Sanctions pending, FIC warns as it blames tardy law firms, estate agents for delay in greylist exit

The Financial Intelligence Centre’s (FIC) patience with firms that have failed to file risk compliance returns, particularly law firms and estate agents, is running out as the watchdog has accused the businesses of “wilfully” standing in the way of South Africa’s exit from a damaging international greylist.

South Africa was last year added to the Financial Action Task Force’s (FATF) greylist of countries with an increased risk of money laundering, terror financing and proliferation. The task force directed South Africa to enhance its supervision over designated non-financial businesses and professions (DNFBPs).

This led the FIC to require that DNFBPs file a risk and compliance return (RCR), which includes general information about a firm and a general questionnaire. However, the FIC said compliance with the requirement has been as low as 60% among legal practitioners and 66% among estate agents.

“The FIC once more notifies these sectors, other than the casinos, that by not submitting their RCRs they are in a state of non-compliance. They are therefore positioning themselves to have administrative sanctions imposed on their businesses,” it said.

The FIC can impose a financial penalty not exceeding R10m on individuals and R50m on legal persons, with penalties imposed on a case-by-case basis. Compliance is higher among trust service providers at 74%, company service providers at 76%, and casinos at 100%.

The FIC told TimesLIVE that as of June 30, 9,906 legal practitioners had submitted risk and compliance returns, amounting to 60% of the 16,480 legal practitioners registered with the FIC on March 31 2023 when directive 6 was issued.

“The online system for DNFBPs to complete and submit their risk and compliance returns remains open via a portal on the FIC website. The FIC continues to encourage the entities that have not yet submitted their returns to do so urgently.”

The centre said those that have not yet submitted their returns are deemed to be in a state of non-compliance and are likely to face enforcement action and, possibly, financial penalties.

In March, the watchdog said it had issued 302 notices of intention to sanction, with particular emphasis on legal practitioners and estate agents.

In February, the FIC said it had received a little more than 50% compliance from legal practices and below 45% among estate agencies.

Webber Wentzel partner Lerato Lamola said complications could have arisen from the fact that the legal profession comprises legal practitioners of different sizes and structures.

“There are those practising in formally established law firms while others practise as solo practitioners, and there is a distinction between those in urban areas versus those in rural areas.

“There is also the complexity that the term 'legal practitioner' not only includes attorneys but advocates as well. This diversity in the legal practice places a challenge on obtaining uniform guidance that can be applied to all legal practitioners.”

She said challenges include a misunderstanding of the compliance requirements of the directive, with accountable institutions relying on head offices to submit RCRs on behalf of the entire organisation.

“Webber Wentzel notes that submissions have been made to the LPC by multiple legal practitioners or law firms and our understanding is that the Legal Practice Council (LPC) is in communication with the FIC regarding the challenges the legal industry is facing in relation to Fica [Financial Intelligence Centre Act].”

She said Webber Wentzel has complied with the FIC’s RCR requirements and has also made direct submissions to the FIC on related issues.

Lawtons Africa associate Nicholas De Decker said legal practitioners’ low compliance rating with the FIC’s RCR reporting requirements can likely be attributed to factors such as a lack of awareness, resource constraints, complexities in gathering and submitting accurate information, and inadequate internal systems or processes for monitoring and ensuring compliance.

“Notwithstanding these challenges, the FIC’s requirements should be well known to all legal practitioners, given that law firms are designated as accountable institutions in terms of the FIC Act.”

He said the LPC regularly circulates notices with all registered legal practitioners, outlining the obligations that must be complied with in terms of the FIC Act.

“Insofar as capacity and resource constraints are concerned, while compliance may impose a more onerous burden on smaller legal institutions, the importance of the FIC Act cannot be undermined, particularly in light of South Africa’s current FATF status.”

He said Lawtons understands the importance of complying with the FIC’s reporting requirements, particularly as South Africa endeavours to exit the greylist and has done its utmost to comply with the FIC’s requirements.

Business Times