Advertorial
Estate agencies are potentially vulnerable to money laundering as property investment provides a stable, high-value and secure asset for both law-abiding citizens and criminals.
In a March 2024 sector assessment report, the Financial Intelligence Centre (FIC) rated estate agents as being at high risk of money laundering exploitation. The assessment found that money can be laundered easily through property transactions by integrating illicit funds into the legal economy, while providing a safe and often lucrative investment.
Risk indicators
There are risk indicators of potential abuse of estate agents for money laundering, terrorist financing and proliferation financing (ML, TF and PF).
Estate agents need to conduct a thorough assessment of property transactions based on their client’s profile. Such an assessment may provide indications that raise red flags and trigger estate agent’s obligation to submit regulatory reports to the FIC.
The FIC analyses regulatory reports and other information submitted by accountable institutions such as estate agents to produce financial intelligence, which it shares with law enforcement agencies and other competent authorities for investigation, prosecution, and asset forfeiture.
Examples of risk indicators include:
- Products
- Large amounts of cash used for the deposit and/or the purchase price
- Client insists on paying a higher than the market-related price for property
- Client level
- Clients trying to conceal their identity
- Deposits paid by third parties
Refer to the sector risk assessment of the property sector and Guidance Note 7 for further indicators.
Risk and compliance return
The FIC introduced a risk and compliance return (RCR) that assists accountable institutions such as estate agencies in ascertaining and understanding their ML, TF, and PF risks. The RCR questionnaire also gauges the property sector’s understanding of its FIC Act obligations.
Estate agents are urged to submit outstanding RCRs without delay. Failure to submit RCRs may result in administrative sanctions. RCR questionnaires can be accessed on the FIC’s website.
Regulatory reports
The Financial Intelligence Centre Act (FIC Act) defines estate agents as accountable institutions. For more information on the interpretation of an estate agent, refer to public compliance communication (PCC) 56.
Estate agents must monitor client transactions to identify and report to the FIC, where necessary, using the following regulatory reporting streams:
- Cash threshold reports (CTRs) (see Guidance Note 5C)
- Terrorist property reports (TPRs) (see Guidance Note 6A)
- Suspicious and unusual transaction reports (STRs) (see Guidance Note 4B).
Suspicious transactions and activities
The reporting of suspicious and unusual transaction reports (STRs) is critical to an effective anti-money laundering, counter-terrorist financing, and counter-proliferation financing regime. The STR reporting obligation extends to all businesses and accountable institutions.
The STR obligation relates to a person’s knowledge or suspicion of ML, TF and PF, a reporter does not need to have certain knowledge thereof. It is imperative to file an STR without delay and no later than 15 days from becoming aware of the suspicious or unusual transaction or activity.
There is no threshold amount regarding the STR obligation, and a reporter should holistically evaluate the transaction and/or activity, considering the client’s risk profile, transaction history, etc.
Once an STR has been filed, the reporter may continue with the transaction unless directed in writing by the FIC. The reporter may not disclose that a report has been made or its content, as this would amount to “tipping off.”
Beneficial ownership
The beneficial owner of a client can be described as the natural person who ultimately controls or owns the client (i.e. the legal person, trust or partnership). Section 21B of the FIC Act was amended to provide clarity on the definition and determination of a beneficial owner. The FIC published PCC 59 to provide guidance on the beneficial ownership requirement.
Where the client is a legal person, the accountable institution must follow a process of elimination to determine the beneficial owners, which includes three steps:
Step 1 – Identify the natural person with controlling ownership interest in the legal person
Step 2 – If there is doubt or if there is no natural person, then the natural person who exercises control through other means
Step 3 – If no natural person has been identified at this point of the enquiry, then the natural person who exercises control over the management of the legal person.
Targeted financial sanctions
Accountable institutions play a vital role in identifying terrorist financing which is a crucial step in strengthening South Africa’s counter-terrorist financing regime. An accountable institution’s targeted financial sanctions (TFS) obligations include a scrutinise-freeze-report approach:
- Scrutinising client information against TFS lists
- Freezing property of designated persons and entities
- Filing terrorist property reports (TPRs)
If property is found to be linked to a designated person or entity on the TFS list as published on the FIC website, the estate agent must file a TPR immediately without delay, no later than five days after establishing the property is linked to a terrorist or designated person or entity. Estate agents must check the client’s information against the TFS list and cannot proceed with the transaction where a positive match is found.
The consolidated TFS list can be found on the FIC’s website. PCC 44A provides guidance on the TFS obligations and webinars on how to scrutinise clients can be found on the FIC’s YouTube channel.
Additional resources
The FIC website contains further guidance notes and public compliance communications. Alternatively, contact the FIC’s compliance contact centre on +27 12 641 6000 or log a compliance query on the FIC website.
