FICA: Its Consequences and Penalties for Non-Compliance in South Africa

By Zinta Strydom – Commercial Director of Riche Attorneys

The Financial Intelligence Centre Act (FICA) is a vital piece of legislation aimed at combating money laundering, terrorism financing, and other financial crimes in South Africa. It requires businesses, especially those classified as “Accountable Institutions” (AIs), to follow stringent compliance measures.

AIs include, but are not limited, to banks, financial institutions or service providers, attorneys, estate agents, trust and company service providers, accountants, auditors, etc. Businesses categorized as AIs under FICA must meet the following obligations:

1. Customer Due Diligence (CDD):
   Businesses must verify the identity of their clients, assess the risk of money laundering or terrorism financing, and keep accurate records of this information.
2. Record-Keeping:
   Businesses must retain client records and transaction information for at least five years after the conclusion of the business relationship.
3. Reporting Suspicious Transactions:
   Companies are required to report suspicious or unusual transactions, cash transactions above a certain threshold, and any known links to terrorist financing to the Financial Intelligence Centre (FIC) without delay.
4. Risk Management Compliance Program (RMCP):
   Businesses must implement and follow a documented risk management program tailored to identify, monitor, and mitigate financial risks.
5. Employee Training:
   Employees must be trained to understand FICA obligations and how to detect suspicious activities.

Non-compliance with FICA can have far-reaching consequences for businesses, including reputational damage, operational damage and financial penalties. South Africa’s FICA imposes stringent penalties for businesses that fail to comply with its provisions:

1. Administrative Fines:
   Administrative penalties can be issued for failing to implement appropriate compliance measures. Fines can reach up to R10 million for individuals and R50 million for companies, depending on the severity of the violation.
2. Criminal Penalties:
   In more serious cases, non-compliance with FICA can result in criminal prosecution. Individuals found guilty of failing to comply with reporting obligations, for instance, could face fines or up to 15 years in prison.
3. Freezing of Bank Accounts:
   The FIC has the authority to freeze accounts if it suspects that they are being used for illegal activities such as money laundering or terrorism financing. This can cripple a company’s ability to operate.
4. Business License Revocation:
   In cases of severe non-compliance, businesses may have their licenses suspended or revoked, making it illegal for them to continue operations until compliance is restored.

A notable example of FICA penalties being enforced in South Africa is ABSA Bank Ltd v Financial Intelligence Centre (2013). In this case, the Financial Intelligence Centre (FIC) imposed a R10 million fine on ABSA for failing to comply with FICA’s reporting obligations. ABSA had not reported several suspicious transactions involving large sums of money, which were potentially linked to money laundering activities. ABSA contested the penalty in court The court upheld the penalty, emphasising the importance of timely and accurate reporting under FICA. The consequences of failing to comply with FICA are severe and wide-ranging.