Archives: General Interests & News Flashes

INTRODUCTION

Let’s recap. The origin and development of our financial intelligence laws comes about as a result of South Africa’s membership of the Financial Action Task Force. This is an intergovernmental organization founded in 1989, on the initiative of the G7 group of countries, to develop policies to combat money laundering and the financing of terrorism.

There are now 35 member countries in the Financial Action Task Force. This Task Force monitors countries’ progress in implementing the Financial Action Task Force Recommendations by ‘peer reviews’ (‘mutual evaluations’) of member countries. If countries do not cooperate, they can be blacklisted, and they can be placed under severe financial pressure by the other members of the group. Needless to say, all the first world countries are members of the group.

So it is important to understand that it is in the furtherance of this objective that the Financial Intelligence Centre does its’ work. The FIC assists law enforcement agencies by providing information to them to enable them to prevent and detect MONEY-LAUNDERING AND THE FINANCING OF TERRORISM. To enable them to do this, they rely on our assistance. How we are obliged to assist them is set out in the Financial Intelligence Centre Act, which came into force in July 2003.

This original Act is now in the process of being amended to bring it in line with directives issued by the Financial Action Task Force.

THE AMENDMENT ACT

The amendment Act was approved by our National Assembly in May 2016. For various (sinister?) reasons our president delayed signing the Act into law until 13 June 2017. That is when the first parts of the amendment Act came into force.

It was impossible to bring the whole amendment Act into force at one time because the current regulations had to be amended to apply to the amendment Act. If this was not done, Accountable Institutions would have had difficulty in implementing the new laws. Certain portions of the amendment Act came into force on 13 June 2017. Other sections will become effective on 2 October 2017. This is just around the corner. It is these sections of the Act that will have the greatest impact on us as estate agents and lawyers.

Other sections of the amendment Act relating to United Nations Security Council Resolutions will come into force at an even later date.

WHO DOES THE FIC ACT APPLY TO?

Before getting into the meat of the changes, I think it is important to establish who the FIC Act actually applies to. I’ve already mentioned, the term “Accountable Institutions”, and it is to Accountable Institutions that the Act applies. Accountable Institutions are:

• ATTORNEYS
• ESTATE AGENTS
• PEOPLE WHO MANAGE OR ADMINISTER MONEY IN TRUST
• STOCKBROKERS
• UNIT TRUST COMPANIES
• BANKS

We are all therefore directly in the firing line as far as FICA is concerned.

KEY CHANGES TO THE ACT

From my point of view, the most important changes to the Act relates to the move from a “rules-based” approach to a “risk based” approach to the issue of client identification and verification. In terms of the old Act, there were certain procedures that were mandatory, and we could follow them blindly, even if we knew they were ineffective in our sphere of business.

This is no longer the case.

The application of a risk based approach means that Accountable Institutions should identify, assess and understand its money laundering & terrorist financing risks in respect of the products and services it offers to clients.

An Accountable Institution should then apply its knowledge and understanding of its money laundering/terrorist financing risks when developing control measures to manage and mitigate the identified risks.

Where higher risks are identified, Accountable Institutions are to take enhanced measures to manage and mitigate the risks. simplified measures may be applied where lower risks have been identified.

All of the above must be documented in the Accountable Institution’s “Risk Management and Compliance Programme”.

At this stage it is relevant to ask what a Risk Management and Compliance Programme is? This is defined in Section 42 of the Act.

In terms of this section, each Accountable Institution must develop, document, maintain and implement a programme to identify, prevent and manage the risk of their business being used as part of a scheme to launder money or finance terrorism. This program must enable the Accountable Institution to identify, assess, mitigate, monitor and manage the risk of this happening.

The program must set out how the Accountable Institution will comply with its obligations in terms of the amendment Act. The requirements are quite specific and each of the legal obligations are dealt with separately, right down to how the programme is to be implemented in branches of the company. If any of the specific obligations set out in the Act are not applicable to the Accountable Institution, this must be documented and explained.

The Risk Management and Compliance Program has to be approved by the highest level of management in the company. The programme also has to be reviewed at regular intervals to ensure that it remains relevant.

I am hoping the regulations to the amendment Act will assist us in preparing our Risk Management and Compliance Programme, or maybe the EAAB will draft an industry standard, as they did after the original FIC Act was promulgated. This will ensure we all have the same levels of compliance and that we will not lose clients to agencies who adopt a less rigorous approach. If our existing FICA procedures are onerous to our clients, the new ones will be even more onerous, especially in situations where the risks are high. As soon as the Regulations are out, we will need to act quickly to prepare a Risk Management and Compliance Programme for our individual businesses.

