The Financial Intelligence Centre Act, 2001 (‘’the FIC Act’’) imposes compliance obligations on accountable institutions as part of measures for combatting money laundering and financing of terrorist and related activities.
Attorneys or law firms are included on the list of 16 institutions in Schedule 1 of the FIC Act that are deemed to be accountable institutions. Accountable institutions are required among other things to comply with the following obligations:
- identify and verify clients;
- keep records of client identity and transactions;
- file statutory reports relating to cash transactions above the prescribed threshold (R24 999.99), suspicious and unusual transactions and activities, terrorist property and related activities;
- appoint a compliance officer;
- train employees on compliance requirements;
- register with the Financial Intelligence Centre.
There are criminal and administrative penalties and sanctions for non-compliance with the above requirements. Administrative penalties for natural persons may be up to R10 million and up to R50 million for legal persons. Criminal sanctions range from 5 years to 15 years imprisonment or a fine of R10 million to R100 million.
But over and above penalties and sanctions, is there a business case for complying with the requirements of the FIC Act? By way of an example, failure to identify and verify clients may result in the attorney or law firm unknowingly conducting business with people who are on the various sanctions lists, politically exposed persons or persons engaged in corrupt activities.
Associating with individuals on such lists may have an adverse impact on the firm’s reputation and may result in clients refusing to associate with the firm to protect their own reputation and brand. The ability to demonstrate that the firm has the necessary controls in place to proactively manage risks inherent in the provision of legal services will certainly enhance the firm’s brand and reputation.
Effective governance and controls are no longer reserved for big firms and corporates. If recent media reports are anything to go by, some big firms and corporates are also falling short in that department. This is an opportune time for so called smaller law firms to enhance their brand and reputation by investing in robust risk and compliance controls.
Article written by Moroke Phajane from the TGLN team. Moroke LLB (UFS) is an admitted attorney with more than 12 years post qualification experience. His company First-Line Consulting, provides regulatory compliance advice and support to law firms and other entities. Please visit their website on www.first-lineconsulting.com to find out more about their service offering.