From CompliNEWS | Financial Service Intelligence Watch
Law firm’s R7.8m penalty for compliance failures upheld by FIC appeal board
The Financial Intelligence Centre (FIC) appeal board recently dismissed an appeal from Kunene Ramapala Incorporated, a law firm penalised R7.8 million for failing to meet compliance standards under the FIC Act. Following an inspection in June 2023, the FIC found that the firm had not implemented a risk management and compliance programme, nor had it screened clients against the targeted financial sanctions list, as required by law. The inspection also revealed non-compliance in updating registration details and filing necessary risk and compliance returns on time. Due to these infractions, the FIC imposed a substantial penalty, stressing that such lapses were unacceptable.
In response, Kunene Ramapala Inc. challenged the FIC’s decision, asserting that the financial penalty was ‘excessively harsh and punitive’. While the firm acknowledged some merit in the FIC’s findings, it sought to appeal the severity of the penalty. However, the FIC appeal board upheld the decision, emphasising that the firm’s actions demonstrated gross negligence and a wilful disregard for its compliance responsibilities. The board highlighted that the sanctions were appropriately severe to deter similar negligence within the legal sector and rejected the firm’s claims of disproportionate punishment.
The FIC has publicly reiterated the importance of compliance within the legal profession, with Executive Manager Christopher Malan stating that the appeal’s outcome sends a powerful reminder about the consequences of non-compliance. Malan emphasised that the FIC’s approach to penalties is holistic, focusing on deterrence to safeguard the integrity of the financial system. This case serves as a stern warning to attorneys and other professionals that neglecting compliance duties under the FIC Act can result in significant penalties and reputational damage.
Read the Full FIC release here
Read Additional reporting by Moneyweb here
Compli-Serve – Compliance lessons learned
On 16 October 2024, the Financial Intelligence Centre (FIC) Act Appeal Board upheld a significant penalty against Kunene Ramapala Incorporated, a firm of attorneys, for non-compliance with the FIC Act. This case is notable as the FIC assumed full supervisory responsibilities over non-financial businesses, including legal practitioners, in December 2022. The penalty followed an inspection revealing serious lapses in the firm’s compliance obligations. Specifically, Kunene Ramapala Inc. had not implemented or maintained a risk management and compliance programme (RMCP), nor had it conducted mandatory client screenings against the targeted financial sanctions list (TFS). The firm’s failure to comply with FIC Directives 1, 2, 4, and 6 – ranging from registration requirements to improper handling of login credentials – resulted in a penalty of R7.8 million.
The FIC’s ruling, reinforced by the Appeal Board, highlights essential compliance obligations for attorneys and other accountable institutions. Among the imposed fines were R3.8 million for the lack of an RMCP, R3.9 million for neglecting client screening obligations, and additional fines for not updating registration details and failing to submit a risk and compliance return on time. These directives, which are legally binding, act as extensions of the FIC Act and serve as a deterrent against similar violations. The FIC issued additional remedial directives, requiring the firm to enhance its RMCP, ensure client compliance with the TFS list, and secure its login credentials. This case underscores that failure to adhere to FIC Act requirements can attract not only financial penalties but also reputational damage.
Although the firm appealed, contending that the financial penalties were overly punitive, the Appeal Board found the sanctions appropriate and well-founded. The FIC’s penalty guidelines, designed to maintain consistency, were deemed legally sound and proportional, considering the firm’s size and turnover. The FIC’s primary goal in sanctioning is deterrence, and the Appeal Board’s judgment reaffirms that accountable institutions must treat compliance with utmost seriousness. Following this decision, Kunene Ramapala Incorporated has sought a High Court review, emphasising that non-compliance with the FIC Act can have far-reaching legal and operational implications.