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FICA Has Spoken – Play The Game Or Feel The Pain

FICA Has Spoken Play The Game Or Feel The Pain

FICA Has Spoken – Play The Game Or Feel The Pain

In a desperate attempt to keep South Africa off the Financial Action Task Force (FATF)’s Grey List, the South African Government, via the Department of Finance, recently announced the implementation of the new General Laws Amendment Act.

This is essentially a blanket amendment that affects no fewer than five separate acts, namely the:

  1. Financial Intelligence Centre Act, 2001
  2. Companies Act, 2008
  3. Non-Profit Organisations Act, 1997
  4. Financial Sector Regulation Act, 2017
  5. Trust Property Control Act, 1988.

The main purpose of the new act is to plug the holes in the current legislation that deals with combatting the funding of terrorism and preventing money laundering.

South African finance minister Enoch Godongwana said the amendments will address 70% (14 of 20) anti-money laundering deficiencies in our legislation identified by the FATF.

“Avoiding potential greylisting is not the responsibility of a single department or government,” he reminded us after announcing the changes. “It is a collective responsibility.”

At first glance, however, we could be forgiven for thinking the lion’s share of that responsibility lies with our already beleaguered business owners.

The changes (which have already come into effect) are extensive and far-reaching – and the punishments for non-compliance are severe. If found guilty, offenders could face imprisonment for a period not exceeding 15 years or a fine not exceeding ZAR100-million.

Essentially, your business is affected if you sell any items, to anyone, to the value of R100 000 or more – regardless of whether payment for these items is in cash, by credit card or via EFT. 

If this is you, congratulations, you are now regarded as an “accountable institution.”

It doesn’t matter whether you’re an SMME, sole proprietor or any other type of company. For the purposes of FICA, you will now be treated in the same way as a bank or any other kind of financial institution. Car dealerships, equipment manufacturers, and any high-end consumer goods companies now all fall into this category, as do pawn brokers, landlords who lease property, and companies that offer advance salary payments to their employees, among many others.

In addition, if you provide any kind of credit to your clients – such as deferring payment for goods, selling them on terms, or anything similar, you are also likely to now be considered an accountable institution – regardless of whether or not existing terms on the National Credit Act of 2005 apply to you. This also applies to retail stores that offer accounts, as well as some trustees, and crypto asset service providers.

The new Act also grants the government greater authority when it comes to accessing private information – especially regarding trusts. The aim is to ensure they can see exactly who benefits from – and ultimately controls – trusts, companies, and non-profit organisations.

The bottom line is this:

It’s no longer enough for you to simply “keep an eye” on your transactions to watch for suspected unlawful activities, such as money laundering. It’s not even enough to perform customer due diligence.

The new legislation imposes responsibilities that go far beyond anything you’ve ever done before, and you will now be legally obligated to:

  • Register as an accountable institution with the Financial Intelligence Centre before the middle of March this year.
  • Formulate (and implement) an official compliance and risk management programme.
  • Provide appropriate training for your staff.
  • Appoint a compliance officer.

If you’re a sole proprietor or partnership, the responsibility for compliance falls squarely on the shoulders of the person at the top of the food chain i.e. the one who has the highest level of authority within your business. However, even in these instances, you may still be obliged to appoint a compliance officer. It’s extremely important to not merely assume that you’re doing what you need to do but to find out exactly what your obligations are.

In addition, if you have international clients or import goods from other countries, you’ll need to take note of this proposal which is currently under consideration:

If you’re classified as an accountable institution, you will be required to submit an International Funds Transfer Report (IFTR) for every inbound or outgoing transaction exceeding R19 999.99.

This specifically includes:

  • Receiving funds from, or sending them to, anyone located outside of South Africa.
  • Any credit or debit card transactions with a merchant outside South Africa, or from a person outside the country with a merchant in South Africa.

The reasoning behind this is to reduce the prevalence of terrorist financing. This usually takes place in high volumes but in small amounts to avoid triggering a red flag. This is why the ITFR threshold has been set at such a low value.

What can you do to ensure you comply with the new act?

Firstly, don’t panic. There will be an 18-month grace period to give everyone time to put all the necessary steps in place.  A media statement released by the Financial Intelligence Centre at the end of November last year reads:

“In the first 18 months from the amendments’ commencement date, the FIC and supervisory bodies will focus on entrenching [FICA] risk and compliance provisions and implementation among the new sectors in Schedule 1 to the FIC Act.

“Supervisory bodies will conduct inspections and, where warranted, issue remedial administrative sanctions, based on a risk-based approach, to correct identified areas of non-compliance. In respect of the new sectors, the FIC and supervisory bodies do not envisage issuing financial penalties for non-compliance with [FICA] during the transitional 18-month period.”

So, we have a little breathing room. But this does not mean you can do nothing for the next 17 and a half months! I appreciate that the new changes can seem daunting and possibly a little frightening at first glance, but there are a few simple steps you can take to make sure your business is compliant:

  1. Be proactive – conduct a thorough “CT Scan” of your business. I highly recommend asking a professional organisation to carry this out. They understand all the nuances of the new legislation and will be able to lay out exactly what you need to do to be compliant and advise you on the best way to do it.
  2. Register (for free) as an accountable institution before March 19, 2023. Time is running out so please don’t wait.
  3. Continue to monitor your business – and the businesses you deal with – for any signs of non-compliance. These might include reversing transactions before repayments have started, clients being reluctant to provide requested personal or business information, and multiple cash repayments on loans with no plausible explanation for the source of the money.

If you need help or guidance with any of the issues I’ve mentioned, please don’t hesitate to contact us, we can help.