Legal practitioners must adhere to their Financial Intelligence Centre Act (FIC Act) obligations or face potential administrative sanctions.

As accountable institutions in terms of the FIC Act, legal practitioners must meet certain compliance obligations such as complying with targeted financial sanctions, submitting a risk and compliance return and filing regulatory reports with the Financial Intelligence Centre (FIC).

Registration

As a first step in meeting their regulatory obligations, legal practitioners must register with the FIC on its reporting platform. Once registered, the institution can file the necessary regulatory reports with the FIC.

The FIC has issued helpful guides and guidance on how to register: goAML accountable institutions registration guide and PCC 5D.

Risk and compliance return

The FIC introduced the risk and compliance (RCR) questionnaire in 2023 to better understand the entity-level money laundering and terrorist financing risks accountable institutions such as legal practitioners face. RCRs also gauge the accountable institution’s understanding of their FIC Act compliance obligations.

Legal practitioners must complete and submit their RCRs in terms of Directive 6 or face administrative sanctions, including financial penalties. Entities that were operational between 1 April 2022 to 31 March 2023 and have not yet submitted their RCRs, must do so without delay.

Suspicious and unusual transaction reports                   

As professional gatekeepers for clients, legal practitioners are vulnerable to money laundering and terrorist financing (ML and TF) as they often handle client funds and interact on behalf of clients.

Organised criminals can use legal practitioners to conceal proceeds of crime, obscure ultimate ownership through complex layers and legal entity structures, avoid paying tax, or work around financial regulatory controls. The services legal practitioners provide can help create a veneer of legitimacy to criminal activity, create distance between criminal entities and their illicit income or wealth, avoid detection and confiscation of assets, and hinder law enforcement investigations.

Legal practitioners are required to submit suspicious and unusual transaction reports (STRs) as well as suspicious activity reports (SARs) to the FIC. The FIC analyses these reports and other information to produce financial intelligence for use by law enforcement agencies and other competent authorities in their investigations, prosecutions and applications for asset forfeiture.

The FIC has published a sector risk assessment for the legal profession which includes red-flag indicators that may guide legal practitioners in detecting suspicious and unusual activities. These indicators include:

• The use of cash for payment of services or payment into trust accounts
• Anonymity of clients and transactions that are complex in nature
• The use of new payment technologies such as crypto currencies
• Instances where trusts or other legal arrangements attempt to conceal the true identity of the beneficial owners
• International payments received from clients not in line with the client profile
• Links to high-risk jurisdictions on targeted financial sanctions lists
• Foreign politically exposed persons, domestic politically exposed persons and high net worth individuals regarded as high-risk clients
• Clients who offer to or pay extraordinary fees for services that would not warrant such fees.

Public compliance communication 47A (PCC 47A) provides sector specific guidance on which legal practitioners are deemed accountable institutions and contains risk indicators. Legal practitioners must submit STRs and SARs without delay and no later than 15 days when it becomes aware of the suspicious and unusual activity. Refer to Guidance Note 4B and STR user guide or SAR user guide to learn how to submit an STR or SAR.

Targeted financial sanctions

All legal practitioners to scrutinise client information to identify designated persons or entities who are listed on the targeted financial sanctions (TFS) list as published in terms of section 26A of the FIC Act. The TFS list  is available on the FIC website, and is a free resource.

This requirement is not risk-based and must be applied to all clients regardless of risk. For guidance regarding TFS, terrorist financing and proliferation financing risk, you can consult PCC 44A.

Freezing of property

Legal practitioners may not provide products or services to designated persons or entities.  If there is no match, they can continue with the transaction. If there is a match against the TFS list, they must freeze the transaction and submit a terrorist property report (TPR). The freezing of property must occur without delay when the legal practitioner determines it has terrorist property in its control or possession.

Terrorist property report

Accountable institutions must submit a terrorist property report (TPR) to the FIC within five days of the institution becoming aware that they have property in their control or possession that is linked to terrorism or that has a positive match to a designated person or institution listed on the TFS list. A legal practitioner may not continue with the transaction when a TPR has been submitted.

The FIC has issued Guidance Note 6A that provides more information on the TPR obligation.

Refer to the FIC website for further guidance notes and public compliance communications. Alternatively, contact the FIC’s compliance contact centre on +27 12 641 6000 or log a compliance query on the FIC website.