The amendment Act does however set out certain requirements that we will need to fulfil, and am going to go through these now. These are contained in the new sections from section 20A to section 21H of the amendment Act. Here is a summary of the relevant sections:

Section 20A:

Anonymous clients and clients acting under false or fictitious names

You are not entitled to establish a business relationship or conclude a single transaction with an anonymous client or a client with an apparent false or fictitious name.

Section 21A:

Identification of clients and other persons

You’ve got to do the basics. Identify the person you’re dealing with and verify their identity. If that person is acting on behalf of another person, do the same for the other person. Also obtain a copy of the document in which the client gave authority to his representative to act on his behalf. This will be a resolution or a Power of Attorney. This is mandatory.
This is very similar to our existing law and requires you to establish and verify the identity of the client or the prospective client to be carried out before the “single transaction” is concluded or before the “business relationship” is established. This maintains the current position which allows you to carry out your FICA obligations after the mandate has been taken, but before the sale has been concluded.

Section 21B

Additional due diligence measures relating to legal persons, trusts and partnerships

In this section, the Act spells out additional requirements for FICA compliance if you are dealing with a juristic person. You have to establish

• the nature of the business that the juristic person carries out; and
• the ownership and control structure of the juristic person.

You also have to conduct the basic identification and verification of a whole lot of people involved in the juristic person, including that of the representative you are dealing with.

Section 21C

Ongoing due diligence

In terms of this section, you have to continue to monitor the business which you do with the client to make sure that the transactions are all consistent with your knowledge of the client and if there are unusual transactions you must make further enquiries.

You also have to keep all the information obtained in establishing and verifying the identities of clients up-to-date.

Section 21D

Doubts about veracity of previously obtained information

If you have any doubts about the veracity or adequacy of previously obtained information, you must repeat the verification steps until these doubts are removed.

Section 21E

Inability to conduct customer due diligence

In the event that you cannot establish and verify identities or obtain other information that is required, you cannot proceed to do business with the client and you must terminate the business relationship. You must also consider making a report to the Financial Intelligence Centre.

Section 21F

Foreign prominent public official

The amendment Act contains a definition of a “Foreign Prominent Public Official” in Schedule 3B to the Act. This is a person who is royalty; or a senior government official; or a senior politician; or a senior executive of a state owned entity; or a high-ranking member of the military.

Before doing business with such a person, you need to obtain senior management approval. You also have to establish where this person is getting their money from and conduct “enhanced ongoing monitoring” of the business relationship.

Section 21G

Domestic prominent influential person

The amendment Act contains a definition of a “Domestic Prominent Influential Person” in Schedule 3A to the Act. This definition includes all senior government officials and politicians, royals and traditional leaders, senior civil servants, judges, ambassadors and high-ranking officers in the military. It also includes senior officials in companies who are doing business with government.

The FICA requirements that have to be met before doing business with these people are identical to the requirements for foreign prominent public officials.

Section 21H

Family members and known close associates

This section expands the FICA requirements in respect of Foreign Public Officials and Domestic Prominent Influential People to their immediate family members and their known close associates.

RECORD KEEPING

The act also obliges us to keep proper records of all the information that we have obtained for a period of five years from the date upon which the business relationship is terminated, or, if the client only carried out one transaction, five years from the date that that transaction is concluded. In the event that you have lodged a report with the FIC about a client, you must keep all your records about this client for a period of five years from the time that you made the report. Thankfully, you are entitled to keep these records in electronic format.

OUR DUTY TO REPORT

We have a duty to report suspicious and unusual transactions. These might relate to money-laundering, the financing of terrorist activities, tax evasion, or any transaction which has no apparent business purpose or lawful purpose. These are not only transactions which we know about, they are also transactions that we ought to have known about. We therefore can’t bury our heads in the sand and ignore what is going on around us.

If you are going to report someone you cannot tell them that you’re going to make a report. This information has to remain a secret, so as not to tip off the perpetrator of the unlawful activity.

In addition, despite the fact that you have reported the incident, you are entitled to continue to carry out the transaction in respect of which the report was made, unless the FIC instructs you otherwise.

