HOW PROPERTY PRACTITIONERS CAN ASSIST WITH COMBATING MONEY LAUNDERING IN SOUTH AFRICA

Property practitioners have been recognised to be vulnerable to money laundering in South Africa, as criminals commonly use their unlawful proceeds to purchase high-value properties in the country.

Property practitioners can assist in combating money laundering and organised crime by meeting their Financial Intelligence Centre Act (FIC Act) obligations which include reporting suspicious and unusual activity to the Financial Intelligence Centre (FIC).

The FIC analyses the reports and other information submitted by accountable institutions such as property practitioners to produce financial intelligence it shares with law enforcement agencies for investigation, prosecution and asset forfeiture.

Before property practitioners can fulfil their FIC Act obligations, they must first register with the FIC via the FIC website, and obtain their organisational identification (ORG ID) number. Property practitioners who have not yet registered with the FIC, must do so urgently. The FIC has issued public compliance communication 56 (PCC 56) which provides specific guidance on this for property practitioners.

Suspicious and unusual transaction reports

Property practitioners must report to the FIC suspicious and unusual transactions and activities. When considering whether there is a reason to be suspicious of a particular situation, property practitioners should consider the business practices and systems within the property industry and their experience and knowledge. The suspicion is subjective, and the reporter does not have to prove the proceeds are linked to crime.

A suspicious transaction may, for example, have no apparent business or lawful purpose and may appear unusual in a business context. For example, the customer states their salary as the source of funds for the transaction but the purchase price is well beyond their means without financial assistance.

Suspicious and unusual transactions (STRs) and suspicious activity reports (SARs) must be submitted to the FIC without delay but no later than 15 days after a suspicion was raised. These reports must be filed regardless of the amount of money involved. Refer to Guidance Note 4B, the STR user guide or the SAR user guide for assistance on submitting these forms to the FIC.

The property sector risk assessment on the FIC website provides examples of possible indicators of  money laundering, terrorist financing and proliferation financing, which could raise a suspicion. These indicators include:

• Customer is reluctant or refuses to produce personal identification documents for the transaction to be completed
• Customer pays rent in advance and thereafter requests a refund
• Customer makes a substantial down payment in cash and balance is financed by an unusual source, such as a third party or private lender
• Purchases carried out on behalf of any natural person who appears to lack the economic capacity to make such purchases
• Customer is known to have a criminal background or is subject to adverse media related to fraud, money laundering or other white collar crimes
• Customer uses or produces identification documents with different names
• Customer does not want to put their name on any document that would connect them to the purchase or rental
• Customer is concerned that they may be reported to the FIC
• Customer may appear to want to finalise the purchase as a matter of urgency
• The purchase price appears to be beyond the customer’s means based on their stated or known occupation or/or income
• Structuring cash deposits below the reporting threshold
• Accepting third-party payments, particularly from jurisdiction with ineffective or weak money laundering controls
• Customers renting property are hesitant to allow the agent access to the property or appear to be hiding something
• Where the customer is making use of complex legal structures and is one of the parties to the transaction.

Beneficial ownership

Criminals often abuse legal persons, trusts and partnerships to obscure their ownership or control of funds from illegal activities through the institutions or to be used for criminal activities. Criminals do this by creating different levels of ownership which makes it difficult to identify the warm body or ultimate beneficial owner of the legal person, trust and partnership.

It is vital that accountable institutions identify the natural persons who own or control the clients that are legal persons, trusts and partnerships.

As part of establishing the ownership and control structure of the legal persons, trusts and partnerships in terms of section 21B of the FIC Act, the accountable institution must determine all natural persons who own or have control over the entity. Property practitioners as accountable institutions have the flexibility to choose the type of information that would determine clients’ identities and the means of verification of their identities. Property practitioners must take reasonable steps to verify the beneficial owner’s identity.

Establishing the beneficial owner of legal persons

When determining which natural person is the beneficial owner of a legal person in terms of the FIC Act, property practitioners must follow a process of elimination:

• Identify the natural person who independently or together with another person has controlling ownership interest in the legal person, if in doubt,
• then they would need to identify the natural person who exercises control by other means, including through ownership or control of other legal persons, partnerships, or trusts.
• If there is still no natural person identified, then the property practitioner would need to identify the natural person who exercises control over the management of the legal person

The FIC is of the view that holding ownership interest of five percent or more in a legal person is usually sufficient to exercise a controlling ownership interest in the legal person. As a result, the FIC strongly recommends that property practitioners identify the persons who hold ownership of five percent or more in a legal person.  

Where the legal person presents a heightened money laundering, terrorist financing or proliferation financing risk, the property practitioner must seek to identify all beneficial owners, thus not eliminating any level of beneficial owner.

Property practitioners should be able to evidence that they followed the process of elimination as required in section 21B of the FIC.  

Establishing the beneficial owners of trusts

When establishing a business relationship with or conducting a single transaction on behalf of a trust, the property practitioner must identify all the natural persons linked to the trust, which includes the trustees, founders or donors, settlors, protectors and named beneficiaries, as well as any other person exercising effective control over the trust.

Establishing the beneficial owners of partnerships

Property practitioners must identify and take reasonable steps to verify each partner within a partnership, regardless of the threshold of ownership that each partner owns, including an anonymous partnership or a similar partnership. Where a partnership consists of legal persons as partners, the property practitioner must in identify each legal person, through following the process of elimination.

For guidance on beneficial ownership, refer to PCC 59.

For more compliance information and guidance offered to accountable institutions, refer to the FIC website (www.fic.gov.za.) The FIC’s compliance contact centre can be reached on +27 12 641 6000 or log an online compliance query by clicking on: https://www.fic.gov.za/compliance-queries/