Why Targeted Financial Sanctions (TFS) Matter in Property Law

Introduction

Property transactions are among the most significant financial commitments that most people will ever make. What is often overlooked, however, is that the property industry is closely regulated to combat crimes such as money laundering and terrorist financing.

In South Africa, property practitioners (including estate agents) are classified as “accountable institutions” under the Financial Intelligence Centre Act 38 of 2001 (“FIC Act”) and must comply with strict obligations relating to Targeted Financial Sanctions (TFS).

What are Targeted Financial Sanctions (TFS)?

TFS are restrictions imposed on specific individuals or entities by the United Nations and enforced locally to prevent them from accessing funds or assets.

If a person or entity appears on a sanctions list they are prohibited from accessing funds or assets, they cannot legally buy or sell property and may not receive any financial assistance.

In essence, they are “cut off” from the financial system. Property practitioners are required to screen clients against the Financial Intelligence Centre’s TFS list, which is updated regularly.

Why TFS is Important in Property Transactions

The property sector is considered high risk for financial crime due to the high value transactions, the use of third parties, complex ownership structures and the potential to conceal beneficial ownership.

These factors increase vulnerability to abuse and make strict compliance with TFS obligations critical.

Core TFS Obligations

The Financial Intelligence Centre outlines three key obligations:

1. Screening of clients‍

All parties to a transaction, including beneficial owners and intermediaries must be screened. This is an on-going exercise and should continue throughout the transaction.

2. Freezing of property or funds

If a link to a sanctioned person or entity is identified, the transaction must be stopped immediately. No further services may be rendered.

3. Reporting to the FIC

A Terrorist Property Report (TPR) must be submitted within five (5) days. Property Practitioners must keep this report confidential.

Consequences of Non-Compliance

Failure to comply can result in significant fines, regulatory penalties, criminal liability, and reputational damage. With increased international scrutiny, including grey-listing concerns, enforcement in South Africa is becoming stricter.

Practical Compliance Tips

1. Implement and maintain a Risk Management and Compliance Programme (RMCP).
2. Conduct ongoing client screening throughout the transaction lifecycle.
3. Remain alert to red flags, including large cash payments, unusual payment structures, third-party payments, and any reluctance by clients to disclose required information.

Conclusion

While Targeted Financial Sanctions may seem technical, the underlying principle is straightforward. Certain individuals are excluded from the financial system, and property practitioners play a crucial role in enforcing these restrictions. By complying with the required obligations, practitioners not only ensure compliance but also contribute to protecting the integrity of South Africa’s financial system.

Written by: Gustav Snyman
Moderated and approved by: Rohula Kgabu

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