Money laundering and the Financial Intelligence Centre Act

The sale of a property and the transfer of ownership along with the transfer of significant funds opens itself up to fraudulent activity which is why it is important to familiarise yourself with the risks surrounding money laundering and how the Financial Intelligence Centre Act aims to protect citizens.

Property Blog Articles | Advice | Contractual Matters | Market News

What is money laundering?

Money laundering is the process of taking proceeds obtained through unlawful activities such as drug trafficking, insider trading or tax evasion and making them appear legal. In this way, the banks and other financial institutions are unlikely to become suspicious when dealing with these funds, preventing the funds from being confiscated by the authorities. 

While many property transfer scenarios will involve regulated banks and other financial institutions providing low risk, a property transfer remains susceptible to money laundering activities so it is important to be alert and be able to recognise suspicious transactions.

What is considered unlawful activity?

The Prevention of Organised Crime Act defines unlawful activity as “any conduct which constitutes a crime or which contravenes any law whether such conduct occurred before or after the commencement of this Act and whether such conduct occurred in the Republic or elsewhere.”

A person is guilty of money laundering if they assist another person to benefit from the proceeds of the unlawful activities.

The process of money laundering

There are three stages during the process of money laundering:

  • Placement: the proceeds of the unlawful activity are placed in the financial system
  • Layering: a series of transactions is made to obscure the true nature and origin of the proceeds
  • Integration: the proceeds are re-integrated into the financial system as what appears to be legitimate funds and returned to the control of the criminal

Applying this practically in the roles played by property and legal professionals in the property market, they could be involved in all three stages. They may receive the proceeds from a client (potentially resulting in placement), they invest or facilitate the property transaction on behalf of the client (which could facilitate layering) or refund the client if the transaction is cancelled (providing opportunity for re-integration).

What is the main purpose of FICA?

The Financial Intelligence Centre Act (FICA) was introduced to criminalise and combat money laundering and other organised crime. The Act creates the administrative framework for money laundering control. It designates certain statutory bodies and functionaries as “supervisory bodies” and requires them to report suspicious transactions. The Law Society of South Africa has been designated as the attorney’s supervisory board. Accordingly, all attorney firms must comply with the obligations imposed by FICA. The Estate Agency Affairs Board is also a supervisory body in terms of the Act and as such, must be registered with the Financial Intelligence Centre and must adhere to the various duties imposed by FICA. They are accountable institutions because their role is often manipulated by money launderers to disguise the proceeds of unlawful activity.

It is important to have created this responsibility on supervisory bodies in South Africa to protect the integrity and stability of its financial system, allow the country to develop economically and to enable it to be a responsible global citizen.

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Money laundering and the Financial Intelligence Centre Act

The sale of a property and the transfer of ownership along with the transfer of significant funds opens itself up to fraudulent activity which is why it is important to familiarise yourself with the risks surrounding money laundering and how the Financial Intelligence Centre Act aims to protect citizens.

Property Blog Articles | Advice | Contractual Matters | Market News

What is money laundering?

Money laundering is the process of taking proceeds obtained through unlawful activities such as drug trafficking, insider trading or tax evasion and making them appear legal. In this way, the banks and other financial institutions are unlikely to become suspicious when dealing with these funds, preventing the funds from being confiscated by the authorities. 

While many property transfer scenarios will involve regulated banks and other financial institutions providing low risk, a property transfer remains susceptible to money laundering activities so it is important to be alert and be able to recognise suspicious transactions.

What is considered unlawful activity?

The Prevention of Organised Crime Act defines unlawful activity as “any conduct which constitutes a crime or which contravenes any law whether such conduct occurred before or after the commencement of this Act and whether such conduct occurred in the Republic or elsewhere.”

A person is guilty of money laundering if they assist another person to benefit from the proceeds of the unlawful activities.

The process of money laundering

There are three stages during the process of money laundering:

  • Placement: the proceeds of the unlawful activity are placed in the financial system
  • Layering: a series of transactions is made to obscure the true nature and origin of the proceeds
  • Integration: the proceeds are re-integrated into the financial system as what appears to be legitimate funds and returned to the control of the criminal

Applying this practically in the roles played by property and legal professionals in the property market, they could be involved in all three stages. They may receive the proceeds from a client (potentially resulting in placement), they invest or facilitate the property transaction on behalf of the client (which could facilitate layering) or refund the client if the transaction is cancelled (providing opportunity for re-integration).

What is the main purpose of FICA?

The Financial Intelligence Centre Act (FICA) was introduced to criminalise and combat money laundering and other organised crime. The Act creates the administrative framework for money laundering control. It designates certain statutory bodies and functionaries as “supervisory bodies” and requires them to report suspicious transactions. The Law Society of South Africa has been designated as the attorney’s supervisory board. Accordingly, all attorney firms must comply with the obligations imposed by FICA. The Estate Agency Affairs Board is also a supervisory body in terms of the Act and as such, must be registered with the Financial Intelligence Centre and must adhere to the various duties imposed by FICA. They are accountable institutions because their role is often manipulated by money launderers to disguise the proceeds of unlawful activity.

It is important to have created this responsibility on supervisory bodies in South Africa to protect the integrity and stability of its financial system, allow the country to develop economically and to enable it to be a responsible global citizen.

Follow Snymans on Facebook for more legal information, tips and news about property.

8386