Fica compliance: identify risks, avoid fines

Despite being viewed as an administrative and burdensome expense with excessive paperwork sometimes causing potential delays to establishing business relationships and concluding transactions, Financial Intelligence Centre Act (Fica) compliance is more crucial than ever.

With a staggering 2% to 5% of global GDP being laundered annually, the imperative for robust anti-money laundering and counter terrorist/proliferation financing control measures cannot be overstated, particularly in the wake of the country’s recent greylisting.

Since its inception in 2001, the 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.

However, the rationale behind the existence of Fica is compelling. Fica plays a crucial role in identifying the proceeds of money laundering, terrorist funding and tax evasion and the people behind it. SA’s greylisting by the Financial Action Task Force in 2023 proves SA still doesn’t have a proper handle on financial crime.

The government cannot solely be blamed for SA’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 frontline defence against SA being seen as a hotspot for financial crime.

DUE DILIGENCE AND COMPLIANCE CHALLENGES

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

For Fica to be more effective, accountable Institutions need to take compliance more seriously. 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 noncompliant. According to the Financial Intelligence Centre (FIC), about 80% of law firms fail to adhere to Fica requirements. Noncompliance carries significant consequences, including reprimands and fines of up to R50m for organisations.

INDUSTRIES MOST AT RISK

Authorities have identified many industries as vulnerable to exploitation by money launderers, terrorists, and proliferation financiers. These industries encompass a wide spectrum, including financial intermediaries, credit providers, legal practitioners, estate agents and dealers of 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.

Several companies fail to recognise their potential involvement in illegal schemes. For example, instances, such as gold smugglers in Zimbabwe bribing SA bank officials to launder money, demonstrate 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 goods they sell. 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, riskbased 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 that has been provided. The vast majority of clients will be run of the mill, but it’s important to always bear in mind not only the reputational risk if you’re caught up in a moneylaundering scheme but the potential fine associated with noncompliance.

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 everchanging face of money laundering and legislation, the companies at risk of being misused must also adapt.