An analysis of anti-money laundering measures in the South African real estate sector

MCom (Forensic Accountancy), North-West University, Potchefstroom Campus, 2020The Centre for the Study of Economic Crime (CenSEC) of the then Rand Afrikaans University undertook a study to identify major money laundering trends in South Africa. The results of the study were published in 2002 in which five major trends were identified (De Koker, 2002:31). One of these trends, being the purchase of goods and properties, was selected as the focus of this study with specific focus on the abuse of the real estate sector for purposes of money laundering. Although multiple sources of information are available on money laundering and the prevention thereof, there are, however, limited sources of information available in respect of the application of these measures to the real estate sector, which includes the responsibilities of real estate agents and the effectiveness of these measures in combating money laundering through this sector. In addition, the introduction of the risk-based approach (RBA) into the South African legislative framework in 2017 lead to some challenges for real estate agents on the application of this new approach to combat money laundering. The question then arose as to what extent is money laundering controlled in the South African real estate sector? The main objective of this study was to critically analyse the extent of anti-money laundering (AML) measures in the South African real estate sector. This was achieved through the information obtained as part of the secondary objectives, being: 1. To select a working definition and give a thorough description of money laundering; 2. To determine how the real estate sector in South Africa functions and explore how it can be abused for money laundering purposes; 3. To analyse the Financial Action Task Force’s (FATF) recommendations for combating money laundering in the real estate sector; and 4. To discuss the different legislative measures available in South Africa that can be applied to the prevention of money laundering in the real estate sector and the effectiveness thereof. South African AML legislation evolved through past years. The Financial Intelligence Centre Act (38 of 2001) (FICA) and the Prevention of Organised Crime Act (121 of 1998) (POCA) currently forms the core Acts as it relates to the prevention of money laundering in South Africa. The Estate Agency Affairs Act (112 of 1976) (EAAA) also regulates the Estate Agency Affairs Board (EAAB), the supervisory body of real estate agents in South Africa. Through the 2017 amendments to FICA, in which the RBA was introduced into the South African legislative framework, South Africa was placed in line with the FATF Recommendations. South Africa now possess a comprehensive iii AML framework which contains measures which, if implemented by real estate agents (as accountable institutions), can help to effectively combat money laundering in the real estate sector. It would, however, appear that real estate agents did not receive adequate assistance from the EAAB to assist them to implement the amendments in a timely manner. This is problematic as the implementation of the 2017 amendments to FICA are crucial to strengthen the South African system against money laundering. South Africa’s compliance with the FATF Recommendations were last evaluated in 2009, when it was found that South Africa had made good progress, since its previous evaluation in 2003, pertaining to the development of AML and counter-terrorist financing systems and that the development of the AML systems represents work in progress. South Africa’s compliance with the FATF Recommendations will be evaluated through the upcoming mutual evaluation of South Africa, which is set to take place in 2019 under the 2013 Methodology. The implementation of the 2017 amendments to FICA is crucial, as it addresses findings from the 2009 FATF evaluation. The study found that, although real estate agents are vulnerable to money laundering, they are also very important in the combating thereof. Real estate agents are actively involved in real estate transactions which place them in a position to detect red flags.Master