The Financial Intelligence Centre (FIC) is intensifying its crackdown on money laundering through real estate transactions, imposing fines of up to R900,000. According to Daily Investor, this was reported by Bianca Neethling, Compliance Manager, and Paul Baddrick, Head of Real Estate at BDO South Africa.
According to the Global Financial Integrity report, South Africa lost over R100 billion in illicit outflows, with a significant portion attributed to money laundering. The country ranks 7th globally among the worst offenders for anti-money laundering (AML) events over the last decade.
In the first few months of this year, financial law enforcement agencies have placed a major focus on combating money laundering to facilitate South Africa’s removal from the Financial Action Task Force’s (FATF) greylist. In February 2023, South Africa was placed on the FATF’s list of “jurisdictions under increased monitoring,” known as the greylist, and was given a list of 40 recommendations.
In October 2023, the FATF conducted an evaluation of South Africa’s progress. While the country has made significant strides in addressing most concerns, it has not adequately improved the coordination of anti-money laundering legislation and measures to combat the financing of terrorism.
As a result, financial regulators and law enforcement agencies are now focusing on the role of real estate in money laundering. The FIC has issued fines of up to R900,000 in the first three months of the year alone.
Neethling and Baddrick highlighted the need for vigilance and precision in navigating the regulatory landscape, particularly focusing on three key sections of the AML framework: Sections 21, 42, and 28A.
Section 21: Identifying the Ultimate Beneficiary
A critical aspect of AML compliance is identifying the Ultimate Beneficial Owner (UBO) of real estate transactions. Section 21 requires thorough scrutiny to reveal the true actors behind corporate entities. Failing to adhere to these standards exposes vulnerabilities to money laundering and undermines the transparency necessary for trust in the real estate market.
Section 42: Developing Risk Management and Compliance Programmes
Robust risk management and compliance protocols are essential to guard against illicit activities. Section 42 mandates the creation and implementation of Risk-based Compliance Programmes (RMCP) tailored to the real estate sector. Ignoring this requirement leaves firms open to regulatory sanctions and compromises their ability to detect and deter money laundering effectively.
Section 28A: Combating Terrorist Financing
The fight against money laundering extends to combating terrorist financing. Section 28A emphasizes the need to screen clients against the Terrorist Financing Suspect List (TFS List), creating a critical barrier against the flow of illicit funds for nefarious purposes. Failure to uphold this obligation jeopardizes national security and the integrity of the real estate sector.
How to Protect Yourself
Conduct Business Risk Assessment: Identify vulnerabilities in transactions that criminals might exploit, such as large cash purchases of high-value properties, complex ownership structures, unexplained cash, or rapid wire transfers.
Develop/Enhance RMCP: Implement a personalized security system based on a thorough assessment of your business’s vulnerabilities, ensuring efficient regulatory compliance and safeguarding against illegal activities.
Conduct Quality Due Diligence Procedures on Clients: Perform background checks on clients and transactions, including client identification, understanding the origin of funds, transaction monitoring, and client screening.
Provide Employee Training: Equip employees with knowledge of AML compliance, red flags such as high-value cash purchases, complex ownership structures, and unusual payment methods. Training should also cover reporting procedures for suspicious activities.
Neethling and Baddrick advise real estate professionals to take a proactive stance towards AML compliance by investing in robust due diligence mechanisms and fostering a culture of compliance throughout their operations. Collaboration across industry stakeholders, regulatory bodies, and law enforcement agencies is crucial in strengthening defences against money laundering and terrorist financing.
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