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

SA’s removal from the Financial Act Task Force (FATF) grey list is in jeopardy due to non-compliance with reporting requirements, primarily by legal practitioners’ offices and estate agents – both of which have been identified as high-risk categories for money laundering and terrorism financing.

The Financial Intelligence Centre (FIC) has been given a May 2024 deadline by the FATF to demonstrate improved supervision of so-called Designated Non-Financial Businesses and Professions such as real estate agents, legal practitioners and dealers in precious metals and stones.

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It’s touch and go whether the FIC will meet its May deadline to report compliance of “risk-sensitive” entities to the FATF.

Risk and compliance reports

At a media presentation on Wednesday, the FIC’s head of compliance and prevention, Christopher Malan, warned that penalties are on the way for delinquent companies that do not provide risk and compliance reports as requested by the FATF.

Of the roughly 16 000 legal practitioner offices in the country, only 52% had submitted risk and compliance reports. The level of compliance among SA’s nearly 9 000 estate agents was lower at 42%.

Casinos are also required to submit risk and compliance reports, though there are just 38 of these in the country, and they are relatively well supervised, said Malan.

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The rate of compliance expected by the FATF is 100% or “close to 100%”, added Malan.

The FIC has eight reporting deadlines falling due in May, and should it miss these, “we’ll fall off a cliff”, said Malan – meaning the country’s credibility will be harmed at a time it is trying to remove itself from the grey list.

“If we don’t meet the May deadline, it raises the perception that business [in SA] is viewed locally and internationally as not taking its responsibilities seriously. We have no control over that. Business is in charge of its own reputation,” said Malan.

Warnings issued

The FIC has already started issuing warnings and notices to delinquent companies, and the next step is to impose penalties, which can run into millions of rands.

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The FIC has wide latitude in the scale of penalties it can impose, and this will be assessed on a case-by-case basis. Malan indicated a fine of about R50 000 for late reports.

The May 2024 deadline is one of several such deadlines imposed by the FATF leading up to January 2025. By this time, SA is expected to demonstrate a sustained increase in investigations and prosecutions of serious and complex money laundering, particularly involving professional money laundering operators.

“We like to think we will not miss any of the deadlines, so we are appealing to the business community to meet their commitments. But it needs serious work before then,” added Malan.

The risk and compliance reports require companies to provide details that are, in many instances, required by other regulatory bodies, such as the company structure, the number of branches, employees, size of turnover and line of business.

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Risk reporting requires information on perceived risks in the company, details on politically exposed persons, staff training and reporting on suspicious cash transactions.

High-risk categories

Two new categories added to the FIC’s compliance monitoring are company and trust service providers.

The FIC says nearly 1 000 company service providers have registered with the agency, with compliance currently running at about 45%.

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All “accountable institutions” (as defined in the FIC Act) are required to register with the FIC and submit reports electronically. Once on the FIC database, companies receive regular notifications and updates on terror financing.

The schedule of accountable institutions was recently updated to include several new categories, such as co-op banks, anyone carrying out the business of a credit provider or money transfer operator, crypto exchanges, and dealers in high-value goods.

The FIC says its main concern is the two high-risk categories: legal practitioner offices and estate agents.

“How committed are these two groups to be part of the solution and part of the fight against money laundering? This could have a reputational impact locally and internationally,” said Malan.

“We have to start sanctioning because we cannot agree to this level of non-compliance.”

This article was republished from Moneyweb. Read the original here