No duty of secrecy or confidentiality which you have to the client, whatever the basis, will excuse you from failing to make a report to the FIC. Only attorneys are excused from making reports if the information given to them falls within the scope of legal professional privilege. This would mean that the information would have to be disclosed to the attorney for the purposes of obtaining legal advice, or for the purposes of assisting the client in litigation.

PROTECTION OF WHISTLEBLOWERS

Section 38 of the Act provides protection for people who make reports to the FIC. They are immune from any type of legal action, be it civil or criminal. They are also not able to be compelled to give evidence in criminal proceedings arising from the report. In addition, should they so require it, their identity can be kept a secret in court proceedings.

COMPLIANCE AND ENFORCEMENT

The FIC will exercise supervisory powers, through INSPECTORS who have the power to enter the business premises of an Accountable Institution and carry out inspections to ensure that the act is being complied with. This inspection can be carried out WITHOUT A WARRANT. In the event that the inspector wishes to enter a private residence, a warrant is required, and this will only be issued on probable cause.

ADMINISTRATIVE SANCTIONS

Non-compliance with the FIC act can result in severe punishments being handed out. The maximum fine is R10 million for natural persons and R50 million in respect of legal persons. These findings can be handed out by the FIC itself. These punishments are called “administrative sanctions”. In addition to being sanctioned by the FIC, if the conduct amounts to a criminal offence, the perpetrator can also be charged in the criminal court.

There is a right of appeal against an administrative sanction to an appeals board which is established in terms of the Act.

CONCLUSION

This summary of various parts of the FIC act and the FIC amendment Act is brief and does not include any reference to the regulations. Because we are on the brink of receiving new regulations I intend rather to expand on this summary when I can refer to the new regulations. This information will most probably be shared with you by way of news flashes and during the course of the Miltons forums that we intend to hold during October. We look forward to seeing you there.

Article by: DEON WELZ & QUINTIN COMBRINK

Airbnb is an increasingly popular and lucrative way for residential property owners to earn extra income from short-term rentals of spare rooms, holiday houses, apartments and the like.

Bear in mind these 3 factors –

1. You need to provide for taxes. SARS has recently confirmed that your Airbnb earnings (after deduction of allowable expenses) are taxable and must be included in your income tax returns. You will also have to register for VAT if your rental income exceeds R1m per year.
2. You must comply with the “permitted uses” applying to your property under your local municipality’s zoning regulations.
3. If you are in a community scheme (Sectional Title or Home Owners Association) check whether the scheme’s rules and regulations allow short-term rentals of this nature, and if so what restrictions apply. Remember you are responsible for any breaches of the rules and for any unlawful or bad behaviour by your tenants.

“Cause they told me everybody’s got to pay their dues
And I explained that I had overpaid them” (Sixto Rodriguez in ‘Cause’)

Before you as seller can transfer your property to the buyer, you must have a clearance certificate from your local municipality confirming that you have paid in full all rates and taxes, services etc due to it on the property.

What happens though when the municipality refuses to issue the clearance certificate until you have paid not only rates currently due, but also future rates i.e. rates payable by the buyer after transfer as new registered owner? If you are forced to pay, you will be left with a claim against the buyer and that could well mean dispute and delay.

But now here’s good news for you from a recent SCA (Supreme Court of Appeal) decision.

At issue – a R2.28m rates bill paid under protest

• A municipality presented a seller with a rates account of R2,281,014-68 in terms of its rates policy which required it to recover all rates due for the seller’s “remaining financial year”.
• The seller said it only owed R1,2m but it was forced to pay – with reluctance and “under protest” – the whole amount due in order to get the clearance certificate. It then sued the municipality for return of the R1,066,532 “overpayment”.
• On its interpretation of the relevant legislation, the Court held that the municipality’s policy on future rates was inconsistent with the Rates Act, and therefore void. The seller had therefore overpaid, and the municipality must repay it, together with interest and costs.

“There are some crimes that do not go away” (quoted in the judgment below)

Victims of sexual abuse are often so deeply traumatised and intimidated that they either never report the crimes, or take decades to go to the police.

And that, until now, has been a major source of injustice in our legal system, because section 18 of our Criminal Procedure Act (CPA) provides that the right to prosecute crimes lapses after 20 years except for a specified list of serious offences – murder, treason, aggravated robbery, kidnapping, child stealing, rape/”compelled rape”, genocide/war crimes, people trafficking, and pornography involving children or mentally disabled people.

