How big is the Financial Intelligence Centre bite?

More and more accountable institutions are being targeted by the Financial Intelligence Centre (“FIC”) for failing to comply with their duties under the Financial Intelligence Centre Act 38 of 2001 (“FIC Act”). But what can happen if you don’t comply?

The FIC Act requires that accountable institutions must comply with the FIC Act and its encompassing provisions relating to client identification and verification, client risk assessment and screening and various reporting responsibilities toward the FIC and extensive recordkeeping requirements.

The list of accountable institutions that fall under the scope of the FIC Act is quite extensive and is regularly being expanded, with the most recent additions being added late in 2022. The list includes obvious entities such as banks, attorneys and estate agents, dealers in high-value goods, financial advisors etc. All of these entities must now ensure compliance with the comprehensive requirements of the FIC Act.

Consequences of non-compliance with the FIC Act
To enforce compliance by accountable institutions, the FIC Act provides for the imposition of administrative sanctions by the FIC, which include hefty fines for non-compliance, which range from a maximum fine of R10 million on a natural person to a maximum fine of R50 million in respect of any legal person.

Case Study: Hefty fine imposed on Volvo Group Southern Africa
But will the FIC actually impose such hefty fines? In the recent judgment of Volvo Group Southern Africa (Pty) Ltd v Financial Intelligence Centre (A277/2021) [2023] ZAGPPHC 219 (14 March 2023) it was shown that the FIC is willing to impose hefty fines. In this case, the North Gauteng Division of the High Court dismissed an appeal against a R5,824,567.00 fine imposed by the FIC on Volvo Group Southern Africa (Pty) Ltd for failing to comply with its reporting duties in terms of the provisions of the FIC Act. In its decision, the court addressed certain issues that should serve as lessons to other accountable institutions:

  • The fact that an accountable institution has remedied a previous non-compliance with a provision of the FIC Act does not create immunity against the imposition of a fine. The court highlighted that the FIC Act punishes non-compliance irrespective of subsequent remedial actions taken by an accountable institution.
  • Partial compliance with the provisions of the FIC Act still amounts to non-compliance. In this regard, the court specifically referenced the prescribed form in which transactions should be reported and found that failure to report in the correct format amounts to non-reporting.
  • Accountable institutions cannot hide behind their lack of knowledge of the provisions of the FIC Act when they are found to have not complied with the provisions of the FIC Act.

The above case, read against the background of South Africa’s recent grey listing by the international community, makes it evident that the FIC will be aggressive in their enforcement of penalties for non-compliance by accountable institutions. Now, with additional responsibilities also imposed on accountable institutions by the General Laws (Anti-money Laundering and Combating Terrorism Financing) Amendment Act 22 of 2022, accountable institutions will do well to ensure that they are ready and able to comply in full with the requirements imposed on them by the FIC Act.

Disclaimer: This article is the personal opinion/view of the author(s) and is not necessarily that of the firm. The content is provided for information only and should not be seen as an exact or complete exposition of the law. Accordingly, no reliance should be placed on the content for any reason whatsoever and no action should be taken on the basis thereof unless its application and accuracy have been confirmed by a legal advisor. The firm and author(s) cannot be held liable for any prejudice or damage resulting from action taken on the basis of this content without further written confirmation by the author(s).

June 13, 2023
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