Two sectors under fire for keeping South Africa on the grey list

The Financial Intelligence Centre (FIC) has called out legal practitioners and real estate agents for impeding South Africa’s exit from the grey list.

These businesses form part of the non-financial businesses and professions (DNFBPs) under the FIC’s purview, which have been flagged as big risks for money laundering and terrorism financing.

DNFBPs also include trust service providers—including accountants—and dealers in precious stones and metals—including Krugerrands—and other dealers in high-value goods.

The Financial Action Task Force (FATF) flagged DNFBPS as a major concern regarding illicit activity and tasked South Africa with assessing and tracking the risks in the sector when it placed the country on the grey list.

This included a requirement for reporting on anti-money laundering, combating of terrorist financing and countering the financing of proliferation of weapons of mass destruction.

The FIC is the sole supervisory body for DNFBPs to report to, and while many of these businesses have become compliant and assisted the centre in meeting the FATF’s requirements, urgency is needed.

It said that legal practitioners and estate agents were of a particular concern, with compliance levels still far too low.

“South Africa has not yet met (the FATF) requirement fully,” it said.

“This is due largely to the fact that the number of risk and compliance returns (RCRs) submitted by DNFBPs to the FIC, especially by legal practitioner and estate agent businesses, remains unsatisfactory.”

RCRs provide an accurate view of sectors’ understanding of their money laundering and terrorist financing risk.

In analysing the submitted returns, the FIC can identify individual businesses that are at risk to a granular level. This information then informs its risk-based supervision, guidance, and awareness content.

“The starting point unquestionably is the timeous completion and submission of RCRs.”

The due date for these RCRs was 31 May 2023—almost two years later, the compliance dial has barely turned.

Legal practitioners and real estate agents in the firing line

The FIC said that legal practitioners and estate agent businesses are considered high-risk sectors for money laundering and terrorist financing.

On average, the submission rate of these two sectors’ current risk and compliance returns is around 70%, with legal practitioners and estate agents submitting 11,351 and 6,506 RCRs, respectively.

Compliance levels were at 60% in May 2024, meaning businesses in these sectors submit their RCRs slowly.

The group said it has been hounding businesses in these sectors to complete their returns since 2023, adding that the failure to do so is holding back all the progress made by their peers.

This, in turn, is holding South Africa from exiting the grey list, as it is one of the few remaining problem areas identified by the FATF that needs to be addressed.

The FIC previously noted that there appears to be wilful non-compliance from these sectors, warning that they face targeted inspections and sanctions.

It said businesses that fail to comply are considered delinquent institutions and are automatically deemed to be at high risk of being used for money laundering and terrorist financing purposes.

While the priority risk-based focus is on estate agents and legal practitioners, the FIC said that all other businesses in the DNFBPs sector must also substantially and urgently file their outstanding RCRs.

“Critically, RCR submission rates across all DNFBPs must move closer to the 100% mark over the current quarter (April to June 2025) for the FIC to improve its risk classification for each sector,” it said.

“All non-financial businesses and professions that have not yet done so are urged to urgently complete and file their RCRs with the FIC.”