There have been crucial and consequential developments with regards to ‘accountable institutions’ such as estate agencies, attorneys, and banks, in terms of the Financial Intelligence Centre Amendment Act 1 of 2017 (“the Act”). The Act came into effect on 2 October 2017 as the previous Act was not sufficiently in line with South Africa’s obligations as a member of the Financial Action Task Force. This Task Force is an international institution that fights organized crime such as the funding of terrorist activities and money laundering. Thus, the Act was promulgated in order to close the gaps that existed, enabling authorities to be aware of when the movement of money involves illicit activities. It is for this reason that the provisions of the Act speak to offenders as well as to those accountable institutions that have business relationships with transgressors.
The ‘seven pillars’ of the Act are as follows:
(1) Registration of the company with the Financial Intelligence Centre;
(2) Training employees;
(3) Reporting to the Financial Intelligence Centre;
(5) Appointment of a person who ensures compliance;
(6) Client identification and verification; and
(7) Installing a Risk Management and Compliance Programme.
The obligations the Act imposes include:
1. establishing and verifying the identity of clients;
2. reporting any suspicious transactions or any receipt of cash amounts above the prescribed amount to the Financial Intelligence Centre;
3. implementing internal rules to uphold the requirements of the Act;
4. monitoring transactions in an on-going and continuous way; and
5. taking measures to ensure riskier areas of a business are not used for money laundering.
In doing so, a risk-based approach has been adopted that, while being much more flexible, is stringent, giving accountable institutions the responsibility of identifying risks and then countering them in the appropriate manner, as it is such accountable institutions that have the most knowledge as to their clients and the types of businesses their clients are involved in.
An ‘accountable institution’ is any entity or person defined as such in Schedule 1 of the Act, such as attorneys, trustees, stock brokers, and management companies. This list is not a closed list, and as such, companies cannot rely on the fact that they are not specifically referred to in the Act. In terms of accountable institutions such as estate agents and conveyancing attorneys, there is the risk of money being laundered through the purchase of property.
Accountable institutions must uphold the abovementioned duties imposed by the Act whether it has a business relationship with its client (whether a natural person or a juristic entity), or whether it is involved in a once-off transaction. If the client of the accountable institution is acting on another entity or person’s behalf, the identity of the instructor and the authorization to act of the instructed must both be established. Thus, no anonymous clients or unverified clients may be interacted with.
Should the identity of a client be indiscernible, or should it be impossible for an accountable institution to ensure continuing due diligence of a client, it may not engage in any business with that client. In such a situation, a business relationship may not be initiated or any transactions concluded, or, if a relationship already is in existence, that relationship must be terminated. Furthermore, the accountable institution should seriously consider reporting the matter to the Financial Intelligence Centre, in terms of the Act.
Non-compliance with the obligations of the Act can result in a monetary fine of a significant amount, this being R10 million in a personal capacity, or R50 million in a business capacity. Such fines may even be applied to a once-off business transaction.
This article is a general information sheet and should not be used or relied on as legal or other professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your legal adviser for specific and detailed advice. Errors and omissions excepted (E&OE).
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