The High Court in Pretoria has delivered a judgment of direct consequence for thousands of legal practitioners classified as accountable institutions under the Financial Intelligence Centre Act (FICA).
The judgment, handed down on 25 March, clarifies two core aspects of the Financial Intelligence Centre’s sanctioning powers.
First, it held that the FIC may not include periods preceding 19 December 2022 – when it was not the statutory supervisory body for attorneys – in determining the “duration of non-compliance” under section 45C(2)(a) of FICA. This limits the temporal scope of sanction calculations and has immediate implications for matters where penalties have been assessed with reference to conduct before the FIC became the supervisory body.
Second, and of direct relevance to sanction proceedings, the Court confirmed that all relevant remedial measures must be properly considered under section 45C(2)(c) of FICA, and a failure to do so constitutes a misapplication of the statutory framework governing sanctions.
Judge Sulet Potterill, with Judge Elmarie van der Schyff concurring, set aside a ruling of the Financial Intelligence Appeal Board that had both permitted the FIC to calculate non-compliance from 2017 and refused to admit further evidence of remediation.
The judgment provides an interpretation of sections 45 and 45C of FICA and clarifies how those provisions constrain the FIC’s exercise of its sanctioning powers, particularly in the context of changing supervisory regimes.
Background to the case
Following an inspection in 2023, the FIC found that the appellant, Len Dekker Attorneys Incorporated (LDA), had failed to comply with several provisions of FICA, including requirements relating to customer due diligence, sanctions screening, and the implementation of a Risk Management and Compliance Programme. It imposed administrative sanctions, calculating the duration of non-compliance from 2017.
LDA appealed to the Financial Intelligence Appeal Board. The Board:
- set aside the sanctions and remitted the matter to the FIC for reconsideration;
- admitted new financial evidence; but
- rejected LDA’s argument that the FIC could not include pre-2022 non-compliance in its duration calculation; and
- refused to admit further evidence of remedial steps.
Although the sanctions were set aside, these findings determined the basis on which the FIC would reconsider the matter. LDA therefore appealed them.
The Law Society of South Africa, admitted as amicus curiae, emphasised that the FIC’s approach would have system-wide consequences for legal practitioners by exposing them to materially increased penalties based on pre-2022 conduct, and argued that enforcement should remain proportionate and risk-based, taking into account the profession’s existing regulatory framework and supervisory history.
The issue before the Court
The main question before the Court was whether the FIC and the Appeal Board had properly interpreted and applied the sanctioning framework in section 45C(2), including both the meaning of “duration of non-compliance” and the requirement to consider relevant remedial measures.
The Court made clear that this was not a jurisdictional issue: the FIC has the power to investigate, make findings of non-compliance, and impose sanctions. The question was whether those powers were exercised in accordance with the Act.
As Judge Potterill wrote: “The main issue to decide is whether the Appeal Board applied a correct interpretation of the sanctioning provision of the Act. I also agree with the submission made on behalf of the FIC that the issue is not a jurisdictional issue. The FIC has the power to conduct investigations and pursuant thereto make a finding of noncompliance with the Act. Furthermore, it has the power to impose an administrative penalty. If it has these powers, it has jurisdiction. The correct enquiry is thus whether the FIC sanctioned in terms of the Act and the Appeal Board correctly interpreted section 45C(2)(a) of the Act.”
The statutory framework: sequential supervisory authority
Attorneys have at all times been accountable institutions under FICA, although the identity of the supervisory body responsible for enforcing compliance has changed:
- Law Societies to 31 October 2018.
- Legal Practice Council (LPC) from 1 November 2018 to 18 December 2022.
- FIC from 19 December 2022.
Section 45(1) of FICA provides: “Every supervisory body is responsible for supervising and enforcing compliance with this Act or any order, determination, or directive made in terms of this Act by all accountable institutions regulated or supervised by it.”
The Court treated this as a structural feature of the Act: enforcement authority is exercised by the designated body during its period of supervision, rather than concurrently or retrospectively across different regulators.
Section 45(3): why the Appeal Board’s reliance was misplaced
The Appeal Board relied on section 45(3) to support the inclusion of pre-2022 non-compliance in the duration calculation.
Section 45(3) provides: “Should a supervisory body or other public body or authority to which a suspected contravention or failure is referred in terms of section 44 fail to take adequate steps to ensure that the suspected contravention ceases or the suspected failure is rectified, the Centre may, after consultation with the supervisory body or other public body or authority concerned, take such steps within the scope of its powers as the Centre considers appropriate to remedy the matter.”
The High Court held that the Appeal Board’s reliance on this provision was misplaced.
The Board’s reasoning effectively treated section 45(3) as permitting the FIC to take into account non-compliance occurring under the LPC’s supervision when determining duration. In substance, it used section 45(3) to justify treating the FIC as if it could rely on the entire historical period of non-compliance.
The Court rejected that approach. Properly interpreted, section 45(3):
- is triggered only after a referral under section 44;
- applies only where the supervisory body has failed to take adequate steps; and
- authorises the FIC to act prospectively to remedy that failure.
It is therefore a limited intervention mechanism, not a source of concurrent or retrospective supervisory authority. On the facts, it had not been invoked.
Section 45C(2): the correct statutory lens
Having rejected the Appeal Board’s reliance on section 45(3), the Court turned to the provision that governs the imposition of administrative sanctions: section 45C(2).
Section 45C(2) requires the decision-maker to consider: “The nature, duration, seriousness and extent of the relevant non-compliance.”
