The High Court in Pretoria. (Photo: Ashraf Hendricks/ GroundUp)
A small law firm from Pretoria has achieved a victory in the High Court against the Financial Intelligence Center (FIC), which will also make many other lawyers nationwide breathe a sigh of relief.
The FIC is a statutory institution that must help to identify the proceeds of crime and to combat money laundering, the financing of terrorism and the proliferation of weapons of mass destruction. This should help to protect South Africa’s financial system against abuse.
The case stems from an inspection that the FIC carried out in 2023 at Len Dekker Prokureurs Ingelyf in Pretoria to determine whether the firm complies with the requirements of the FIC Act. After a negative finding, the firm was imposed an administrative fine of R235 000.
According to the Legal Practice Council, which entered the case as a friend of the court, several of its 31,000 members nationwide, of which about half are small firms, found themselves in the same boat.
The case before the High Court specifically revolved around the fact that in its calculation of the fine the FIC took into account the period when the Legal Practice Council and its predecessors were the primary authority that had to ensure compliance with the law by lawyers, and that Len Dekker Prokureurs was not allowed to present evidence of steps it had taken to comply with the requirements of the law.
The firm argued that the FIC had acted beyond its powers by backdating the fine to the period before it took over as enforcement authority.
According to the Legal Practice Council, this way of working of the FIC will have a major effect on the entire legal profession.
In November 2018, the Legal Practice Council took over from the respective legal associations as regulator for the legal profession, among other things regarding the FIC Act.
Various provisions of the law that also apply to lawyers came into effect on different dates – from 2017 to 2023.
However, after the signing of a memorandum of understanding, the FIC partly took over this oversight task in December 2022.
About six months later, the FIC carried out an inspection at Len Dekker Prokureurs and found that the firm did not comply with various provisions of the law. This included failing to ascertain the true nature, control structure and ownership interest of partnerships, trusts and legal entities with whom they work, to determine whether there are targeted sanctions against their clients, and to follow a risk management and compliance program against money laundering and the financing of terrorism.
The law firm sought guidance from the FIC to get its affairs in order and appointed a company that specializes in this to help. However, his testimony about it, which he hoped would help mitigate the punishment, was not allowed before the tribunal that heard an appeal against the FIC’s punishment.
The tribunal also rejected Len Dekker Lawyers’ appeal against the backdating of the punishment to 2017, which sent the fine skyrocketing.
However, the High Court found that the FIC never questioned the Legal Practice Council’s issuance of fidelity fund certificates to lawyers until the end of 2022, which, among other things, indicated that they had met the requirements of the FIC Act.
If he wanted to do that, he would have to have them set aside one by one in court.
The FIC could not now, by simply backdating sanctions, address any failure of the Legal Practice Council to properly enforce the law, the court found.
The court therefore ordered that:
- the FIC’s calculation of the fine from 2017 is set aside and is limited to the period since 19 December 2019;
- the Appeals Board’s decision not to accept the evidence of the firm’s efforts to comply is set aside. This must now be taken into account when determining the punishment; and that
- the Appeal Board’s decision to suspend the fine and refer it back to the FIC for redetermination is confirmed.
