Law firms, estate agencies lag in risk return and imperil hopes of leaving grey list, FIC warns

Financial Intelligence Centre (FIC) executive manager for compliance and prevention Christopher Malan has sounded the alarm that thousands of businesses under its supervision have flouted the watchdog’s requirement to file a risk and compliance return, forcing it to impose sanctions.

Malan warned that designated non-financial businesses and professions (DNFBPs), especially law firms and estate agencies, have been flouting the new requirement in their thousands, serving as a major stumbling block in interventions aimed at getting South Africa off the grey list.

“Unfortunately [because of this] we cannot move to the second issue on the action plan. This says we have to inspect the high-risk entities. The supervision would not be able to kick off in any meaningful sense, even though we commenced it in June 2023.

“Where we stand at the moment and where we stood when we filed our first report to the FATF [Financial Action Task Force]. We had, at that point, a low uptake. The FATF said we had the tool in place but they can’t see it. It allows us to detect high risks, therefore it should enable us to have a universe of high-risk institutions. However, the FATF said they were concerned about low uptake,” Malan warned.

He said the FIC would begin issuing notices of sanction to direct institutions to file returns within 10 business days. Failure to comply, he said, would incur a sanction of about R50,000 which could be multiplied “several-fold” if the watchdog’s calls for compliance continued to fall on deaf ears.

“That process has also seemingly been poorly understood by business. We are faced with a situation where we have to give as much media coverage as possible. We have done as much as we can and it is time for business to come forward,” Malan said.

South Africa was placed on the grey list by the FATF in February 2023 after the global body found deficiencies in the country’s safeguards against money laundering, terrorism financing and proliferation of the manufacture, trade and movement of nuclear, chemical or biological weapons.

Malan said of 6,000 outlets where estate agents do business with the public and of the 16,000 offices of legal practitioners, the FIC has received just more than  50% compliance from legal practices and just below 45% among estate agencies.

“Our latest statistics show of the registered legal practitioners, excluding advocates with trust accounts, 16,000 have registered with us. When we ask legal practitioners to register with the FIC we apply a supervisory approach and ask for registration per your business offices,” he said.

Malan said the FIC had six weeks to get businesses to comply and submit all outstanding risk and compliance return information. He said this information was not commercially sensitive and he could not foresee business withholding it based on confidentiality.

He said if the May deadline is not met, the FIC would have missed a timeline in the FATF mandate which sends a “near fatal” message that the economy and the institutions do not take the requirements seriously, warning that businesses in South Africa were also vulnerable to a reputational shock globally.

TimesLIVE