Legal practitioners play a key role as gatekeepers in the South African financial system which makes the sector a potential target for money laundering and other economic crimes.

As a mitigation measure, legal practitioners as accountable institutions under Schedule 1 of the Financial Intelligence Centre (FIC Act) have a duty to comply with the FIC Act by meeting their compliance obligations and incorporate anti-money laundering, counter terrorist financing and counter proliferation financing (AML/CFT/CPF) measures in their practices.

Legal practitioners offer a wide range of services including legal services, conveyancing, and setting up and administration of trusts and corporates. For this reason, it is essential that they increase their focus on identifying and verifying beneficial owners of legal persons, partnerships and trusts.

Trends show that criminals often abuse legal persons, trusts, and partnerships to obscure the ownership or control of funds derived from illegal activities or intended to be used for illegal activities. Criminals do this by creating different levels of ownership which makes it difficult to identify the ultimate beneficial owner of the legal person, trust, and partnership. Certain legal persons, trusts or partnerships are more vulnerable to being abused by criminals because of the way they are structured or because of their characteristics.

It is vital that accountable institutions identify the natural person(s) who own or control clients that are legal persons, trusts and partnerships.

As part of establishing the ownership and control structure of the legal persons, trusts and partnerships in terms of section 21B(1) of the FIC Act, the accountable institution must determine all natural persons who own or have control over the entity. It is from understanding the ownership and control structure that the accountable institution will be able to determine which natural persons it must identify as the beneficial owners in accordance with sections 21B of the FIC Act. For guidance on the identification of beneficial owners, legal practitioners can refer to public compliance communication (PCC) 59.

Compliance with AML/CFT/CPF obligations must be demonstrated in the accountable institution’s risk management and compliance programme (RMCP).

An RMCP captures the institution’s understanding of their assessment and exposure to risks of money laundering, terrorist financing and proliferation financing and details what measures they will take to identify, manage and mitigate these risks. Protecting institutions against being used for money laundering, terrorist financing and proliferation financing is intended to support and maintain the integrity of accountable institutions and the financial system of South Africa as a whole. 

The accountable institution’s RMCP must address all the requirements outlined in section 42 of the FIC Act. These include policy documents, processes, systems and controls employed in customer due diligence (identification and verification of clients), record keeping, reporting, application of the risk-based approach and related training and screening of employees. 

When developing the RMCP, accountable institutions should consider the Assessment of the Inherent Money Laundering and Terrorist Financing risk for Legal Practitioners undertaken by the Financial Intelligence Centre (FIC). This sector risk assessment (SRA) provides a comprehensive report on money laundering and terrorist financing in the legal practice environment. Legal practitioners must also regard their sector risk, the inherent and residual ML/TF risk indicated in PCC 47A. The FIC Guidance note 7A provides guidance on the RMCP.

Understanding the inherent risk that legal practitioners are vulnerable to is critical for the purpose of conducting a thorough entity wide AML/CTF/CPF risk assessment. A good understanding of the risks applicable to their practice would enable legal practitioners to effectively mitigate risk through implementing effective AML, CFT and CFP controls and monitoring mechanisms.

Legal practitioners must file suspicious and unusual transaction reports (STRs) and suspicious activity reports (SARs) to the FIC, which forms a critical aspect of their FIC Act obligations. The information submitted to the FIC is analysed to develop financial intelligence which it shares with law enforcement, prosecutorial and other competent authorities for their investigations and applications for asset forfeiture.

It is important that these reports filed are comprehensive, providing detailed information about the parties involved in the transaction, the suspicious activity or transaction, nature of the business relationship and readily available information obtained during the client identification and verification process. For more information refer to Guidance Note 4B.

Before submitting reports, legal practitioners must be registered on goAML. The process to register can be found on the FIC website, www.fic.gov.za.

An important step in contributing to the fight against ML, TF and PF is for individual businesses to assess their vulnerabilities and risk to criminal abuse for financial crime. To that end, the FIC designed a questionnaire (called a risk and compliance return) which enables the regulator to measure individual legal practitioners’ understanding of the ML, TF and PF risks they face. All legal practitioners are urged to submit their RCR questionnaires in respect of Directive 6 without further delay, if they have not done so already.

Legal practitioners who fail to submit their RCRs are non-compliant and will face administrative sanctions. The RCR questionnaires can be accessed on the FIC website.

For more information and guidance offered to accountable institutions, refer to the FIC website (www.fic.gov.za.) The FIC’s compliance call centre can be reached on 012 641 6000, or log a compliance query on the FIC website.