Heavy penalties in store for FIC noncompliance

Nonfinancial businesses and professional firms could face stiff penalties if they neglect to submit risk and compliance returns to the Financial Intelligence Centre (FIC).

The centre monitors financial transactions for money laundering or terror financing and plans to impose heavy penalties on firms that fail to submit the required returns.

The FIC said in a December statement that identified institutions which have not submitted risk and compliance returns (RCRs) could face penalties from R10,000 to R50,000.

More than 280 entities have already been fined, with the FIC pointing to noncompliance by legal practitioners, estate agents, Krugerrand dealers and crypto asset service providers.

The failure of SA’s nonfinancial businesses and professions to understand the risks they face of money laundering and terrorist financing was one of the key findings of the Financial Action Task Force (FATF), the Parisbased global organisation that sets standards for regimes to combat money-laundering and terrorism financing.

The FATF greylisted SA in February 2023 because of its failure to comply with its stringent requirements. This hit investor confidence and imposed burdensome obligations on correspondent banking relationships and on other financial transactions.

“One of FATF’s key findings after their 2019 mutual evaluation of the country was that the nonfinancial businesses and professions did not understand the risks they faced of moneylaundering and terrorist financing,” the FIC said.

“This made these sectors and the country vulnerable to exploitation by criminals. The RCR was developed to address this gap. The FIC analyses the

information that is submitted by the respondents to develop a risk rating for each institution. In doing so, the FIC is able to identify institutions that are at higher risk, and most vulnerable to money-laundering abuse.”

It said admission of noncompliance penalties had been imposed on 286 entities R1m in penalties had been imposed on legal practitioners, R230,000 on 23 trust and company service providers, R1.5m on 152 estate agents and R70,000 on seven diamonds and precious metals dealers.

FIC manager for inspections and enforcement Jan Augustyn said the fines, which were couched as admissions of noncompliance, provided the firms with an opportunity to correct, submit a RCR and pay a small financial penalty of R10,000.

“Sixty-four institutions submitted their RCR and paid the financial penalty. Another 77 submitted their RCR but did not pay the penalty, while 145 institutions neither remediated nor paid. The FIC is now determining the appropriate sanction for each institution that did not pay or remediate its noncompliance. These institutions also lose the benefit of having paid a smaller fine and immediately correct their noncompliance and now face more severe penalties.

“Institutions are advised to urgently submit it or face the consequences. It is inevitable that the longer the noncompliance persists, the harsher the financial penalties will become,” Augustyn said.

In mid-December, the National Treasury proposed a raft of amendments in a draft General Laws (Anti-Money Laundering and Combating Terrorism Financing) Amendment Bill to address legal loopholes of concern to FATF.

One proposal is to toughen the sanctions under the Companies Act for failure to submit a register of beneficial ownership, one of SA’s weaknesses identified by FATF.

THE LONGER THE NONCOMPLIANCE PERSISTS, THE HARSHER THE FINANCIAL PENALTIES WILL BECOME

Jan Augustyn FIC enforcement manager

The Companies and Intellectual Property Commission (CIPC) will be empowered to act on this, and it has that proposed the Financial Sector Regulation Act be amended to empower financial regulators to obtain the required information.

SA’s regulatory authorities have also been working around the clock to provide the FATF with reports on the progress in SA’s bid to exit greylisting.

Ismail Momoniat, the Treasury’s technical adviser and head of SA’s delegation to the FATF, stressed the importance of trusts and companies registering their beneficial ownership information with the Masters Office and CIPC, failing which they will face sanctions.

He pointed out that aside from the sanctions that the regulators may impose, banks and other financial institutions may also increase the risk profiles of institutions failing to comply with their regulatory obligations, resulting in enhanced due diligence measures.

SA was given 22 actions to fulfil and the October 2024 plenary of FATF confirmed that it had complied with 16 leaving six to complete.

These six related to the achievement of sustained prosecutions and investigations of money laundering and terrorism financing cases, the regulation and reporting of beneficial ownership, the lack of adequate supervision and the imposition of proportionate administrative penalties and dissuasive sanctions by both financial and nonfinancial regulators.