Estate agents say they’re misrepresented in FATF compliance issue

Some estate agents have hit back at claims that they are holding up SA’s removal from the Financial Action Task Force (FATF) grey list.

The latest stats from the Financial Intelligence Centre (FIC) show just 60% of legal practitioner offices and 66% of estate agents have submitted risk and compliance reports (RCRs) as required by the FATF.

This is an improvement on the 52% and 42% compliance rates for legal practitioners and estate agents announced in February, but nowhere near the level required to lift the greylisting.

ALSO READ: SA’s removal from grey list in jeopardy over non-compliance by lawyers and estate agents

However, there is a possibility that the FIC is basing its percentage compliance rates on incorrect data.

“The industry is supportive of the FIC’s endeavours in this regard and we have communicated the urgency of the matter to our members,” says Jan le Roux, chief executive of the Real Estate Business Owners of South Africa (Rebosa).

“We are however of the opinion that the FIC is basing its assessment of the situation on incorrect data. We have reason to believe that many estate agencies have stopped trading but have omitted advising [the] FIC accordingly. Hence, the FIC would be under the impression that no responses were forthcoming from operating companies.

“We have communicated this concern to the FIC and suggested that they liaise with the PPRA [Property Practitioners Regulatory Authority] in this regard, which, to the best of my knowledge, has not occurred as yet.”

ALSO READ: Godongwana’s plan to get SA off the grey list

The FIC previously said there are roughly 16 000 legal practitioner offices and 9 000 estate agents in SA – though it appears the latter figure could be lower. 

The grey list makes it more difficult for SA companies to access overseas capital and imposes higher due diligence standards when dealing with foreign businesses and banks. Krutham (formerly Intellidex) estimated this could cost the economy 1% of GDP a year in an optimistic scenario and 2-3% in a more pessimistic one.

According to the FIC, other sectors holding up the greylisting removal are trust service providers (74% compliant) and company service providers (76%).

SA was placed on the list in early 2023 for lapses in combatting money laundering and terrorist financing. It hopes to be removed from the list in 2025. One apparent fear is that lawyers’ and estate agents’ trust accounts could be used to launder criminal proceeds or finance terrorism.

US takes action against Isis affiliates in SA

Last week, the US said it would take action against three individuals, two of them based in SA, for their involvement in funding and supporting the Islamic State of Iraq and Syria (Isis).

Abubakar Swalleh is a South Africa- and Zambia-based Isis operative who the US alleges has been involved in robberies and kidnaps for ransom and facilitated the movement of funds and Isis-affiliated individuals to SA. The US also alleges that Zayd Gangat is an SA-based Isis facilitator and trainer.  

“Isis leaders in South Africa have historically used robbery, extortion, and kidnap for ransom operations to generate funds for the group,” says the US Treasury in a statement.

The real question is how did we land up here?

While the US action illustrates the penalties of sluggish counter-terrorism financing enforcement, Craig Hutchison, joint CEO of Engels & Völkers, says it is misguided to blame lawyers and estate agents for standing in the way of SA’s exit from the greylisting.

“I do believe that everyone is doing their utmost to rectify the grey listing. The grey listing as we know affects our businesses dramatically. The bigger question is: how did we land up on the grey list in the first place and is the FIC Act (FICA) in its current form effective, as it clearly did not stem the flow of millions during the state capture period?”

ALSO READ: South Africa greylisted by global watchdog FATF

Hutchison adds that estate agents and lawyers are being scapegoated by institutions such as the government and the banks that had the means to address the issues that landed SA on the grey list but “could not or did not want to get it right”.

“A relook at how FICA can be implemented in a meaningful way between various industries is needed as there seems to be a shotgun approach being applied that is not only onerous on business owners but also extremely frustrating and cumbersome to the majority of law-abiding citizens.”

For example, when a money transfer is made from a client’s bank account, it should be the bank’s responsibility to ensure the validity of the account and the transaction. “If a client pitches up with a caseload of money, then absolutely every red flag should be going off and the necessary reporting should take place,” adds Hutchison.

The real estate sector should then be tasked with the following:

• Ensuring the seller is the legal owner of the property;
• Collecting all Fica information for both buyers and sellers;
• Checking this information against the Targeted Financial Sanctions list on the FIC website for any red flags; and
• Reporting any physical cash deposits into the estate agency’s trust accounts.

“From then, the conveyancing attorneys and banks can carry out the rest [of the compliance obligations] to cover the FICA,” says Hutchison.

ALSO READ: Here’s how ANC government dropped the ball with greylisting

“A complete relook of the application of the Act needs to be done in haste to solve this problem. We are getting so tied up in red tape that the criminals are slipping through the net.”

Non-compliant law firms’ embarrassing’ the profession

Stephen Thomson, director at Thomson Wilks Attorneys, says non-compliant law firms are embarrassing to the legal profession.

“It is also seriously problematic because this recalcitrance presents a severe obstruction to government’s plans [for] the removal of the FATF grey listing. Despite the threat of targeted FIC inspections and harsh financial sanction, 40% of law firms remain non-compliant and have still not delivered RCR reports which were due on 31 May 2023.”

Thomson proposes a coordinated approach by the FIC, the Legal Practice Council (LPC) and the banks, with the threat of withholding Fidelity Fund certificates for non-compliant firms. 

“Attorneys and law firms are governed by the Legal Practice Act. For an attorney to be lawfully entitled to practice that attorney must be in possession of a Fidelity Fund certificate which is issued annually by the LPC. Every law firm is also required to have a trust account in terms of S86 of the Act.

“If the FIC were to coordinate with the LPC and the banks who provide the trust account facilities, by having the LPC refuse to issue Fidelity Fund certificates and having the banks suspend the operation of trust accounts until the RCR reports have been submitted, this would immediately prevent the delinquent law firm from conducting business. 

ALSO READ: Getting SA off greylist by 2024 not impossible

“This approach, rather than relying on the threat of imposing penalties, would create the urgency needed by FIC from these law firms to become compliant.”

This article was republished from Moneyweb. Read the original here