Sellers and landlords should adhere to new FIC Act requirements

MAIN IMAGE: Tiaan Pretorius, Manager for Seeff Centurion; Terrance Naidoo, LexisNexis South Africa chief technology officer

Danie Keet

Implementation of the FIC Act, or Financial Intelligence Centre Act, has as purpose to impose obligations on entities which are recognised as potential vehicles for financial crimes. These obligations regulate the way accountable institutions deal with their clients. Property Practitioners are one of sixteen categories of accountable institutions listed under schedule 1 to FICA.

According to the Act, the responsibility as an accountable institution includes identifying and verifying clients and ensuring that their information is correct and up to date.

There is an inherent money-laundering and terror financing risks for property practitioners. However, there has been some difference of opinion as to who the clients of property practitioners are that need to be subjected to financial scrutiny before concluding a transaction.

The Financial Intelligence Centre in collaboration with the National Treasury, South African Reserve Bank and Financial Services Board has published draft guidance that will be required to support the implementation of the FIC  Act, 2001 (Act No. 38 of 2001). The purpose of FIC is to root out money laundering and the financing of terrorism (MLFT), which are deleterious to the integrity of South Africa’s  financial system. The Act came into effect in July 2003 to combat financial crimes such as money laundering, tax evasion and terrorist financing.

These guidance notes also apply to property practitioners in the sense that all businesses are compelled to be aware and make sure that financial crimes are not committed within their own spheres of operation.

According to Clem Daniel of Cliffe Dekker Hofmeyr, who advised Rebosa on the matter, property practitioners are not any worse off than they were before the amendments to the Act. If anything, it should be easier to comply with FICA.

“Property Practitioners is a limited sector of the industry that deal only with real estate that were subject to the review. The risk management and compliance programme (RMCP), which describes an accountable institution’s internal FICA procedures, is now underpinned by the risk-based approach (RBA), which allows accountable institutions to tailor their RMCPs to their unique circumstances. The greatest difficulty will lie in the exercise of designing an RMCP, and the associated costs,” he says in his report.

Philip Langenhoven of the Financial Intelligence Centre in a report stated that “the point in time at which an accountable institution determines that a person is a prospective client or a client for the purposes of determining when the obligations of the FIC Act commence, should be spelled out in an accountable institution’s RMCP, both in respect of a business relationship and a single transaction. The accountable institution should therefore determine considering its particular business, who is to be regarded as a prospective client and client to apply the CDD (Customer Due Diligence) and other requirements in terms of the FIC Act.”

Practitioners within the sector in South Africa which include estate agencies and estate agents have been identified by the international anti-money laundering community as being potentially vulnerable for money laundering. Terrorist financing is the process by which individual terrorists and terrorist organisations obtain funds to commit acts of terrorism.

According to LexisNexis South Africa chief technology officer, Terrance Naidoo, the Act introduced the “Know Your Customer” requirements, where businesses have to establish and verify the identity of all clients before instituting a business relationship with them or concluding any transaction.

“In an era of increasing transparency, trust and integrity helps consumers make more informed choices. Consumers expect business protection and when enterprises fail in their duties due to non-compliance, they not only violate industry regulations but erode consumer confidence too.

“Institutions as well as companies can avoid serious consequences by having a well-coordinated compliance management system in place. Keeping abreast with updates and changes to regulations allows companies to identify threats long before they have serious impact on the business,” he said.

Langenhoven said the FIC conducted a preliminary risk assessment of the inherent money laundering and terrorist financing (ML and TF) risks affecting the estate agency sector in South Africa in 2019. Estate agents were surveyed to ascertain their views on the sector’s vulnerability to money laundering and terrorist financing.

“Based on international experience and these risk factors, it is evident that estate agents are at high risk of being potentially exposed to money. They should therefore take all necessary precautions to reduce their risk of exposure to being abused by criminals who want to launder their proceeds of crime through the sector.

“The risk of money laundering for the estate agency sector in South Africa, based on national and international experience, is classified as high and the inherent terrorist financing risk is regarded as low.”

Tiaan Pretorius, Manager for Seeff Centurion, said FICA was designed to help identify the proceeds of unlawful activities, to combat money laundering as well as to combat the financing of terrorist and related activities.

“Under the FICA, property practitioners are mentioned by name as being reportable institutions and must abide by the Act and their own Risk Management and Compliance Programmes. That means that all real estate businesses and practitioners must put in place specific procedures to ensure it complies as needed.

“Property practitioners are only reportable institutions and not responsible for enforcement. The Act also does not allow for property practitioners to make their clients aware that they have been reported,” he  said.

Advice to sellers and buyers

Pretorius said property practitioners should request their clients to provide them with copies of their proof of residence and copies of their identification documents. Other documents which will also be required to assist in making sure their transactions proceed timeously, are documents from SARS confirming their tax number and documents which confirm their marriage status such as a marriage certificate if applicable.

Sellers and buyers need to comply

“Other than it being a legal requirement that forms part of a property practitioners’ duty, compliance will allow protection for the economy so that it is not blacklisted from using international financial systems. It also reduces the capabilities of criminals and terrorists to use the formal economy and financial systems to continue to pose a financial risk and danger to others,” concluded.

Fast facts:

  • Does a property practitioner have to be registered with the FIC?
    Yes, a property practitioner is deemed to be an accountable institution as listed in Schedule 1 of the FIC Act.
  • Who is required to provide documents for FIC Act purposes? The buyer or the seller of the property?
  • It is the view of the FIC that both the seller and the buyer of the property would need to be identified by the estate agent and the attorney involved in the property transaction.
  • If one of my property transactions looks suspicious, can I still proceed with the transaction before submitting a suspicious or unusual transaction report (STR) or a suspicious activity report (SAR) to the FIC?
    Yes, you can still proceed with the transaction unless through your customer due diligence process you have identified that the customer is on an applicable sanctions list or the transaction is linked to terrorist activities (as per section 28A of the FIC Act).
  • What happens if one of my property transactions looks suspicious, and I do not submit a suspicious or unusual transaction report (STR)?
    Failure to report these types of transactions, is an offence. You may still submit the report to the FIC with an explanation as to why it was not submitted in time.
  • Is my identity protected if I submit a report to the FIC?
    Yes, section 38 of the FIC Act makes provision that any person submitting information via cash threshold, terrorist property or suspicious or unusual reports to the FIC will have their identity protected. This person is also not compelled to testify at criminal proceedings.
  • The estate agent and attorney asked me for my source of funds for the property purchase. What is source of funds and why do I need to provide it?
    The FIC Act requires accountable institutions, in this instance the estate agent and attorney, to clearly identify whether the funds you will use for this property transaction are from a legitimate source. This is part of the requirement of accountable institutions to assess your source of wealth and determine if it is in line with the transaction.

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