The Financial Action Task Force (FATF) added South Africa to its Jurisdictions under Increased Monitoring “greylist” in 2023, saying that the country’s substandard due diligence regulations create an unacceptable risk of money laundering and terrorist financing.
According to automated rental payment experts PayProp, restoring the country’s reputation as a destination for legitimate investment could boost sectors that appeal to foreign investors, including real estate, while also restoring confidence in a real estate and financial sector that is critically important to SA’s economy. But according to the Financial Intelligence Centre, non-compliance by estate agents could leave SA stuck on the greylist – and with time running out to reinforce regulatory weaknesses, they’re preparing for a harder crackdown on the sector.
Tougher regulations
Both before and after South Africa’s greylisting, government institutions created new regulations aimed at addressing weaknesses in the country’s anti-money laundering and anti-terrorist financing systems.
● Following on from FATF’s Mutual Evaluation Report published in 2021, in 2022 Accountable Institutions (including estate agents) were required to report any cash transaction above R50 000 to the Financial Intelligence Centre within three days.
● Additionally, various laws and regulations were combined and streamlined under the General Laws (Anti-Money Laundering and Combating Terrorism Financing Amendment Act).
● All entities registered under the Companies Act or Close Corporations Act must declare and register their beneficial owners with the Companies and Intellectual Property Commission, at least once a year and whenever ownership changes.
● Since March 2023, Accountable Institutions have also been required to complete an annual Risk and Compliance Return (RCR) in which they assess their compliance with the FIC Act and their understanding of money laundering risks.
Estate agents still falling short
The real estate sector is one of those identified as a particular vulnerability by FIC, and so estate agents are on the list of Accountable Institutions requiring special scrutiny. With large assets and frequent money flows at stake in the sector, criminals often use real estate to launder money.
However, compliance by agents has been patchy. The initial RCR deadline of 31 May 2023 was missed by many, and so the FIC issued a final demand in October for all estate agencies to submit RCRs by close of business on 13 October 2023 under the penalty of administrative sanctions.
Even that doesn’t appear to have worked. Of the 9 000 estate agents registered with the FIC, only around half had submitted their RCRs as at early February 2024.
The FIC has now run out of patience. This month, they sent a reminder that all agencies with outstanding RCRs are “deemed as a delinquent high-risk estate agency entity” and can expect administrative action in respect of Section 62E of the FFC Act. Administrative actions can include being ordered to fix the problem, suspension or restriction of specified business activities, or a financial penalty up to R10m for a natural person or R50m for a legal person.
Moreover, the FIC stated that they view non-compliance with the RCR requirements as “indicative of greater non-compliance with the FIC Act obligations”, which could lead to greater scrutiny and enforcement against these agencies.
Getting SA off the greylist together
South Africa now has less than a year to reform its financial institutions sufficiently to get off the greylist. Reforms are due to be in place by the end of January 2025, but unless they can be properly enforced, they will not resolve the FATF’s concerns.
FIC now warns that unless estate agents get on board with stricter reporting requirements, the country’s efforts to get off the greylist could come to nothing. By returning their RCRs and complying with other new requirements, they won’t just be avoiding the risk of tougher enforcement – they could also help restore the South African economy. The finance, real estate & business services sectors contributed around R1.09 trillion in 2022, a little under a quarter of GDP.
Estate agents can make a real difference to South Africa’s economic future. Complying with FIC reporting requirements is a must to bring about a more secure, more transparent real estate sector.