The end result has been that many desperate and vulnerable survivors of abuse have been deprived of their right to seek justice. Fortunately that has now changed. A recent High Court judgment involving accusations of sexual crimes over 28 years ago has had the result that, subject only to confirmation by the Constitutional Court, sexual offences can now be prosecuted at any time.

Allegations of habitual child sex abuse; and the law

• Eight male and female applicants, who at the time of the alleged offences were children between the ages of 6 and 15 years, accused the man in question of having habitually “indecently and/or sexually assaulted” them in the 70s and 80s.
• In terms of the CPA, the offences had prescribed by the time that, between June 2012 and June 2015, the applicants had acquired “full appreciation of the criminal acts committed by the [man]”, and they then opened a criminal case and instituted a civil claim against him.
• The Director of Public Prosecutions declined to prosecute the cases (being barred by the CPA from doing so) and the applicants asked the High Court for help.
• Having analysed in depth both the legal position and the many deep-seated causes of “delayed disclosure” by victims, the Court held that “section 18 is arbitrary and irrational and accordingly is inconsistent with the Constitution and invalid, in relation to not only children, but to all victims, including adults” in respect of “the right to institute a prosecution for all sexual offences”.
• Although the declaration of invalidity was suspended for 18 months “in order to allow Parliament to remedy the constitutional defect”, the Court ordered that in the interim, i.e. with immediate effect, the 20 year time limit falls away for “all other sexual offences, whether in terms of common law or statute”.

The civil case against the accused’s deceased estate (he died shortly before the hearing) will now no doubt also proceed, with another Court having previously held in respect of civil prescription “that a victim of child or sexual abuse who acquired an appreciation of the criminal act during adulthood is able to sue the abuser within three years of gaining that appreciation”.

“There is no question that firearms are hazardous objects and that possession and ownership must be strictly controlled. A failure to comply with the Act exposes the public to potential harm, especially in a society like ours where violence is rife.” (Extract from judgment below)

Whilst our law quite correctly treats unlawful possession of a firearm as a most serious offence – you could go to prison for 15 years if convicted – law-abiding citizens who hold valid firearm licences face a major problem if for whatever reason they fail to renew them in time.

To set the scene, the Firearms Act provides that all licences are valid for a limited period only (10 years for hunting licences and 5 years for self-defence) and you must apply for renewal at least 90 days before expiry. If you drop the ball on that one, you have a major problem …

The 90 day guillotine: High Court to the rescue

“The difficulty that arises, and which causes confusion” held the High Court recently when asked to intervene on behalf of firearm owners “is that, if a person fails to apply for a renewal at least 90 days before expiry there is no provision in the Act that permits one, after the guillotine has dropped, to bring oneself back within the parameters of the law. This then leads to the result that one is in unlawful possession of a firearm, with no means to rectify the position…”.

Worse, there is no way to surrender the firearm to the police without risking prosecution, nor any way to get value for the surrendered firearm – clearly an untenable position.

Having analysed the purpose and effect of the Act, and in particular of the sections dealing with renewal of licences and the consequences of not doing so in time, the Court declared those sections unconstitutional and gave Parliament 18 months to amend the Act so as to ensure constitutional compliance.

What happens now if your licence has already expired?

This must now go to the Constitutional Court for confirmation, but fear not, you are covered in the interim. The Court directed that all licences “issued in terms of the Firearms Control Act, 2000 (Act 60 of 2000), which are or were due to be renewed in terms of section 24 of the Firearms Control Act, 2000 (Act 60 of 2000), shall be deemed to be valid, until the Constitutional Court has made its determination on the constitutionality of the aforesaid sections”.

In other words, provided that you did in fact hold a valid licence in the first place, and provided that it has lapsed purely through “effluxion of time” (none of this applies to termination of licences for other reasons), you have a good defence to any prosecution.
Of course your best defence will always be to apply for renewal timeously. But if for any reason you forget or can’t comply, don’t take any chances – ask your lawyer to confirm that you are protected by this new ruling, and get help immediately if the police come after you.

URGENT UPDATE – Since time of writing of the above article, media reports suggest that SAPS has now appealed against the above judgment to the Constitutional Court and that the effect of this is that gun owners must continue to comply strictly with the relevant sections of the Firearms Act. SAPS has reportedly also stated that “no prosecutions will be instituted against persons whose firearm licences have expired and who voluntary surrendered such firearms to the South African Police Service.” Take immediate advice in any doubt!