The lack of co-operation by legal practitioners and estate agencies regarding requests by the Financial Intelligence Centre (FIC) for critical information required by the Financial Action Task Force (FATF) threatens to derail SA’s bid to be removed from the FATF greylist.
The information is critical as SA has to submit a report to the Africa and Middle East working group of the FATF by May. This will be considered at a plenary of FATF in June. The FIC needs to gather all its reports by the end of March to meet this deadline. This leaves about six weeks for delinquent businesses to comply with FIC notices requiring risk and compliance returns.
FIC executive manager for compliance and prevention Chris Malan said at a media briefing on Wednesday that failing to meet this requirement would indicate to FATF that SA and its business sector did not take it seriously and this would damage the international reputation of the legal practitioner and estate agent sectors.
Malan said the May report would not look good if business did not meet its obligations. The Treasury was also concerned. Malan said the lack of response was a “dire” and “worrying” situation and the next “crisis” stage would be to impose a sanction of about R50,000 on each head office and branch that had not complied. Businesses had been given notices to file their risk and compliance returns within 10 days but there had still been a poor response. Information about the sanctioned businesses would be made public.
The FATF placed SA on its greylist in February 2023 because its regime for combating money-laundering and terror financing was found to be deficient in 22 aspects, including the level of supervision by the FIC of nonfinancial banking institutions, including legal practitioners, estate agents, casinos, trust service providers, company service providers, and dealers in precious metals and stones. The main concern related to high-risk legal practitioners and estate agents, who are vulnerable to money-laundering.
By January 2025, SA has to demonstrate that it has addressed all 22 items. SA has addressed a number of these, including adopting legislation providing for the identification of the beneficial owners of companies and trusts.
Malan said legal practitioners and estate agencies — the high-risk sectors — were sent the first notices at the end of March 2023 to submit risk and compliance returns within three months. Despite several repeated notices, just over 50% of the approximately 16,000 legal practitioner firms and their branches registered with the FIC had submitted their returns and about 43% of the approximately 6,000 estate agencies and their branches had done so.
He said the risk and compliance questionnaire required information about the business, its clientele, products and finances that was readily available to these firms.
The FIC had the right risk assessment tool — approved by the FATF — to detect high risk, but the concern was with the low level of uptake. By August, that was below 50% — not enough to make the tool credible. The FATF requires that the FIC is able to inspect high-risk entities but it expressed concern in 2023 about the low level of response.
“At the end of the day it gets down to willingness to ensure that everything is in place,” Malan said.
‘National response’
He was confident that with the co-operation with business, SA could get off the greylist, “but it needs a national response”.
Law Society of SA (LSSA) executive director Tony Pillay said a week ago the FIC sent the society a general notice that legal practitioners were struggling with risk and compliance returns. “The LSSA has compiled a risk management compliance programme to assist legal practitioners with compliance. Last year, the LSSA conducted roadshows on illicit financial flows in view of SA’s greylisting. In the upcoming weeks, the LSSA will be conducting a series of webinars on Financial Intelligence Centre Act (Fica) compliance. During the webinars, legal practitioners will be given practical scenarios on how to be Fica-compliant.”
Pillay said small law firms, unlike the medium and large law firms, did not need expensive software to be Fica-compliant. The guidance provided by the LSSA supplemented by FIC guidelines would provide the necessary level of expertise.
“It is in the interest of all South Africans that legal practitioners are compliant with Fica and all its objectives.”
Update: February 14 2024
This story has been updated with new information.
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