A lawyer’s duty of care: With great responsibility comes great risk

The Financial Intelligence Centre Act 38 of 2001 (FICA) prescribes control measures by which various institutions are to, among other things, verify the identities of their clients and the authenticity of their ongoing and intended transactions. Measures like these not only ensure that sectors such as the legal profession function on ethical standards, but safeguard the professionals themselves from inadvertently enabling criminal activity.

12 Oct 2021 3 min read Dispute Resolution Article

At a glance

  • The Financial Intelligence Centre Act (FICA) requires institutions to implement control measures to verify client identities and authenticate transactions. Compliance with FICA ensures ethical functioning of sectors like the legal profession and prevents inadvertent facilitation of criminal activity.
  • A compliance inspection by the Financial Intelligence Centre found that 80% of legal practitioners were non-compliant with FICA. A prominent solicitor, referred to as Mr Solicitor, faced consequences after failing to conduct proper due diligence in verifying client information.
  • Non-compliance with FICA in South Africa can result in significant sanctions, ranging from reprimands to fines up to R50 million. The case of Mr Solicitor serves as a reminder to the legal profession about the importance of compliance and conducting thorough due diligence to establish the nature of clients' businesses, ownership, and control.

According to an advisory update issued by the Legal Practice Council on 17 June 2021, the Financial Intelligence Centre conducted 207 compliance inspections between 1 April 2020 and 30 March 2021 and found that 80% of legal practitioners were non-compliant with FICA.

This was unfortunately the case with a prominent solicitor from the UK who caught himself in a lie and was reprimanded by the Solicitors Regulation Authority (SRA). For purposes of this Alert, we refer to him as Mr Solicitor.

Mr Solicitor found himself with a client who needed assistance with confirming an agreement. The client, Mr A, borrowed £53,000 from Mr B. With this money, Mr A purchased property that he intended to renovate and resell, proceeds of which would go back to Mr B. Mr A approached Mr Solicitor for assistance in confirming the agreement, thereby reassuring Mr B of the transaction.

Mr Solicitor initially attended to the necessary verification of his client. He received Mr A’s identification but failed to request evidence of Mr A’s residency or ownership of the purchased property. He then drafted a declaration of trust, which outlined who would own what in the property and the financial arrangements going forward. Mr Solicitor’s idea was to have the declaration registered against the property. After Mr B signed the declaration, it was submitted to Her Majesty’s Land Registry. The same registry then contacted Mr Solicitor informing him that Mr A was not the registered owner of the property and rejected his application. Shortly thereafter, Mr B was informed by his relatives that he might have been a victim of fraud. When the matter was reported to the local police station, this unfortunately seemed to be the case. Mr A was eventually tried and convicted of fraud and theft.

Mr Solicitor also found himself in hot water when he admitted that though he had drafted the declaration of trust, he had failed to conduct his proper due diligence by confirming that his client indeed owned the property. The SRA did not take kindly to his blunder, regardless of Mr Solicitor’s true intentions. Though Mr Solicitor otherwise had a clean record and this clearly was a one-time shortcoming on his part, in order to remind the legal fraternity of its intolerance towards poor fact checking, the SRA rebuked Mr Solicitor.

Compliance in South Africa

In the South African context, sanctions for failure to comply with FICA can have serious consequences. These can be as light as a slap on the wrist through a reprimand, or as high as a fine of R50 million. The incident with Mr Solicitor is a reminder to the legal profession across the board of the importance of compliance with regulatory legislation. Section 21B of FICA calls upon all legal practitioners to ensure that proper due diligence is conducted to establish the nature of their clients’ businesses, ownership and control. Section 21D further empowers practitioners to repeat the steps in section 21B where doubt may have been cast on the veracity of submitted information.

Mr Solicitor’s story might even reveal that some, if not most, non-compliance incidences are unintentional and rather a result of poor fact checking.

Though a particular check may seem tedious, especially in instances where there is a longstanding relationship with a client or because of the way the facts appear before the practitioner, with great risk comes great consequence where FICA is considered. Where the stakes are so high that a fine of R50 million may be imposed, it does not hurt any practitioner or tread with caution.

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