THE DREADED “F” WORD – READ ABOUT THE LATEST AMENDMENTS TO THE FICA PROCEDURE

THE DREADED “F” WORD – READ ABOUT THE LATEST AMENDMENTS TO THE FICA PROCEDURE

The main purpose for the enactment of FICA and FICAA is to identity any proceeds that originates from crime and other illegal activities, as well as to prevent fraud and the financing of terrorism.

Since the bombing of the World Trade Centre on 11 September 1993, a world-wide tendency was created in terms of which more and more pressure was put on financial institutions to ascertain the source of funds utilized by their clients to conclude business transactions. This obligation was also placed on attorney firms, which are defined as accountable institutions (“AI’s”) in terms of FICA.

The above legislation have a profound impact on the manner in which a property transaction is to be concluded, and it warrants the provision of various documentation by both the Seller and the Purchaser to the transferring attorney attending to the transfer of a property. Under normal circumstances these documentation are required prior to the commencement of a property transaction, and in any event, before any funds can be invested on the trust account of the transferring attorney on behalf of either the Seller or the Purchaser. The Fica procedure also requires more than just the provision of a certified copy of the identity document of the parties involved.

Although FICA was rather prescriptive with the conditions AI’s had to comply with regarding the identification and verification of its clients, FICAA introduced certain new terms, posing different obligations on AI’s. One of the main differences between FICA and FICAA is the fact that FICAA created a “risk based approach” to be implemented by AI’s, leaving it to said institution to establish on their own what risk each different client poses to the object that the legislation wish to prevent, and to establish their own internal mechanisms of identifying said risks.

To identify any relevant risks, FICAA requires an institution to institute certain customer due diligence measures. These measure requires the AI to know and understand the core business of its clients, to identity the beneficial owners (being the natural persons behind the legal entity) to prevent abuse of legal entities for fraud or other purposes, as well as to ensure that enhanced customer due diligence procedures are followed when the institution is dealing with foreign prominent public officials and domestic prominent influential persons. FICAA contains examples of which persons qualify as being prominent persons as defined in the Act.

After the risk assessment is done, the AI is responsible to act on the outcome of the risk assessment in accordance with its risk management and compliance programme. In terms of FICAA all AI’s are obliged to have their own risk management and compliance programme, specifically drafted to identify the risks posed to the main business of the accountable institution itself, and which programme are also required to set out the institutions plans to manage these risks in light of its core business, whilst simultaneously ensuring compliance with FICA and FICAA.

The outcome of the risk assessment might require the AI to prevent the risk all together by terminating the client’s mandate, or to report the risk to state entities in terms of the procedure prescribed in FICA and FICAA. The AI might also consider to implement increased customer due diligence measures by for example, to require the provision of additional documentation by the client to ensure the authenticity of the information provided to the AI by the client.

Currently there are no clear guidelines as to exactly how the risk based approach have to be implemented for specific industries, or what and how the risks will be managed. It appears as if each AI within an industry will have to apply their minds and draft a workable document addressing all relevant and expected risk scenario’s within the industry. This in itself seems to be a daunting task, and currently the various industries are hoping to receive valuable and practical feedback from the Financial Intelligence Centre in order to assist them with the drafting of such a programme.

This article was written from the point of view of a conveyancer, wishing to provide an overview of the requirements imposed by the new legislation, and to highlight the type of information required by the specific firm of attorneys according to their own internal guidelines for FICA purposes.

This article is a general information sheet and should not be used or relied on as legal or other professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your legal adviser for specific and detailed advice. Errors and omissions excepted (E&OE)

Leave a Reply

Your email address will not be published. Required fields are marked *