a severe penalty for a first-time offence, he added, especially given the difficulty in implementing the act, but agents have done their best to comply.
Speaking to Business Times after the presentation of the 2024 budget, National Treasury director-general Duncan Pieterse said the monitoring of technical compliance areas can influence whether South Africa is assessed as fully, largely compliant or noncompliant by the FATF.
“The way to think about the FATF thing is not necessarily the different things that people talk about that might influence what the outcomes are. They've got their list of technical compliance areas and they've got their list of effectiveness areas,” he said.
In the technical compliance areas South Africa had 20 deficiencies, 14 of which the country is now fully or largely compliant with, Pieterse said.
Lawtons Africa associate Nicholas De Decker said law firms’ lack of compliance with the FIC’s RCR reporting requirements could be due to a multitude of reasons. These include:
- a lack of awareness of the specific reporting obligations outlined by the FIC;
- resource constraints;
- complexities in gathering and submitting accurate information; and
- inadequate internal systems to ensure compliance.
Property Practitioners Regulatory Authority CEO Thato Ramaili said they assisted the FIC by informing all property practitioners of their obligations to submit the required documents.
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