The Financial Intelligence Centre (FIC) is following through on its threat to use sanctions to compel designated non-financial business and professions (DNFBPs) to submit risk and compliance returns (RCRs).
Moonstone reported last month on the FIC’s appeal to high-risk business sectors that are subject to the Financial Intelligence Centre Act (FICA) to complete and submit the outstanding RCRs required in terms of Directives 6 and 7, which were issued last year.
The Centre was particularly concerned about the poor rate of submission by legal practitioners and estate agents, both of which are accountable institutions in terms of Schedule 1 to FICA.
Read: FIC urges delinquent estate agents, lawyers to comply to help SA exit the grey list
Following the appeal, there has been a marginal increase in RCR submissions by DNFBPs. However, of the total number of estate agents (about 9 000) and legal practitioners (about 16 000) registered with the FIC, their RCR submission rate is still at 55% and 60%, respectively. “This is not good enough,” the Centre said in a statement on 15 March.
In addition to legal practitioners and estate agents, Directive 6 applies to trust service and company service providers and casinos and gambling institutions that were registered with the FIC.
Directive 7 applies to credit providers, high-value goods dealers, the South African Mint Company, crypto asset service providers, and the South African Post Office.
The FIC said has already issued 264 notices of intention to sanction, with particular emphasis on legal practitioners and estate agents, on delinquent institutions for non-compliance with Directive 6. It will be issuing notices of intention to sanction on delinquent institutions subject to Directive 7 later in March.
BusinessLive quoted the FIC’s acting director, Pieter Smit, as saying that obtaining legal practitioners and estate agents’ co-operation to submit the required information was a challenge because they were not used to complying with regulatory pressure.
“We have started imposing administrative sanctions, but we have also taken the view that if you are aware of your obligations and you choose not to comply, we are going to assume that you are high risk — otherwise why wouldn’t you want to tell us about your business? This is the message we are starting to spread in our discussions with financial institutions which bank these institutions. Hopefully, this will improve behaviour,” Smit was quoted as saying.
Christopher Malan, the FIC’s executive manager for compliance and prevention, said legal practitioners and estate agents are considered high-risk for money laundering and terrorist financing abuse. The Centre repeated its call for these sectors urgently to ramp up their RCR submissions, “which will be seen as their contribution to help exit South Africa from the Financial Action Task Force (FATF) grey list”.
Malan said that by completing and submitting the RCRs, the identified sectors can show they are aware of the risks their businesses face of being abused for money laundering and terrorist financing purposes.
“More importantly, the submission of the outstanding RCRs enables the FIC to risk profile each submitting individual DNFBP accountable institution, to determine the higher-risk entities for risk-sensitive supervisory inspection purposes.
“The information obtained through the RCR is critical in enhancing the FIC’s risk-based supervision capability. By not completing and submitting these returns, we cannot develop a credible response when we present our next FATF update report on 22 March 2024. We would like South Africa to position to the FATF the state of RCR submission adherence with the best-possible RCR submission figures.”
The FATF developed an action plan for South Africa to exit the list. A critical part of the action plan requires that South Africa, and more specifically, the FIC, must identify entities that are at high risk of being abused for money laundering, terrorist financing, and proliferation financing purposes. The FATF’s timeline for South Africa to meet this particular action item is May 2024. Hence the urgent need for the submission of all outstanding RCRs.
The RCR is key to the identification of high-risk entities. It is also an important tool for entities to improve their understanding the risks they face of money laundering, terrorist financing, and proliferation financing abuse, the FIC said.
The FIC, as the supervisor of DNFBPs, needs to implement and keep up-to-date supervisory risk-assessment tools to identify higher-risk non-financial businesses and professions, such as estate agents and legal practitioners, as a basis for risk-based supervision.
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