Whilst South Africa is being assessed against the Financial Action Task Force’s (FATF) 40 Recommendations for effectiveness in its anti-money laundering (AML) and counter-terrorist financing (CTF) regimes, it is important to recognize the role of designated non-financial businesses and professions (DNFBPs).
As per the Financial Intelligence Centre Act (FIC Act) No. 38 of 2001, attorneys, accountants, real estate agents, casinos, boards of executors, trust companies and persons that invest, keep in safe custody and control or administer trust properties are currently considered DNFBPs. Therefore, all the provisions established in the FIC Act are applicable. These entities must ensure their business activities are performed under FIC Act provisions, such as conducting adequate customer due diligence (CDD), identification and verification of the beneficial owners of clients, identifying foreign prominent public officials as well as domestic prominent influential persons.
The FIC Act and DNFBPs
It has been recognised by the National Treasury, responsible for managing South Africa’s national government finances, that South Africa has a low level of compliance by DNFBPs2. Furthermore, South Africa lacks robust supervisory powers that can enforce compliance with the FIC Act. Consequently, the Financial Intelligence Centre (FIC) will play a primary role in supervising and enforcing compliance with the FIC Act in the future, and non-financial supervisory bodies such as the Legal Practitioners Council, will play a supportive role.3
The schedules of the FIC Act containing the list of respective accountable institutions is being revised4 and the proposed amendments thereto include the addition of a different category of accountable institutions, namely high-value goods dealers. This category will encompass dealers in precious metals and stones, as well as antiques and collectibles, fine art, aircrafts, boats and luxury motor vehicles. It also paves the way for the inclusion of Krugerrand and motor vehicle dealers as accountable institutions rather than reporting institutions. Thus, Krugerrand dealers and motor vehicle dealers will be subject to a full spectrum of FIC Act compliance obligations other than the current limited reporting and registration requirements.
Applying a Risk-Based Approach
In terms of the DNFBPs and their role in (AML/CTF), it is crucial that these entities apply a risk-based approach. DNFBPs must conduct thorough AML/CTF risk assessments across their businesses, considering money laundering and terrorist financing risks that may be present in terms of products, services, delivery channels and clients engaged.5 CDD requires DNFBPs to have an informed understanding of the money laundering and terrorist financing risk that their clients present. That way, they can apply the necessary control measures to mitigate and manage these risks, as well as identify anomalies or changes in the client’s patterns of transactional behaviour. The degree of money laundering and terrorist financing risk should in turn drive DNFBPs to determine the appropriate degree of monitoring and due diligence that the client requires. For instance, a client of an attorney who frequently purchases luxury property but states that the source of funds comes from a minimal monthly salary shows that the transactions are not in line with the expected activity for this client. This should be recognised as red flag by the firm of attorneys and reported as required by section 29 of the FIC Act.
In addition, DNFBPs must determine if their clients and potential clients are a sanctioned person or entity in order to determine their exposure to financial sanctions-related obligations. They should be able to screen clients and prospective clients against the relevant sanctions lists. This should be completed during the client onboarding process, including when the United Nations Security Council adopts new targeted financial sanctions (TFS) measures or expand existing ones.6
Attorneys, estate agents and casinos play a critical role as gatekeepers as they are uniquely positioned to have visibility of suspicious activity indicative of money laundering in their respective fields. This information is pivotal in terms of enhancing the efficacy of the overall AML/CTF regime within South Africa. It will enable the FIC and law enforcement agencies to become aware of such matters and act swiftly to prevent criminals from profiting from their criminal activities. Therefore, strengthening compliance efforts in this sector will assist in combatting this crime, building safer communities and driving economic recovery in South Africa.7
- “Anti-Money Laundering and Counter-Terrorism Financing Legislation,” Financial Intelligence Centre, 2018, https://www.fic.gov.za/Documents/FIC%20Act%20Web%20File.pdf
- “Treasury invites comments on Proposed Amendments to the Schedules to the Financial Intelligence Centre Act, 2001,” South African Government , 23 June 2020, https://www.gov.za/speeches/proposed-amendments-schedules-financial-intelligence-centre-act-2001-23-jun-2020-0000#:~:text=38%20of%202001)%20(FIC%20Act,June%202020%20in%20Notice%20No
- “Treasury invites comments on Proposed Amendments to the Schedules to the Financial Intelligence Centre Act, 2001,” South African Government , 23 June 2020, ohttps://www.gov.za/speeches/proposed-amendments-schedules-financial-intelligence-centre-act-2001-23-jun-2020-0000#:~:text=38%20of%202001)%20(FIC%20Act,June%202020%20in%20Notice%20N
- “Consultation Paper on the Amendments to Schedule 1, Schedule 2 and Schedule 3 of the Financial Intelligence Centre Act, 2001 (Act 38 of 2001),” Financial Intelligence Centre, http://www.treasury.gov.za/publications/other/Consultation%20document%20Schedules%201%202%20%203%20for%20submission%20to%20Min.pdf
- “Guidance Note 7 on the Implementation of Various Aspects of the Financial Intelligence Centre Act, 2001 (Act 38 of 2001),” Financial Intelligence Centre, National Treasury, South African Reserve Bank, Financial Services Board, https://www.fic.gov.za/Documents/171002_FIC%20Guidance%20Note%2007.pdf
- “Treasury invites comments on Proposed Amendments to the Schedules to the Financial Intelligence Centre Act, 2001,” South African Government, 23 June 2020, https://www.gov.za/speeches/proposed-amendments-schedules-financial-intelligence-centre-act-2001-23-jun-2020-0000#:~:text=38%20of%202001)%20(FIC%20Act,June%202020%20in%20Notice%20No