By The Financial Intelligence Centre
Recognised globally as being vulnerable to misuse for money laundering, terrorist financing and proliferation financing, legal practitioners should be aware of the financial crime risks they face.
Criminals often seek out the services of gatekeepers such as legal practitioners for laundering money and hiding the proceeds of crime. Gatekeepers are described as entities or persons who provide access to the financial system, through which potential users can do business with financial institutions without revealing their own identities.
Legal practitioners have a role to play in combating money laundering, terrorist financing and proliferation financing in South Africa by ensuring their services are not knowingly or unwittingly exploited.
The Financial Intelligence Centre Act 38 of 2001 (FIC Act) requires that accountable institutions, such as legal practitioners, file certain reports with the Financial Intelligence Centre (FIC). These include reports on suspicious and unusual transactions, cash transactions above the prescribed threshold, and where a client has been identified as a designated person on a targeted financial sanctions (TFS) list.
To identify reportable transactions, transaction monitoring is an essential element of South Africa’s anti-money laundering, counter-terrorism financing and proliferation financing (AML/CTF and PF) regime.
The information contained in these regulatory reports assists the FIC in its development of financial intelligence which law enforcement, prosecutorial authorities and other competent authorities can use for their investigations, prosecutions and applications for asset forfeiture.
The first step before a legal practitioner can file a report is to register with the FIC. Registration is free and must be done via the FIC’s online registration and reporting system called goAML accessible via www.fic.gov.za. Recent amendments have been made to the FIC Act to consider the Legal Practice Act 28 of 2014, which designated certain advocates who accept briefs directly from the public, as accountable institutions.
The three main regulatory reporting streams for accountable institutions consist of –
Section 28 of the FIC Act requires an accountable institution to file a report when a cash transaction is concluded with a client above the prescribed threshold of R 49 999,99. CTRs must be submitted to the FIC as soon as possible but no later than three days after becoming aware that a cash transaction(s), namely cash received or paid out by the institution, has exceeded the prescribed threshold.
Where legal practitioners suspect a transaction or an activity involves money laundering, terrorist financing or a contravention of financial sanctions, they must report this suspicion to the FIC as an STR.
A suspicion may involve several factors that on their own could seem insignificant but taken together may arouse suspicion concerning that situation. A reporter should evaluate the transactions, as well as the client’s financial history, background, and behaviour when determining whether a transaction or activity is suspicious or unusual.
Legal practitioners must report STRs as soon as possible and can elect to continue with the transaction even if the report has been submitted to the FIC.
A legal practitioner must submit a TPR when they become aware that they possess, are in control of property of a person or entity that is designated on a United Nations Security Council targeted financial sanctions list. The consolidated targeted financial sanctions list is accessible on the FIC website (www.fic.gov.za).
These reports must be filed within five days of becoming aware that the institution possesses or controls property of a person or entity, which has committed or attempted to commit a terrorist act.
Not only is there a reporting duty where a person is a designated person, there is also an obligation to freeze all assets. In other words, when filing a TPR it is an offence to continue with the transaction or deal with the property in question.
Section 37 of the FIC Act protects the common law right to legal professional privilege between an attorney and their client in respect of communications made in confidence relating to legal advice or litigation.
Any information that is not connected with the giving of legal advice or litigation will not be privileged even if made in confidence, and a legal practitioner’s reporting duties and obligations to provide information to the FIC would not be affected. In addition, privilege does not apply if the client obtains legal advice to perpetrate a crime.
In essence, no duty of secrecy or confidentiality – apart from privilege in the circumstances indicated – prevents a legal practitioner from complying with an obligation to file a report under the FIC Act. This should be kept in mind by legal practitioners when submitting reports to the FIC.
For more information and guidance offered to accountable institutions, refer to the FIC website (www.fic.gov.za). Alternatively, contact the FIC’s compliance contact centre on +27 12 641 6000 or log an online compliance query on the FIC website.
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