In the past few years, assessments by the International Monetary Fund found that the widespread use of cash in South Africa poses a high risk for money laundering and terrorist financing.
With this in mind, the Financial Action Task Force (FATF) issued a report in October 2021 requiring substantial legislative changes by November 2022 for South Africa to avoid being greylisted by the international watchdog. The FATF is an intergovernmental organisation founded in 1989 on the initiative of the Group of Seven (G7) countries to develop policies aimed at combating money laundering. In 2001, its mandate was expanded to include the financing of terrorism activities.
In response to the 2021 FATF report, the SA government, on 14 October 2022, revised the cash reporting threshold (Regulation 22B) in the Money Laundering and Terrorist Financing Control (MLTFC) Regulations.
Property practitioners
The FATF report highlighted property practitioners as high-risk individuals. This is due to estate agents’ generally having a poor understanding of the risks and obligations concerning money laundering and terrorist financing. Because South Africa has the largest real estate sector in sub-Saharan Africa - US$50.2 billion in 2019 – the country is at particular risk of transgressing these regulations designed to combat money laundering and terrorism.
Since 14 November 2022, estate agents have been required to change their cash threshold reporting. All cash transactions greater than R50 000 - previously R25 000 – must be reported to the Financial Intelligence Centre (FIC).
In addition, estate agents now have three days - previously two - to report a cash transaction or series of cash transactions that exceed R50 000. Non-compliance with this law could be costly, with maximum penalties of imprisonment for up to 15 years or a fine of up to R100 million.
When processing payments, estate agents must also comply with Section 29 of the FIC Act, which specifies that all suspicious and unusual transactions must be reported to the FIC - no matter how small the amount of money involved.
It’s also important to note that the party carrying out the transaction may not be notified that their suspicious or unusual activity has been reported to the FIC.
Compliance
According to Section 29 of the FIC Act, the onus to report these suspicious or unusual activities is placed on any person who carries on, is in charge of, manages or is employed by a business.
“In terms of the Act, the term ‘business’ is interpreted broadly and is deemed to be any person associated with a commercial undertaking as an owner, manager or employee. It’s therefore evident that the obligation to report in terms of section 29 applies to a broad group of people, which includes property practitioners,” says Jan Davel, chief executive of PayProp South Africa, an automated payment and reconciliation platform specific to the residential rental industry.
“Estate agents are accountable institutions under the FIC Act, so they must be registered with the Financial Intelligence Centre.”
Davel says PayProp will only process rent on behalf of agencies registered with the Property Practitioners Regulatory Authority (PPRA) as well as the Financial Intelligence Centre.
“PayProp assists agencies in identifying cash deposits that exceed the reporting threshold. The platform's posted payments report allows agents to filter incoming transactions by type, so agents can easily see all of the cash coming into the business before it is reconciled,” he says.
About 15 million South Africans live in rented accommodations, and many of these tenants pay their rent in cash. This means that property practitioners who regularly deal with tenants need to ensure that their cash rental payments are handled carefully and meet compliance regulations.
Greylisted
Despite the updated regulations, the FATF recently decided to put South Africa on the grey list, along with Nigeria.
The watchdog’s decision signals to investors, global banks, and financial institutions that the country is not fully compliant with anti-money laundering and anti-terrorist financing standards. The action puts South Africa on par with countries like Syria, Haiti, Yemen and Mozambique.
The FATF found that South Africa had made significant progress on many of the recommended actions to improve its systems in recent months. However, more work is required to increase investigations and prosecutions of money laundering, in addition to the seizure of assets resulting from crimes. Eight areas of improvement were identified.
The FATF’s decision was not unexpected. During his Budget speech on 22 February, Finance Minister Enoch Godongwana warned that the country should be prepared for the possibility of greylisting.
In response to the FATF’s greylisting announcement, Godongwana said that South Africa would work to ‘swiftly and effectively address all outstanding deficiencies and strengthen the effectiveness of its anti-money laundering and counter-terrorist financing regime’.
Writer : Sarah-Jane Meyer