Money laundering, which includes not only money but all proceeds of crime, was declared a criminal offence in South Africa in terms of the Prevention of Organised Crime Act 121 of 1998 ("POCA"). As a result of POCA, however, being largely ineffective, the Financial Intelligence Centre Act 38 of 2001 ("FICA") was promulgated. FICA provides an administrative framework to facilitate the prevention of money laundering as well as the detection, investigation and prosecution of those involved in money laundering.
The obligations imposed by FICA are primarily applicable to "accountable institutions", however these obligations are also applicable to all persons in general. An "attorney", as defined in the Attorneys Act 53 of 1979, is included in the definition of an accountable institution.
FICA imposes obligations on accountable institutions, inter alia, to establish and verify the identity of their clients; retain these records for at least 5 years; report suspicious transactions and implement internal compliance by implementing internal rules, appointing a compliance officer and providing training to employees with regard to their money laundering control obligations. This "know your client" system emulates international anti-money laundering measures and the long-awaited regulations, which impose these obligations, are expected to come into operation on 30 June 2003.
The obligation to establish and verify the identity of clients and retain records is, however, somewhat abated by the exemptions provided for attorneys in respect of certain transactions. Attorneys are exempted from the client identification and record-keeping obligations in respect of all business relationships and transactions with clients other than those listed in the regulations. The obligations do apply in respect of clients, inter alia, who instruct an attorney in respect of transactions related to property, commercial, investment, trust and litigation work of which the client deposits in excess of R100 000 in respect of attorneys fees over a 12 month period. The obligations do not apply in respect of parties who are not clients of the attorney and from a conveyancing point of view, a distinction needs to be drawn between the attorney's client and other parties to a transaction.
The obligation to report suspicious and unusual transactions is applicable to an accountable institution and all its employees. Each employee must follow the prescribed steps in terms of the accountable institution's internal rules to discharge the duty to report.
Of major concern to many accountable institutions, especially attorneys, is the secrecy aspect involved with client information and the fact that the duty to report conflicts with an attorney's duty of confidentiality owed to a client. All relevant information required in terms of FICA, including confidential information, has to be reported, the only exception being the common law right to legal professional privilege as between attorney and client. It is therefore imperative that the distinction between confidential and privileged information is clearly understood.
A failure to verify the identity of clients, retain records and report may, on conviction, result in a fine not exceeding R10 million or imprisonment for a period not exceeding 15 years. Furthermore, a failure to formulate and implement internal rules, provide staff training and appoint a compliance officer is an offence and may, on conviction, result in a fine not exceeding R1 million or imprisonment for a period not exceeding 5 years.
Further information and contact details of the Financial Intelligence Centre.
Cliffe Dekker Inc.