O10. The Financial Intelligence Centre Act, 38 of 2001 (FICA)

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 terrorist and related activities; to impose certain duties on institutions and other persons who might be used for money laundering purposes and the financing of terrorist 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 regards 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 FIC Act;
  • 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 the major countries worldwide in combating money laundering and to join the 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 the FICA liaising with various law enforcement and intelligence agencies both at home and overseas and exchanging information which is to the benefit of all concerned.

How does FICA impact real estate agents?

The government looked at 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 made the real estate governing body, the Estate Agency Affairs Board, a supervisory body as defined in the Act and made it responsible for ensuring that estate agencies, defined as accountable institutions in the Act, were fully aware of their responsibilities to report illegal or suspicious transactions with regard to buying, selling and leasing of immovable property. Very simply put, the Act requires that estate agents must identify their clients and place 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 estate agents encounter

1. Identifying who the client is.

The Estate Agency Affairs Act 112 of 1976 defines the client as being the person who gives a mandate that an agent accepts, meaning that the seller of immovable property will be the client as he instructs the agent to find a suitable purchaser for the property.

Likewise, a landlord instructing an estate agent to find a tenant for his 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 the ill-gotten gains and the answer is glaringly obvious – it will be the purchaser or the tenant.

The FICA recognises this and accordingly recognises the purchaser or the tenant as being the client.

The Act requires that estate agents must identify their clients and place of residence before entering into either a single transaction or a business relationship.

2. When does a client become a client?

Strictly speaking, at the time a prospective purchaser or tenant walks into a real estate office looking to buy or rent a property is the time that they should be FIC’ed. This would be before an agent could even start talking to him about his requirements.

Similarly, if a potential seller or landlord wishes to sell or lease his property, they would have to be FIC’ed before an agent could start talking business.

Compound the problem by assuming the purchaser/tenant, seller/landlord are using the services of a number of estate agents, that’s a lot of photocopying of IDs and utility bills to prove residence.

In practice most estate agents will only fully FICA a client, should a successful transaction take place. The FIC is fully aware of the situation but no changes have yet been made to amend the Act.

Getting FICA information for a single client should be relatively simple and more often than not it is. But, where the property is sold or purchased with multiple sellers or buyers, for example, companies, cc’s or trusts, it becomes more difficult and requests for FICA information often fall on deaf ears.

Refusing to produce FICA documents

According to the FIC, refusal to give the required information is to be treated as a suspicious transaction and reported to FIC, as well as any cash deposit of R25 000 or more.

The FIC is serious about their role and penalties for failure to comply range from R1 000 000 to R10 000 000 fine and up to 10 years in jail.

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