The Financial Action Task Force’s (FATF) decision to place South Africa on its greylist has led to a tenfold increase in the businesses monitored by the Financial Intelligence Centre (FIC), whose task it is to block abuse of the financial system.
Christopher Malan, executive manager of compliance & prevention at the FIC, told Business Times this week that the number of institutions under its mandate soared from 6,000 to 60,000 practically overnight.
This was because institutions outside the banking sector known as “designated nonfinancial institutions & professions” (DNFBPs) must now report to the FIC on transactions, clients, trusts and beneficial owners. These include casinos, law firms, real estate firms and precious-stone dealers.
When the FATF placed South Africa on the greylist last month, it said eight key areas should be addressed to ensure safeguards against money laundering, terror financing and proliferation — which covers the illegal manufacture, trading or shipping of nuclear, chemical or biological weapons.
Malan said the country’s credit providers had been made more compliant with international standards and the FIC had added cryptocurrency providers to its ambit.
“Because the net is expanded, on December 19 2022, the FIC Act as amended came into effect to say these are new categories … [that] have to register and start putting in place their compliance programme to combat money laundering, terror financing, and proliferation financing,” he said.
Malan said the government, with guidance from finance minister Enoch Godongwana, was introducing a new oversight regime for businesses, particularly DNFBPs.
“We advised the minister that the supervision that was happening there was not up to FATF standards, and we needed to add structure. That structure came into place and meant supervision for lawyers, property dealers, casinos and trusts. That supervision must give confidence that there are adequate measures in place,” Malan said.
He said a beneficial ownership registry now had to be set up because the lack of one was the issue on which South Africa scored the lowest. The registry will be managed by the Companies & Intellectual Property Commission.
“Why that registration is critical is because they obtain an electronic key to the FIC systems. It is a wholly electronic information-gathering entity. We receive information that drives analytic weapons to fight crime through data and reports,” Malan said.
If we want to come off the greylist soonest, we have already put together action plans for achievements to be reached by December, with sector risk assessments
— Christopher Malan, FIC
He said despite the extensive publicity about greylisting, some businesses were “a bit slow” to join the programme of remedial action and were not up to speed with the regulatory changes and their implications.
“If we want to come off the greylist soonest, we have already put together action plans for achievements to be reached by December, with sector risk assessments. For new sectors like crypto, we would ideally need a new sector-risk assessment. The FAFT requires those building blocks,” he said.
Business Times understands that the FIC has hosted a session for legal practitioners on compliance with the FIC Act.
Because lawyers are registered as accountable institutions under the act, they need to ensure they have adequate measures before and after entering into a business relationship with a client.
Priyesh Daya, Webber Wentzel specialist on corporate and commercial litigation, said the wide range of services offered by legal practitioners and law firms — from conveyancing to holding clients’ funds in trust accounts — to a wide range of clients, exposed them to potential abuse.
“[They] may be used to add the perception of respectability and legitimacy to unrespectable activities,” said Daya.
The Law Society of South Africa said the profession’s “associated risks” included clients engaged in money laundering, the financing of terrorist activities and the illegal weapons trade.
“This would require legal practitioners to, among other things, introduce appropriate controls and measures that are proportionate with the identified risks. For legal practitioners that are engaged in services that would attract increased risks, enhanced controls should be introduced,” the society said.
“These controls should be effective and proportionate to the identified risks. Practising legal practitioners must, in terms of the act, adopt a risk management and compliance programme. This also means that the legal practitioner must create records of such information collected and record the basis of their assessment.”
The law society said such a programme would help to ensure the legal profession was robust and not vulnerable to abuse.
Other measures South Africa has to undertake to get off the greylist include stepping up investigation and prosecution of serious money laundering; improving identification and seizure of the proceeds of relevant crimes; updating terror financing risk assessment; implementing targeted financial sanctions; and demonstrating an effective mechanism to identify individuals and entities that meet the criteria for domestic designation.
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