Legal practitioners, including advocates who deal directly with clients from the general public, are considered accountable institutions in terms of the Financial Intelligence Centre Act (FIC Act).
The sector can mitigate the risk of criminal exploitation by meeting their FIC Act obligations, which include registering with the Financial Intelligence Centre (FIC) and filing regulatory reports.
The services provided by legal practitioners – such as property conveyancing services, the formation and management of legal entities, and the oversight of client accounts – make them potentially vulnerable to money laundering and terrorist financing abuse.
The sector risk assessment of legal practitioners and the FIC’s Public Compliance Communication 47A provide sector-specific guidance to legal practitioners. Both documents are available on the FIC’s website, www.fic.gov.za.
Submitting a risk and compliance return
All legal practitioners are urged to submit without delay their risk and compliance returns (RCRs) in respect of Directive 6. Of the legal practitioners registered with the FIC, only 61% have submitted their returns. Completed RCRs enable the FIC to measure legal practitioners’ understanding of the money laundering and terrorist financing risks they face. In addition, the returns will help to identify institutions at higher risk so that appropriate, risk-based supervision can be applied.
Legal practitioners who have failed to submit their RCRs are deemed to be non-compliant and will face administrative sanctions. Legal practitioners can still complete their questionnaires, which are accessible via the FIC’s website. On the home page, scroll down and click on the link “Accountable Institutions: File your 2023 risk and compliance return today”.
Registration with the FIC
All accountable institutions are required to register with the FIC as part of their FIC Act obligations. Registration is necessary for legal practitioners to submit the required regulatory reports to the FIC. Each individual branch of a law firm is required to register with the FIC. Registration with the FIC is free and must be completed electronically using the FIC’s online registration system called goAML, which is accessible on www.fic.gov.za. The goAML accountable institutions registration guide and the FIC’s PCC 5D can consulted for guidance on how to register.
Reporting to the FIC
As accountable institutions, legal practitioners must monitor client transactions to identify suspicious and unusual transactions and activities, as well as other reportable activities. There are four primary regulatory reporting streams for legal practitioners, which include:
- cash threshold reports (CTRs) (Guidance Note 5C provides more information),
- terrorist property reports (TPRs) (Guidance Note 6A provides more information), and
- suspicious and unusual transaction reports (Guidance Note 4B provides more information).
Suspicious and unusual transaction and activity reports
Suspicious and unusual transaction reports (STRs) and suspicious and unusual activity reports (SARs) must be filed as soon as possible but no later than 15 days from a person becoming aware of the suspicious and unusual transaction or activity. These reports must be filed regardless of the amount of money involved.
The legal practitioners’ sector risk assessment has highlighted certain indicators of potential money laundering, terrorist financing, and proliferation financing that could raise a suspicion:
- The use of cash for payment of services or payment into trust accounts.
- Trusts, shell companies, and other legal arrangements with a potential to conceal the true identity of the ultimate beneficial owners of the clients.
- High-risk clients linked to institutions or persons on the targeted financial sanctions lists.
- Politically exposed persons and high-net-worth individuals, who are internationally regarded as high-risk clients.
- Clients who offer to or do pay extraordinary fees for services that would not warrant such fees.
- Payments from non-associated or unknown third parties and payments for fees in cash where this practice is not typical.
- Funds are received from or sent to a foreign country when there is no apparent connection between the country and the client.
- Funds are received from or sent to a foreign country that is considered to be geographically high risk for money laundering or terrorist financing or is known to have extensive bank secrecy laws.
- The client uses multiple bank accounts or foreign accounts without good reason.
- Instances where clients, for no apparent reason, change the way in which transactions are concluded or change their instructions to the legal practitioners on short notice or in a manner that does not make economic sense.
An accountable institution can continue with the transaction when an STR has been submitted to the FIC. However, it may not disclose that a report was submitted or the content of the report. Doing so would amount to “tipping off”.
Targeted financial sanctions
Section 28A of the FIC Act requires that accountable institutions scrutinise client information against the targeted financial sanctions (TFS) list, as found on the FIC’s website to determine whether or not that person is a designated person or an entity on the TFS list.
PCC 44A provides guidance on the TFS obligations and the risk-based approach to combating terrorist financing and proliferation financing.
Freezing of property
In terms of section 26B of the FIC Act, no one may provide financial or other services to persons or entities designated on a TFS list. Legal practitioners are prohibited from establishing a business relationship or conducting a single transaction with designated persons or entities. This includes not releasing any property to the designated person or entity and is referred to as an “asset freeze”. The accountable institution must have processes in place to ensure that “freezing” occurs without delay where it is in the possession or control of a designated person’s or entity’s property. Without delay means within a matter of hours. The urgency is because any flow of funds might facilitate terrorist activity and therefore the funds must be frozen.
Terrorist property report
Section 28A of the FIC Act requires accountable institutions to file a terrorist property report (TPR) report with the FIC if the business knows that it possesses, or controls property linked to terrorism or designated persons and entities. It is an offence for an accountable institution to continue with the transaction when a TPR has been submitted to the FIC. TPRs must be reported without delay and no later than five days from becoming aware.
For more information and guidance refer to the FIC website for various guidance notes and public compliance communications. Alternatively, contact the FIC’s compliance contact centre on +27 12 641 6000 or log an online compliance query on the FIC website.
