The property sector is an attractive, legitimate investment vehicle, but it is equally appealing to criminals for laundering illicit funds. Identified as being vulnerable to abuse by criminals for money laundering and terrorist financing, estate agents, as facilitators into the property sector, are listed in the Financial Intelligence Centre Act (FIC Act) as accountable institutions.
As such, estate agencies must fulfil certain compliance obligations as set out in the FIC Act to mitigate the risk of exploitation to help protect the integrity of SA’s financial system.
FIC Act compliance measures include record-keeping, appointing a compliance officer, training employees on the FIC Act, developing and implementing a risk management and compliance programme (RMCP), and registering with and submitting various reports to the FIC.
Risk management and compliance programme
Section 42 of the FIC Act places an obligation on accountable institutions to develop, document, maintain and implement a RMCP. An accountable institution’s ability to apply a risk-based approach effectively is largely dependent on the quality of its RMCP.
An estate agent’s RMCP must be sufficient for countering the money laundering and/or terrorist financing risks it may face. It is important for estate agents to bear in mind that a RMCP not only comprises policy documents, but also procedures, systems and controls that must be implemented within the institution. The programme can therefore be described as the foundation of an accountable institution’s efforts to comply with its obligations under the FIC Act on a risk-sensitive basis.
Every business is different and therefore the process used to identify risks must account for a range of factors that may indicate threats and vulnerabilities to a greater or lesser extent in specific scenarios.
Factors to be taken into account when assessing risk
Clients, products and services and other aspects do not all have the same risk. To identify all the factors that may affect the money laundering and terrorist financing risks, a holistic view must be taken of the information gathered at various levels and stages of conducting business.
In identifying risk, an estate agent must be able to set out how it will determine:
- if it is dealing with an existing or prospective client;
- ensuring that it does not do business with anonymous clients;
- how it will identify and verify different types of clients, such as natural or legal people; and
- how it will determine if future transactions are consistent with its knowledge of a client and that client’s financial means.
After identifying the money laundering and terrorist financing risks, the likelihood must be assessed of these occurring and the possible impact.
Various factors can assist in assessing the risks, such as considering the:
- size, structure and complexity of the business;
- the nature and range of products and services on offer;
- delivery channels (the way in which institutions and clients communicate with each other);
- geographic areas; and
- client indicators such as the level of public influence or importance of a client as well as suspicious behaviour.
Estate agents should be able to show how they classify risks based on these factors. This can be done by documenting a risk-rating methodology or risk scale. These factors can also assist in determining the amount and type of risk a business is willing to tolerate.
Customer due diligence
Customer due diligence, which includes identification and verification, is one of the measures that can be used to mitigate risks involved in a business relationship or single transaction. Applying customer due diligence requires estate agents to know their clients, understand the business the client is conducting, and identify the type of transactions it can reasonably expect in the course of the business relationship.
Guidance note 7, published on the FIC website, provides a detailed explanation on how to implement the risk-based approach and a RMCP. For further guidance and information on property sector’s FIC Act compliance obligations, visit the FIC’s website.