Purpose of the Act
To establish a Financial Intelligence Centre and a Money Laundering Advisory Council to combat money laundering activities and the financing of terrorism and related activities; to impose certain duties on institutions and other persons who might be used for money laundering purposes and the financing of terrorism and related activities; to amend the Prevention of Organised Crime Act, 1998, and the Promotion of Access to Information Act, 2000; and to provide for matters connected therewith.
The above is achieved by creating a legal framework for the identification and verification of clients; keeping records; complying with various procedures with regard to reporting; implementing staff training; setting out and enforcing compliance requisites; and the institution of the Financial Intelligence Centre and Counter-Money Laundering Advisory Council.
In essence, the obligations outlined by FICA impose the following duties:
– Establishing and verifying the identity of clients;
– Keeping records of business relations and transactions;
– Reporting receipts of cash above a specified amount to the Financial Intelligence Centre;
– Reporting any suspicious transactions to the Financial Intelligence Centre;
– Implementing internal rules coherent with the obligations set out by the FICA;
– Offering essential and obligatory FICA training; and
– The appointment of a compliance officer.
The Financial Intelligence Centre Act (FICA) 38 passed into law in 2011, in an attempt to join major countries worldwide in combating money laundering. Money laundering is the biggest single industry in the world, where “dirty money” obtained from drug sales, prostitution, human trafficking, illegal gambling, and a host of other criminal activities is “laundered” through legitimate businesses and professions to appear to have been legally earned.
This was the main objective of FICA, soon to be followed by a second objective to combat terrorism. These objectives are supported by FICA liaising with various law enforcement and intelligence agencies both domestically and internationally, exchanging information that benefits all concerned.
How does FICA impact Property Practitioners?
The government assessed the most likely ways criminals could launder their illegal earnings and identified a number of possibilities, including the buying and selling of immovable property. They designated the Property Practitioners Regulatory Authority as a supervisory body as defined in the Act, making it responsible for ensuring that property practitioners, defined as accountable institutions in the Act, are fully aware of their responsibilities to report illegal or suspicious transactions concerning the buying, selling, and leasing of immovable property. Very simply put, the Act requires that property practitioners must identify their clients and places of residence before entering into either a single transaction or a business relationship.
These records, along with copies of sales agreements, leases, and mandates, must be kept in a secure environment for a period of five years from the date when the single transaction or business relationship terminates.
Problems Property Practitioners Encounter
- Identifying who the client is.
The Property Practitioners Regulatory Authority Act 112 of 1976 defines the client as being the person who gives a mandate that a practitioner accepts, meaning that the seller of immovable property will be the client as they instruct the practitioner to find a suitable purchaser for the property. Likewise, a landlord instructing a property practitioner to find a tenant for their property would also fall into the category of being the client. The question must be asked as to which of the parties is most likely trying to launder ill-gotten gains, and the answer is glaringly obvious—it will be the purchaser or the tenant. The FICA recognises this and accordingly identifies the purchaser or the tenant as the client. The Act requires that property practitioners must identify their clients and places of residence before entering into either a single transaction or a business relationship.
- When does a client become a client?
Strictly speaking, at the time a prospective purchaser or tenant walks into a property practitioner’s office looking to buy or rent a property is the time that they should be FICA-compliant. This must occur before a practitioner could even start discussing their requirements. Similarly, if a potential seller or landlord wishes to sell or lease their property, they would have to be FICA-compliant before a practitioner could start discussing business.
Compounding the problem, if the purchaser/tenant or seller/landlord is using the services of multiple property practitioners, that results in a significant amount of photocopying of IDs and utility bills to prove residence. In practice, most property practitioners will only fully comply with FICA once a successful transaction takes place. The Financial Intelligence Centre is fully aware of the situation, but no changes have yet been made to amend the Act.
Obtaining FICA information for a single client should be relatively straightforward, and more often than not it is. However, where the property is sold or purchased involving multiple sellers or buyers, such as companies, close corporations, or trusts, it becomes more complicated, and requests for FICA information often fall on deaf ears.
Refusing to Produce FICA Documents
According to the Financial Intelligence Centre, refusal to provide the required information is to be treated as a suspicious transaction and reported to the Centre, as well as any cash deposit of R25,000 or more. The Financial Intelligence Centre is serious about its role, and penalties for failure to comply range from R1,000,000 to R10,000,000 in fines and up to 10 years in jail.