Be on the lookout for money launderers

Be on the lookout for money launderers

MAIN IMAGE: Estate agencies can be an easy target for money launderer schemes. Be informed how to avoid becoming their victim.

The property sector can be appealing for criminals. Through a property purchase or two, criminals can dispense with fairly large amounts of their proceeds. In this way, and with relative ease, they can legitimise their proceeds, and at the same time, ‘clean’ their money through the financial system.

For this reason, estate agents can easily become the targets of criminals. Being unaware or inattentive to the behaviour of criminals and their potential to abuse, the sector can lead to irrevocable destabilisation of the agency, the industry and overall perception of the industry.

To legitimise their ill-gotten gains, criminals need to be able to introduce their proceeds into the financial system, and disguise how they source and dispose of their money. They need to fully integrate their money into the economy to make their proceeds appear to be legitimate through transactions such as deposits, down payments, home loans, or construction and renovation expenses. In this way, they can clean, hide and integrate their ill-gotten funds.

The experience and understanding estate agents have of their industry, and of typical client behaviour are important safeguards for the industry. Therefore, estate agents are best suited to identify when certain client behaviour appears suspicious or unusual. When transactions arouse their suspicions, section 29 of the Financial Intelligence Centre Act, 2001 (Act 38 of 2001) calls upon estate agents to report these to the Financial Intelligence Centre (FIC) in the form of suspicious and unusual transaction reports (STRs).

Listed in the FIC Act as accountable institutions, estate agents are one of 16 categories of business required to fulfill compliance obligations, which include registering with and submitting regulatory reports to the FIC.

All businesses in South Africa are required to submit STRs, not only accountable institutions. The obligation to submit STRs requires all those involved in business to raise their levels of awareness, vigilance and to make their contribution to fight against crime.

Possible money laundering risks in the estate agents’ sector

  • Purchase of property using large cash amounts
  • Buying building materials in cash or through successive deposits in the accounts of the construction material stores
  • Acquiring bonds and/or settlement of the bonds using large cash amounts
  • Purposely defaulting on the payment of bond instalments, and later settling the bond using lump sum payments (cash, wire transfers, using other property, series of transactions)
  • Foreign nationals using South African citizens to make large investments directly in property
  • Use of shell companies to buy property
  • Upfront payment for long leases by a tenant who has an unsound financial background
  • The use of corporate structures for buying and/or owning companies or corporations which own property
  • Registering property(ies) using third parties such as minors, spouses or other family members, companies trusts etc. with the intention of evading the payment of tax
  • The use of unregistered estate agents
  • Using third parties unnecessarily during property transactions
  • Using unusual methods for payment
  • Complicated structures involving multiple jurisdictions for no apparent reason
  • Transactions in which a loan is granted, or an attempt is made to obtain a loan, using cash collateral or where this collateral is deposited abroad.

Submitting STRs

STRs must be submitted within and no later than 15 days after suspicion regarding a transaction or activity.

Submitting a section 29 report does not prevent the business from continuing with the transaction, and the transaction may therefore continue. The reporter, however, is obliged not to disclose that an STR has been submitted to the FIC. By submitting the report, the business is simply alerting the FIC that it suspects a client may be abusing the entity for purposes of money laundering.

Terrorist property report

Another regulatory reporting obligation, terrorist property reports (TPRs), is related to section 28A of the FIC Act. To comply with this obligation, an estate agency or any other accountable institution must report property under its control or which is known to be connected to the financing of terrorist activities. This means:

  • An accountable institution which has in its possession or under its control property owned or controlled by or on behalf of, or at the direction of a terrorist.
  • An accountable institution must scrutinise its client information to determine whether such person is a terrorist, and or a sanctioned person.

TPRs must be submitted within and no later than five days of becoming aware of the facts. The business may not proceed with the transaction once becoming aware of the facts.

Information extracted from regulatory reports such as STRs and TPRs assists the FIC in its analysis and development of financial intelligence reports. The FIC provides financial intelligence to law enforcement and prosecutorial authorities to assist them in their investigations and applications for forfeiture of assets. In the 2018/19 financial year estate agents submitted 71 section 29 reports to the FIC.

Reports can only be submitted after the business has completed a once-off registration with the FIC via the website, www.fic.gov.za.

Targeted financial sanctions

In April 2019 section 26A, 26B and 26C of the FIC Act came into force. Targeted financial sanctions measures generally restrict sanctioned persons and entities from having access to funds and property under their control and from receiving financial services in relation to such funds and property.

To effect these sanctions, the FIC Act requires that accountable institutions freeze property and transactions of persons and/or entities related to financial sanctions imposed by resolutions of the United Nations Security Council. Section 26(A) of the FIC Act outlines this obligation.

The FIC website carries a regularly updated listing of sanctioned persons and entities identified by the United Nations Security Council. Users may subscribe to the FIC to receive updates and alerts regarding the listing. Accountable institutions are required to screen their client information, including transactions against the targeted financial sanctions list. The process for doing this should be clearly indicated in the accountable institutions’ risk management and compliance programme.

Accountable institutions must not process any transactions which include sanctioned persons or entities. Should the accountable institution further identify that this client has in their possession terrorist property or that the client is in control of such property on behalf of a person or entity, then the accountable institution must submit a TPR.

For more information on the format of the reports required by FIC, visit the Publications tab on their webpage which has some typologies and indicators that can be used as a guide. The FIC also provide guidance notes that give context as to what is expected.

Article issued by the Financial Information Centre (FIC)

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