Can SA escape grey list?
MAY DEADLINE: FIC MUST PROVE COMPLIANCE OF DELINQUENT ENTITIES
Lawyers, precious metals dealers, estate agents identified as ‘high risk’.
South Africa’s removal from the Financial Act Task Force (FATF) grey list is in jeopardy due to noncompliance 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 socalled Designated Non-Financial Businesses and Professions, such as real estate agents, legal practitioners and dealers in precious metals and stones.
It’s touch and go whether the FIC will meet its May deadline to report compliance of “risk-sensitive” entities to the FATF.
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 SA, 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. The rate of compliance expected by the FATF is 100% or “close to 100%”, added Malan.
The FIC has eight reporting deadlines due in May, and should it miss these, “we’ll fall off a cliff”, said Malan – meaning SA’s credibility will be harmed at a time it’s trying to remove itself from the grey list.
“If we don’t meet the deadline, it raises the perception that business 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,” he said.
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 rand.
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 deadline is one of several such deadlines imposed by the FATF leading up to January next year. 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.
Risk reporting requires information on perceived risks in the company, details on politically exposed persons, staff training and reporting on suspicious cash transactions.
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 compliance running at about 45%.
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.