The Financial Intelligence Centre (FIC) has raised the compliance requirements for all accountable institutions, including estate and rental agencies, with new obligations regarding the identification of beneficial owners of their clients.
Many property investors operate as legal persons, such as companies or trusts. While this is usually legitimate, complex legal structures can also be exploited to conceal the identities of those who ultimately benefit from the investments, including criminals and terrorists.
Weaknesses in South Africa’s anti-money laundering (AML) and counter-terrorist financing (CTF) measures have led to the country being placed on the international Financial Action Task Force’s grey list. The real estate sector has been identified as one area where stricter controls are needed, and the FIC has responded by strengthening the rules.
New obligations for accountable institutions
The FIC’s Public Compliance Communication (PCC 59), issued in August, outlines new guidance for accountable institutions to identify the beneficial owners of properties under their management. Beneficial owners are the natural (flesh and blood) persons who ultimately own or exercise control over companies, trusts, or other legal entities.
If your agency works with any landlords, tenants, buyers, or sellers who are legal persons, you are now required to identify all natural persons who hold at least 5% of the ownership or who exercise control over these legal persons. Previously, the threshold for identifying beneficial owners was set at 25%, but this has now been reduced to 5%, significantly increasing the level of due diligence required.
Understanding beneficial ownership
To establish beneficial ownership, your agency must follow the process set out in section 21B of the FIC Act. First, attempt to identify the natural persons who hold a controlling ownership interest in the legal entity. If such persons cannot be identified, you must then identify those who exercise control through other means, such as informal nominees or positions of power like trustees, directors, or board members.
It’s important to note that the beneficial owners may not be the same as the legal owners listed on official documents. The FIC recommends reviewing documents such as share prospectuses, signed board resolutions, letters from auditors, or a memorandum of incorporation. All information should be verified with third-party sources as far as possible.
The importance of proper documentation
When performing these checks, it’s essential to document every step. Failing to follow the prescribed processes can result in your agency being deemed non-compliant with the FIC Act. Additionally, agencies must not transact or establish business relationships with any legal entity if they are unable to identify its beneficial owners. In such cases, a suspicious and unusual transaction report may need to be filed with the FIC.
Avoiding non-compliance
To stay compliant, estate and rental agents must ensure that their Risk Management and Compliance Programme (RMCP) incorporates the updated requirements for identifying, verifying, and documenting beneficial ownership. This should include enhanced due diligence (EDD) measures, particularly when dealing with complex ownership structures or clients involved in public procurement.
By taking a proactive, risk-based approach to compliance, agencies can avoid the reputational damage and administrative sanctions associated with non-compliance, while contributing to the broader fight against money laundering and terrorist financing.