The Appeal Board approached “duration” as a purely factual enquiry, encompassing the full period of non-compliance irrespective of changes in supervisory authority, contrary to the FIC’s submission that the issue concerned the scope of its discretion.
The High Court rejected this approach. It held that section 45C(2) must be applied within the statutory framework, including the allocation of supervisory responsibility under section 45. The enquiry is whether the FIC “sanctioned in terms of the Act”, which requires a correct legal application of the statutory factors.
In that context, “duration” is not simply the full factual history of non-compliance. It is the period that is legally cognisable for the decision-maker exercising the power.
Including periods during which another supervisory body was responsible would attribute to the FIC a period of authority it did not possess and materially affect the severity of sanctions.
The FIC also relied on section 45C(2)(d), which requires consideration of steps taken by “another supervisory body”, to support the inclusion of pre-2022 non-compliance.
The Court rejected this interpretation. It held that the provision ensures prior supervisory action is taken into account but does not extend the temporal scope of the FIC’s sanctioning powers. Properly understood, it operates to avoid duplication and ensure proportionality, not to justify retrospective inclusion of earlier periods.
Retrospectivity and unfairness
The Court reinforced this conclusion by reference to the doctrine of retrospectivity. It referred to established authority, citing the Supreme Court of Appeal in National Director of Public Prosecutions v Carolus and Others (1999), which in turn adopted the formulation of the Supreme Court of Canada in Benner v Canada:
“A retroactive statute is one that operates as of a time prior to its enactment. A retrospective statute is one that operates for the future only. It is prospective, but it imposes new results in respect of a past event. A retroactive statute operates backwards. A retrospective statute operates forwards, but it looks backwards in that it attaches new consequences for the future to an event that took place before the statute was enacted. A retroactive statute changes the law from what it was; a retrospective changes the law from what it otherwise would be with respect to a prior event.”
The FIC submitted that the change in supervisory body did not introduce new compliance obligations. However, the Court held that the relevant enquiry is the effect of the sanctioning approach. Including the LPC period in the duration calculation would attach new and more severe consequences – in the form of increased sanctions – to past conduct under a different supervisory regime.
Judge Potterill stated: “The degree of unfairness in this matter speaks for itself, and Parliament should have made it clear if its intent was that no matter while under the supervision of an appointed body the FIC can take that duration into consideration as a factor for sanctioning. The reason for this is not only the unfairness, but that accountable institutions should know that this factor included the clean slate it received from its supervising body. If they had knowledge of this, the accountable institution should rather take their cue from the FIC than the supervisory body, but that defeats the whole premise of why a supervisory body is appointed.”
Remedial measures: part of the statutory enquiry
The Court also considered the Appeal Board’s refusal to admit further evidence of remedial steps.
The evidence in question was a service-level agreement between LDA and DocFox Africa (Pty) Ltd, tendered to demonstrate additional and ongoing compliance measures implemented after the FIC’s findings.
The Appeal Board refused to admit this agreement, reasoning that such documentation “would serve no purpose” because the FIC had already accepted that remedial action had been taken to avoid recurrence.
The Court found this inadequate, holding that the Appeal Board “gave no reason” for this conclusion and therefore “did not exercise its discretion judicially” under section 45D(3B).
Judge Potterill observed that counsel for the FIC acknowledged that the Court could not on this reasoning render a decision on whether the Appeal Board exercised its discretion judicially. “This refusal must thus be set aside, and the FIC must consider this document. The fact that some remedial information is accepted as evidence does not exclude evidence of further remedial information. The FIC must consider all the remedial information put before it.”
Outcome
The Court ordered that:
- The Appeal Board’s finding permitting calculation of non-compliance from 2017 is set aside;
- Any recalculation of sanctions is limited to the period from 19 December 2022 onwards;
- The DocFox agreement must be admitted and considered; and
- The matter is remitted to the FIC for reconsideration.
Implications
In the context of legal practitioners and the transition from the LPC to the FIC, the judgment clarifies that:
- The FIC’s sanctioning powers must be exercised within the temporal limits of its supervisory authority in terms of the Act;
- Section 45C(2) requires a structured application of the listed factors within the Act’s supervisory scheme;
- “Duration” is not purely factual, but is legally bounded by the allocation of supervisory responsibility under the Act;
- Section 45(3) does not, on its proper interpretation, provide a basis for treating the FIC as having exercised supervisory authority during periods when another body was responsible; and
- Relevant remedial measures must be fully and properly considered as part of the sanctioning enquiry.
The judgment is expressly grounded in the statutory history applicable to legal practitioners and the transition from the LPC to the FIC. The Court’s reasoning is tied to that specific supervisory framework, including the LPC’s role as designated supervisory body, the issuing of Fidelity Fund Certificates, and the absence of any intervention by the FIC under section 45(3) during that period.
However, the judgment may be persuasive authority in other contexts where a comparable supervisory transition from another designated supervisory body can be demonstrated – for example, where an accountable institution was subject to a different designated supervisory body during a defined period, and the FIC did not exercise its intervention powers under section 45(3). Whether the reasoning applies in any given case will depend on the particular statutory and factual framework, including the designation of the relevant supervisory body or bodies.
The Court’s confirmation that relevant remedial measures must be properly considered as part of the sanctioning enquiry under section 45C(2) is not dependent on that transition and is of broader application.
Disclaimer: This article reflects the writer’s understanding of the judgment. It does not constitute legal advice. For any legal questions or application of this judgment to specific circumstances, consult a qualified legal professional. Moonstone Information Refinery and its sister companies assume no liability for any reliance placed on this article.
