THE Financial Intelligence Centre (FIC) has warned that it could penalise a large number of estate agents and legal practitioners with fines of up to millions of rand for continued non-compliance with their obligations required to remove South Africa from being greylisted.
Last year, South Africa was greylisted by global financial crime watchdog the Financial Action Task Force (FATF) for not fully complying with international standards around the prevention of money laundering, terrorist financing and proliferation financing.
The FATF gave South Africa until May this year to improve the supervision of designated non-financial businesses and professions (DNFBPs) by implementing and keeping up-to-date supervisory risk-assessment tools to identify DNFBPs at high risk of being abused for money laundering, terrorist financing, or proliferation financing purposes.
South Africa has committed to resolving the eight strategic actions identified by the FATF by January 2025 and get off the greylist.
However, the FIC, which is mandated to make South Africa’s financial system intolerant to abuse, yesterday said that time was running out, with about eight weeks left for submitting their report to FATF.
The FIC’s executive manager for compliance and prevention, Christopher Malan, said at least 9 000 estate agents and 16 000 legal practitioners had not fully complied with directives.
Of particular concern about the risks related to estate agents and legal practitioners is the role they play in facilitating property transactions and the fact that criminals commonly use real estate in their illicit activities or to launder the proceeds of unlawful activities.
Malan said these institutions had not submitted the risk and compliance return (RCR) required in terms of Directive 6, which was issued on 31 March last year, and could be penalised.
“We would have to penalise delinquent entities that have not discharged their obligation. The act affords us a huge latitude in that we can penalise up into the millions. For us, the issue is really about commitment and commitment being demonstrated,” Malan said.
“We have given the state of non-compliance notwithstanding our engagements we are duty bound to deal with the issue from a sanctioning perspective. Our preference is on working with industry to get this done. We are taking a nominal view.
“It will be measured on a case by case basis, but we are looking at a rule of thumb of around about R50 000 for the late outstanding returns that are due to the FIC at this stage. “Obviously we have the discretion to increase it substantially and depending on a case by case basis and we can obviously issue a higher penalty, but the focus is on ensuring that we get the returns in because that's what matters first and foremost.”
Directive 6 requires the accountable institutions that are DNFBPs such as legal practitioners, trust and company service providers, estate agents, and casinos/gaming institutions, to submit their RCRs which were supposed to have been submitted by May 31,2023.
Malan said casinos had fully discharged their RCR obligations while trust service providers and company service providers had made good progress, although they must submit all outstanding returns immediately.
The submission of all outstanding RCRs must be addressed urgently because the FIC is required to report to the FATF on progress in this area in May.
Malan said it was clearly “not advisable” for the FIC to not meet the May deadline as it would raise several negative messages to the industry.
He said the impact might be such that the non-compliant estate agents and legal practitioners sector would be viewed domestically and internationally as just industries that were not taking their responsibilities seriously.
“That, unfortunately, is a perception we have no control over. So business is in charge of its own reputation here. And it could mean that people start to question whether these industries are fit and proper industries.
“If we fail to take action, it's a further whammy for us because now we have a situation where the industry is not discharging its obligations.
“If the supervisor is not taking action in accordance with the powers, it's another black mark. We can't afford to have such perceptions and black marks against our name. It would mean that we would fall off the cliff because we will only then have time in the next report which is in September report to report on an issue that we are months late on.”
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