FIC
Failure to comply with their Financial Intelligence Centre Act (FIC Act) obligations increases the risk of estate agents being abused for money laundering, terrorist financing and proliferation financing (ML, TF and PF) and poses dangers to the economy.
While the property market offers stability to investors, the purchase, hire and/or sale of property can be abused by criminals to launder or conceal the proceeds of crime.
A risk assessment performed by the Financial Intelligence Centre (FIC) in 2022 found the property sector to be at a high risk of being abused for money laundering. Although inherent terrorist financing risk in the sector was considered to be low, the updated Terrorist Financing National Risk Assessment of South Africa upgraded the risk of TF in the country in 2024 from moderate to high. Estate agents must consider the severity of these threats to their businesses and the country when engaging in transactions with their clients.
By implementing the FIC Act obligations, which include conducting customer due diligence (CDD), screening clients against the targeted financial sanctions lists, and applying enhanced monitoring when dealing with high-risk politically exposed persons, estate agents can effectively mitigate their ML, TF and PF risks. When establishing a business relationship, or conducting a single transaction, estate agents must identify the natural person that is the beneficial owner of the legal person, trust or partnership. See the FIC’s public compliance communication 59 for guidance on beneficial ownership.
Regulatory reports
The FIC Act sets an obligation for accountable institutions to submit regulatory reports:
- Cash transactions exceeding R49 999.99
- Suspicious and unusual activities and transactions
- That the accountable institutions have in its possession or under its control property owned or controlled by, or on behalf of, or at the direction of a natural person or entity listed on the targeted financial sanctions list. The targeted financial sanctions list can be found on the FIC website.
The information submitted in these regulatory reports is used by the FIC to develop financial intelligence which it shares with law enforcement agencies, prosecutorial and other competent authorities for their investigations and applications for asset forfeiture.
Estate agents must report the following behaviours when dealing with a client or potential buyer of property:
- Proceeds that are linked to unlawful activity
- Attempts made to evade tax
- Transactions that are in contravention of the prohibition of providing finance to a designated person as stipulated in section 26B of the FIC Act
- Where the purchase of property does not make business sense e.g. selling property shortly after purchasing it, potentially suffering a loss.
All suspicious and unusual transaction or activity reports must be submitted without delay as soon as possible and no later than 15 daysafter the business becomes aware or if suspicion is raised regarding an activity or transaction. There is no monetary threshold for STRs and SARs.
Estate agents can consider these red flags on possible money laundering or terrorist financing when clients are buying, renting or selling property:
- Geographical factors such as the distance between the property and the buyer can be regarded as a possible indicator of the laundering of criminal funds.
- Willingness to pay a higher rent for a property, and having little to no concern about paying additional fees
- Customer pays rent in advance and thereafter requests a refund
- Using false documentation and/or cancelling property transactions with a request for a refund of deposits paid.
- The use of cash when purchasing or renting a property. Cash is often used to conceal the origin of funds.
- Reluctance or refusal by the client to provide their identification and verification documents.
- Using non-transparent companies as well as trusts or third parties to hide the identity of the true owners when purchasing property.
- Selling property soon after purchasing it. Property is a long-term investment and this practice is contrary to this notion. The client may also suffer a loss due to fees involved in transferring ownership of property.
- Customer is known to have a criminal background.
Risk compliance return
In 2023, the FIC issued Directive 6 requiring certain non-financial business sectors such as estate agents to complete and submit a risk and compliance return (RCR) questionnaire by 31 May 2023. The RCR questionnaire allows the FIC to gauge the level of understanding estate agents have of the ML, TF and PF risks they face, and their understanding of their FIC Act obligations. The return also informs the FIC’s supervisory approach which includes inspections on high-risk entities.
The FIC urges registered estate agents, and each individual branch where applicable, who have not yet completed and submitted their RCRs, to do so without further delay.
Recent money laundering trends in the property sector:
- The use of cash or opaque financing schemes
- Over-valuing or under-valuing the price of properties
- Using false documentation and/or cancelling property transactions with a request for a refund of deposits paid
- Non-transparent companies as well as trusts or third parties which are often used by criminals to hide the identity of the true owners
- Purchases of high-value property by international buyers in certain Atlantic Seaboard, and other towns in the Western Cape.
For more information and guidance offered to accountable institutions, refer to the FIC website. Alternatively, contact the FIC’s compliance contact centre on +27 12 641 6000 or log an online compliance query on the FIC website.
