The FIC and Estate Agents
WHO IS THE FIC
The Financial Intelligence Centre (FIC) is the administrator of the Financial Intelligence Centre Act, 2001 (Act 38 of 2001), which is central to South Africa’s legislative framework on anti-money laundering and counter the financing of terrorism.
The FIC Act established the FIC as the country’s national centre for gathering and analysing financial data. The FIC is mandated to identify funds generated from criminal acts, to combat money laundering and terror financing. The FIC Act imposes certain obligations on estate agents, as they are vulnerable to money laundering and terror financing and compels them to report to the FIC.
Using the information provided by these sectors, the FIC develops financial intelligence reports for domestic competent authorities such as the South African Police Service and the South African Revenue Service, as well as international partners and peers. This information gathering and report development is therefore largely reliant on the compliance of institutions and the submission of reports from the identified sectors.
WHAT IS MONEY LAUNDERING
Money laundering refers to the concealing or disguising of the nature, source, location, disposing or movement of the proceeds of unlawful activities.
Criminals who generate an income from their criminal activities usually follow three stages in laundering their money. The first stage is commonly referred to as ‘placement’. This is when criminals bring their illegally derived proceeds into legitimate financial systems. An example of this would be splitting a large portion of cash into smaller sums and thereafter depositing the smaller amounts into a bank account, or purchasing a series of monetary instruments (cheques, money orders, etc.) with the smaller amounts.
The second stage is called ‘layering’. During this stage, the launderer engages in a series of transactions, conversions or movements of the funds in order to cloud the trail of the funds and separate them from their illegitimate source. The funds may be channelled via instruments such as, for example; the purchase and sale of property, or other investments. Alternatively, the launderer may simply wire the funds through a series of accounts to various banks across the globe. The third stage is ‘integration’. This generally occurs after the successful stages of placement and layering. The launderer at this stage causes the funds to re-enter the economy and appear to be legitimate. The launderer might choose to invest the funds into real estate, luxury assets, or business ventures.
FIC ACT AND ESTATE AGENTS
The FIC Act lists estate agents –as defined in the Estate Agency Affairs Act, 1976 (Act 112 of 1976) – as accountable institutions and requires them to be fully compliant with the FIC Act. Why are estate agents listed in the Act as accountable institutions?
The property sector has been identified as being at risk of being abused by money launderers. This sector has been used to hide funds and as a vehicle to help criminals introduce their proceeds into the financial system.
The property space has the potential for criminals to put into practice all three aspects of typical money laundering activity: placement, laying and integration. Furthermore, they are able to clean or hide large amounts of money in a single transaction. The purchase of a dwelling, plot or building for a large sum of money, for example, may not raise too many alarm bells. For these reasons, estate agents can become easy targets for criminals wanting to use them to launder their illicit funds. Given that estate agents are familiar with their industry, their clients’ behaviour and their habits, these industry experts are also best suited to identify when certain behaviour is suspicious or unusual.
Central to being listed under Schedule 1 of the FIC Act as accountable institutions, estate agents are required to fulfil seven obligations to achieve compliance with the FIC Act.
AMENDMENTS TO THE FIC ACT
The amendments to the FIC Act commenced on 2 October 2017. As an estate agent, you should already be working to comply with the new requirements. After April 2019, if you are found to be non-compliant by your supervisory body, enforcement processes will commence. This may involve remedial action and/or penalties.
Penalties for non-compliance can include administrative sanctions and criminal prosecution. This may amount to a maximum of 15 years in prison or a fine not exceeding R100 million.
Penalties will depend on the contravention and the severity of the offence.
Compliance obligations that estate agents must fulfil within their business:
The diagram below depicts the FIC Act obligations for all accountable institutions:
Client identification and verification – refers to the understanding of who your client is. This is done by obtaining information from your client and validating it according to the risk that this client poses from a money laundering perspective.
Record keeping – relates to the storage of documentation and information for both client documents as well as transactional information.
Reporting – there are three main reporting requirements for accountable institutions:
- STR – suspicious or unusual transaction report
- CTR – cash threshold report
- TPR – terrorist property report.
Risk Management and Compliance Programme – this is the document that contains the estate agency’s view on how to ensure its compliance obligations. It needs to include the risk-based approach that the entity will follow.
Compliance officer – the board of directors, or the senior management of an estate agency are responsible for compliance with the FIC Act. To assist management in discharging their obligations, they may appoint a compliance function. A compliance officer must have sufficient competency and seniority to ensure effectiveness.
Training of employees – ongoing training to be provided, on the FIC Act as well as the estate agency’s RMCP
Registration with the FIC – all estate agents are required to register with the FIC. An estate agent will receive an ORG ID number once successfully registered with the FIC. Registration is free of charge on the FIC’s website, www.fic.gov.za.