Continued non-compliance by a large number of estate agents and legal practitioners with their obligations under the Financial Intelligence Centre Act (FICA) will severely hamper South Africa’s efforts to be removed from the Financial Action Task Force’s grey list, the Financial Intelligence Centre (FIC) has warned.
The non-compliance in question is the failure by many of these accountable institutions to submit the risk and compliance return (RCR) required in terms of Directive 6, which was issued on 31 March last year. The RCR was supposed to have been submitted by 31 May 2023.
Although the deadline for filing the RCR has long passed, the return can still be accessed on the FIC’s platform at this link, and entities that have not already done so should complete and submit the return.
Following the poor response to Directive 6, the FIC has made repeated requests – via statements, webinars, and industry bodies – for the relevant entities to comply. But its pleas have not had the desired effect.
Read: FIC issues ‘final demand’ to accountable institutions to comply with Directive 6
On 1 February, the FIC briefed the media on why compliance with Directive 6 is important, and it is clear the Centre’s patience with the non-compliant entities has expired. It has started to issue notices of intention to sanction.
Directive 6 requires the following accountable institutions listed in Schedule 1 of FICA to submit the RCR:
- legal practitioners (item 1 on Schedule 1);
- trust and company service providers (item 2);
- estate agents (item 3); and
- casinos/gaming institutions (item 9).
The FIC said casinos have fully discharged their RCR obligations. Trust service providers and company service providers have made good progress in filing their RCRs, although they must submit all outstanding returns immediately.
But there has been “a disappointingly poor response” from the estate agent and legal practitioner sectors.
Christopher Malan, the FIC’s executive manager for compliance and prevention, said some 9 000 estate agents and 16 000 legal practitioners were registered with the Centre. In both cases, compliance with Directive 6 was about 50%.
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.
The FIC urged all delinquent designated non-financial businesses and professions (DNFBPs) that are accountable institutions to submit their outstanding RCRs without delay because this will help improve South Africa’s chances of exiting the grey list.
Only accountable institutions that have registered with the FIC and received an identity number can submit an RCR.
Read: An accountable institution must register with the FIC to submit a risk and compliance return
Connection between the RCR and FATF compliance
Malan explained the connection between compliance with Directive 6 and South Africa’s removal from the grey list.
After the country was grey-listed on 24 February 2023, the FATF developed an action plan that requires South Africa satisfactorily to demonstrate its remediation of certain action items, to exit the grey list. Different timelines are associated with each action item.
The FATF gave South Africa – in effect, the FIC – until May to improve the supervision of DNFBPs by implementing and keeping up-to-date supervisory risk-assessment tools to identify DNFBPs at high risk of being abused for money laundering (ML), terrorist financing (TF), or proliferation financing (PF) purposes.
DNFBPs include the accountable institutions listed in Directive 6.
Malan said the FATF is particularly concerned about the risks related to estate agents and legal practitioners because of the role they play in facilitating property transactions. Criminals commonly use real estate in their illicit activities or to launder the proceeds of unlawful activities.
The FIC developed the RCR questionnaire as a tool to assist with identifying DNFBPs that are at high risk of being abused for ML/TF/PF purposes.
“The information obtained through the RCR is critical in enhancing the FIC’s risk-based supervision capability,” Malan said.
The FIC analyses the submitted RCRs to categorise a DNFBP as low, medium, or high risk and will conduct inspections of high-risk entities.
Without the RCR, the FIC cannot identify the universe of entities it must inspect, which, in turn, means South Africa cannot demonstrate to the FATF that it is fulfilling its supervisory responsibilities per the action plan.
The FATF’s deadline for the FIC to demonstrate that it is conducting inspections of high-risk DNFBPs is September.
Delinquent entities face inspections and sanctions
Malan emphasised that estate agents and lawyers should comply with Directive 6 not only to avoid administrative sanctions but also because compliance is in the national interest.
South Africa must demonstrate full, not partial, compliance with all the action items by the end of January 2025 to be removed from the grey list.
He added that non-compliance has a negative impact on international perceptions of the country’s property sector.
Another reason to comply is that estate agents and legal practitioners who do not submit an RCR are automatically deemed by the FIC as delinquent high-risk entities, which will result in an inspection.
Delinquent entities can also expect to receive an administrative sanction notice from the FIC.
The FIC may impose any one or more of the following administrative sanctions for non-compliance with a directive:
- a caution not to repeat the conduct that led to the non-compliance;
- a reprimand;
- a directive to take remedial action or to make specific arrangements;
- the restriction or suspension of certain specified business activities; or
- a financial penalty not exceeding R10 million in respect of a natural person and R50m in respect of a legal person.
The FIC will publish the names of the accountable institutions it sanctions, which may damage their reputation.
Malan said the Centre will definitely sanction delinquent entities, even if this means it will have to issue thousands of notices.
Help with FICA compliance
Moonstone Compliance offers compliance, consulting, and training options for accountable institutions of all types and sizes to help them meet the requirements of FICA.
Moonstone Compliance provides a wide range of services, from providing documentation to implementing a full compliance framework. You can select a combination of services and have them customised according to your needs.
Click here to read more about Moonstone Compliance’s suite of FICA services or submit an online enquiry.
Free FIC resources
You can use this directory to find the FIC’s free resources on Directive 6. Download the spreadsheet and click on the “Directives 6&7” tab.
