Fighting Crime - What is the Financial Intelligence Centre

The Financial Intelligence Centre (the FIC) is the South African national intelligence unit, which provides information relating to financial matters to law enforcement agencies, intelligence agencies and the South African Revenue Service (SARS).

The FIC is tasked with identifying the proceeds of unlawful activities, such as funds acquired through the sale of drugs or illegal arms. Criminals will attempt to convert such funds into assets that appear to be legal, such as fixed property. This is one example of money laundering.

The FIC was established by and operates in terms of the Financial Intelligence Centre Act 38/2001.

Estate agents should play a bigger role in the fight against crime

The FIC urges financial institutions to undertake a more vigorous and proactive approach to the reporting of information that could improve the fight against organised crime, fraud and corruption.

This is especially relevant to the property sector - and estate agents in particular. In fact, estate agents are compelled by law to register with the FIC as what is known as accountable institutions.

The FIC points out that the necessary structures for the reporting and investigation of possible criminal activities are in place in the business environment, and the implementation of measures to prevent criminal activity will now receive greater attention.

Greater compliance measures were introduced in South Africa following an international review of South Africa’s supervisory framework relating to the fight against money-laundering, fraud and corruption, carried out in 2008. As a result, South Africa now has an additional layer of supervision over particular sectors within the South African business environment through the introduction of FIC Supervisory Bodies.

The Supervisory Body for those in the property sector is the Estate Agency Affairs Board, and it is tasked with monitoring compliance with relevant legislation among estate agents, among other duties. One such piece of legislation is the Financial Intelligence Centre Act No 38 of 2001 (the FIC Act) – legislation that puts in place measures to identify and report on transactions that could be attempts by criminals to convert funds derived through illegal activity into a legal form, such as owning a property.

The FIC is concerned, though, that despite the necessary structures now being in place, there are more cases of suspicious transactions occurring within the business environment than the number actually reported to the FIC for further investigation. The FIC points out that, when someone obviously knows something is odd or suspicious in a transaction, that person should do something about it. There are various legs within the South African compliance structure where suitable questions could be asked – the original environment where the transaction first takes place (such as an estate agent, for instance); the intermediaries involved in other elements of the transaction (e.g. accountants and attorneys); and so on.

In essence, the FIC believes that, if all parties involved respond more proactively and keep the FIC message top-of-mind, more potential crimes could be stopped in their tracks. Ultimately, such a proactive approach by all relevant parties can only be good for all South Africans.

Registration with the FIC - Your questions answered

Who must register with the FIC?

The FIC Act lists various industry sectors in South Africa that are obliged to register with the FIC as accountable institutions. Estate agents are listed as one such group. You need to register if you operate as an estate agent on an individual basis. If you run a large estate agency with branches, then both your head office and each of your branches should register separately. You also need to register with the FIC separately if you are a franchisee of a franchised estate agency business.

What does it cost to register?

There are no costs to register with the FIC.

How do I go about registering?

The person responsible for FIC Act compliance within the estate agency (the compliance officer) needs to register the estate agency with the FIC. The compliance officer should visit the FIC’s website – www.fic.gov.za – and complete the relevant form. Someone else in your office environment, referred to as a validator (this can be your accountant or auditor), will then receive an email from the FIC asking them to verify that the information submitted is correct. Once the information has been confirmed by your validator, your registration with the FIC will be activated. Guidelines on how to register are also available on the FIC’s website.

If you do not have access to the internet, we will assist you to register via a manual registration process. Contact the FIC on 0860 342 342 for help.

What happens if I don’t register with the FIC?

You may not be able to receive your Fidelity Fund Certificate from the Estate Agency Affairs Board when you next apply for it if you haven’t registered with the FIC as an accountable institution. In addition, you could face either a criminal or an administrative sanction, since you would have contravened the FIC Act. If criminal action is taken, you could be liable for a fine or imprisonment. As your Supervisory Body, the Estate Agency Affairs Board may also issue an administrative sanction – this could be a reprimand, a restriction on your business activities or a financial penalty.

So, you’ve registered with the FIC – now what?

Congratulations! By registering with the FIC as an accountable institution, you’ve taken the first step on the road to meeting your legal obligations.

But you shouldn’t just see this as a necessary step to take for legal compliance only. The real motivation should be because you want to play a part in putting a stop to the crime that affects all our lives. Economic crime is on the rise in many countries, but there are ways of putting it on hold.

Vigilance is crucial in the fight against crime. To be vigilant, you need to arm yourself with knowledge. Make sure that you know what to look out for, as well as whom you should contact if you identify something that could be criminal.

Accountable institutions, listed in Schedule 1 to the FIC Act – that is, a business identified by the FIC Act as being at risk of being used by criminals for money-laundering or other types of fraudulent or corrupt practices – must not only register with the FIC, but must also report to the FIC on certain transactions. These are:

• Any payment over R25 000 received in cash. Similarly, if you owe your client funds, and you are asked to make payment in cash (rather than by cheque or by means of an electronic transfer), this should be reported to the FIC in terms of section 28 of the FIC Act.
• If your client acts in a suspicious manner or if the source of the funds he has available to purchase or to rent a property appears odd or dubious, report this to the FIC as a suspicious transaction in terms of section 29 of the FIC Act.

Remember that, if you fail to report these sorts of transactions to the FIC, you could be aiding criminals to get away with their crimes – crimes that harm all of us.

