FICA – Your protection against fraud

With the threat of fraud ever present in large financial transactions, FICA is being effectively implemented by accountable institutions to remove the risk for all concerned…

February 24, 2017

Many people are now familiar with the FICA (Financial Intelligence Centre Act) requirements, and have been through the process of supplying the necessary documentation in order to be FICA compliant in a particular situation. However, what is often not understood is why this process needs to be repeated multiple times and what the underlying purpose is.

The context

In order to appreciate the benefits of FICA, one must see it in the context of the financial fraud that has been rife, both in South Africa and internationally.

In an attempt to curb this, the Financial Intelligence Centre Act was brought into operation in 2003. The purpose of this legislation is to combat financial crimes, including money laundering and tax evasion, as well as financing of terrorist activities, through comprehensive verification of individuals who are party to a transaction.

The process

Although it may feel repetitive for a consumer, FICA requires all “accountable institutions”, including attorneys, banks and estate agents, to obtain their own unique FICA documentation from an individual or legal entity. This means that for each property transaction, the necessary verification documents must be produced for each of the “accountable institutions” involved, ensuring a more stringent process of authentication and reducing the risk of fraudulent transactions and money laundering.

To comply with FICA, proof of identification and proof of residential address need to be produced. Without these documents, a transaction cannot proceed.

FICA and the property transfer

When it comes to the property transfer, the risk of fraud lies in false information being supplied to the accountable institution, or such an institution not obtaining the required information at all. The banks are, for example, exposed when proper FICA compliance does not take place and false documentation is used to open accounts. This can lead to fraudulent payments and money disappearing as a result. Buyers and sellers should take extreme precaution when making electronic payments. Payments must never be made on email instructions without additional verification.

To avoid any issues, buyers and sellers should take care to obtain and provide all the documentation and information that is requested by the attorneys. With this on hand, the risk of fraud can be largely prevented and property transfers can be concluded successfully.

Written by Wessel de Kock

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