Why FICA compliance matters to all of us

FICA compliance matters to all of us because the importance of robust anti-money laundering and counter-terrorist/proliferation financing control measures cannot be overstated.

Despite being regarded as an administrative and burdensome expense, with excessive paperwork sometimes causing potential delays to establishing business relationships and concluding transactions, FICA compliance is more crucial than ever, Hawken McEwan, director of risk and compliance at DocFox, says.

It is particularly important for the country to get off the greylist, he says.

Since its inception in 2001, the Financial Intelligence Centre Act (FICA) has been synonymous with compliance challenges and seemingly endless documentation. Many accountable institutions fulfil the requirements with reluctance, if at all, while their customers find the frequent need to verify their identity burdensome.

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Rationale behind FICA is compelling

However, the rationale behind the existence of FICA is compelling, McEwan argues. “FICA plays a crucial role in identifying the proceeds of money laundering, terrorist funding and tax evasion and the people behind it. South Africa’s greylisting by the Financial Action Task Force (FATF) in 2023 proves that we still do not have a proper handle on financial crime.”

Government is not the only culprit in South Africa’s deficiencies. “While resources in our regulators, police and prosecuting authorities are stretched, the private sector must also be held accountable. Companies serve as the front-line defence against South Africa being seen as a hotspot for financial crime.”

FICA aims to ensure that accountable institutions have sufficient and accurate knowledge of their clients’ true identities and motivations, empowering them to alert authorities about any suspicious activities or transactions, McEwan says.

“Without information from people exposed to these attempts to clean dirty money, authorities have nothing to base their investigations on.”

ALSO READ: How far is South Africa with getting off the greylist?

FICA can be more effective if everyone participates

For FICA to be more effective, accountable institutions must be more serious about compliance. McEwan points out that FICA places an obligation on accountable institutions, such as credit providers, high-value goods dealers, and financial intermediaries, to put various controls in place to identify and report suspicious activity.

Yet for many industries, compliance remains a tremendous challenge. “Legal practitioners and estate agents are two categories of accountable institutions that have been consistently declared non-compliant.”

McEwan says, according to the Financial Intelligence Centre (FIC), approximately 80% of law firms fail to adhere to FICA requirements. Non-compliance carries significant consequences, including reprimands and fines of up to R50 million for organisations.

Authorities have identified many industries as vulnerable to exploitation by money launderers, terrorists and proliferation financiers, including financial intermediaries, credit providers, legal practitioners, estate agents and dealers in high-value goods.

“These industries are at a higher risk simply because of the products and services they offer, whether they are moving money through bank accounts, changing currency, sending money offshore or selling luxury cars, jewellery or properties.”

ALSO READ: South Africa greylisted by global watchdog FATF

Many companies fail to recognise their role

McEwan says several companies fail to recognise their potential involvement in illegal schemes. Gold smugglers in Zimbabwe bribe South African bank officials, for example, to launder money, demonstrating how easily criminals can conceal their illicit activities and coerce others.

Besides banks, high-value goods dealers are also at risk of receiving illicit funds for the goods they sell. McEwan says they are a recent addition to FICA’s list of accountable institutions, but there is still much to do to educate them about how to implement appropriate, risk-based controls.

FICA mandates accountable institutions to thoroughly examine their clients using enhanced due diligence in situations where there is potentially higher risk, such as requesting documentary proof of the information provided, he says.

“The vast majority of clients will be run of the mill, but it is important to always bear in mind not only the reputational risk if you are caught up in a money laundering scheme but the potential fine associated with non-compliance.”

Given the persistent threat of financial crime, organisations cannot afford to lower their guard. “As technology advances and new markets are created, money launderers, terrorists and proliferation financiers are finding increasingly innovative ways to use these systems, tools and markets to evade detection.”

To counter the ever-changing face of money laundering and legislation, the companies at risk of being misused must also adapt, McEwan says.