Tips for estate agents to identify a possible suspicious transaction

These are some examples of actions by a client in the estate agency environment that may give rise to a suspicion:

• Paying a large cash deposit without disclosing the source of the funds. (Remember that you must ask for this information.)
• Poor explanation for paying off bonds on property unusually early
• Using a false identity when buying or selling property
• The buyer insists that the property be registered in the name of an unrelated third party
• The buying price is paid by an unidentified third party
• The buying price is paid into a foreign bank account
• Inconsistent or weak reasons for paying cash
• Use of cash coupled with a speedy sale
• A purchase made without the property being viewed
• Immediate resale of the property

If you’re an estate agent, what are your responsibilities in terms of the FIC Act?

• Register with the FIC as an accountable institution. This is mandatory in terms of the FIC Act, and failure to do so could result in a fine being levied on you.
• Do not do business with a client until you have established and verified the client’s identity
• Keep records relating to the client’s identity.
• If your client buys a property in cash or pays more than R25 000 of the purchase price in cash, you must report the transaction in terms of section 28 of the FIC Act to the FIC. This is because the purchase of property is a common method used by criminals to convert funds acquired illegally into a legal asset, such as a house.
• Report any suspicious transaction to the FIC as required by section 29 of the FIC Act. Based on your interaction with your client and on your experience as an estate agent, you will know whether something appears unusual or questionable. If it doesn’t feel right, report it.
• Implement internal rules, stipulating internal procedures pertaining to compliance with the relevant sections of the FIC Act. This is a requirement in terms of section 42 of the FIC Act.
• Appoint a compliance officer responsible for compliance with the FIC Act and train your staff on the requirements of the FIC Act. This is a requirement in terms of section 43 of the FIC Act.

Guidance recently published for estate agents

Public Compliance Communications

The FIC is continuously reviewing the efficacy of the FIC Act and its regulatory application to ensure that we achieve the highest levels of compliance. An important consideration is ease and consistency of application of the FIC Act and that it remains predictable and certain in its application.

From time to time, in response to interaction with industry and with matters being brought to our attention, the FIC finds it necessary to clarify aspects of the FIC Act so that it is easily understood. In these instances, the FIC has undertaken the initiative to issue Public Compliance Communications (PCC). The PCC’s therefore focus on specific issues which arise from complexities concerning compliance with the FIC Act and its subordinate legislation.

Two such PCC’s were issued recently as guidance on duties and clients of estate agents:

• PCC 08: Duties of estate agents including provisions of Exemption 11 in terms of the FIC Act
• PCC 10: The client of an estate agent.

PCC08: DUTIES OF ESTATE AGENTS INCLUDING PROVISIONS OF EXEMPTION 11 IN TERMS OF THE FINANCIAL INTELLIGENCE CENTRE ACT NO 38 OF 2001, AS AMENDED

An estate agent as defined in the Estate Agency Affairs Act No. 112 of 1976 (the Estate Agency Affairs Act) is an accountable institution in terms of the FIC Act and must comply with the relevant provisions of the FIC Act.

Exemption 11 to the FIC Act is applicable to estate agents, and exempts estate agents from compliance with certain parts of the FIC Act.

Estate agents can only rely on this exemption in certain instances and in respect of that part of its business to which those services relates. To qualify for the exemption estate agents must render specific services, which include:

• Money payable by any person to or on behalf of a developer or a body corporate in terms of the Sectional Titles Act, No. 95 of 1986, in respect of a unit or proposed unit
• Money on behalf of a share block company payable by the holder of a share in such company or his nominee.

It is important to note that Exemption 11 does not exempt an estate agent from its reporting obligations in terms of the FIC Act, and the estate agent therefore remains obliged to report to the Centre:

• Cash transactions above, or in aggregation of R25 000 (section 28)
• Property associated with terrorist and related activities (section 28A)
• Suspicious and unusual transactions (section 29).

PCC 10: THE CLIENT OF AN ESTATE AGENT

A transaction as defined in the FIC Act is “a transaction concluded between a client and an accountable institution in accordance with the type of business carried on by that institution”. A transaction can therefore be performed either in the course of a business relationship or as a single transaction.

The term “client” is not defined in the FIC Act and reference is made to the Code of Conduct for Estate Agents (the Code of Conduct) issued in terms of the Estate Agency Affairs Act.

The Code of Conduct defines a client of an estate agent as a person who has given an estate agent a mandate, provided that should an estate agent have conflicting mandates in respect of a particular immovable property, the person whose mandate has first been accepted by the estate agent is considered the client of the estate agent.

The Code of Conduct goes further in imposing an ethical duty on estate agents not only to protect the interests of their clients at all times but also to have due regard to the interests of all other parties concerned with a particular transaction.

Applying the provisions of the Code of Conduct in the context of the FIC Act, the duty to identify clients in terms of section 21 of the FIC Act will therefore apply to buyers, sellers, lessors and lessees where an estate agent is concerned.

The FIC Act provides that an accountable institution must, in the case of a transaction, keep record of the parties to that transaction.

It is therefore the Centre’s view that record should be kept of all parties to the transaction. The most practical way of achieving this would be to obtain the required identification documents for both the buyer and seller, and lessor and lessee.

Where can I get more information relating to PCC’s and other FIC Act related information?

All PCC’s that have been published by the FIC can be found on the FIC’s website – www.fic.gov.za.

You can phone the centre on 0860 FIC FIC (342 342) or enquiries may be sent to the FIC by e-mail to [email protected].

Courtesy: The EAAB - Estate Agency Affairs Board

“Redressing the Past, Building the Future and Guiding the Real Estate Business towards Professionalism”

It is apparent, therefore, that the CPA could conceivably have severe implications not only for landlords, property developers and business owners but also estate agents and commercial- and business brokers