In a recent Gauteng High Court case, an appeal against the administrative sanction imposed on Sunward Motors (“motor vehicle dealer”) by the FIC Appeal board, was dismissed.
Background
Between 2016 and 2018, the FIC conducted two inspections on the motor vehicle dealer to assess its compliance in terms of FICA. The first inspection report submitted by the FIC in 2016 found the motor vehicle dealer to be non-compliant in terms of filing both CTRs and any suspicious and unusual transactions (Section 28 and 29 of FICA respectively). The motor vehicle dealer was provided with a list identifying its contraventions and further guidance on what needed to be implemented in order to be compliant with FICA. The second inspection report issued in 2019, identified that the motor vehicle dealer had failed to register with the FIC (in terms of Section 43B) in that it had registered late and had still not fully complied with its filing obligations, as identified in the first report in 2016. The FIC had found that not only had the motor vehicle dealer had prior knowledge of its reporting obligations, but it had also failed to remedy its transgressions despite a directive to do so being provided after the first inspection.
The administrative sanction imposed by the FIC
After considering the findings in the two final reports, the FIC gave notice to the motor vehicle dealer of its intention to impose an Administrative Sanction in terms of Section 45C(5) of the FICA.
The motor vehicle dealer was informed that:
- the maximum penalty that may be imposed was R10 602 400.00 which was equal to the total value of the unreported transactions.
- 20% of such financial penalty amounted to R2 120 480.00 of which 25% was payable immediately (R530 000.00), the balance (75%) of the financial penalty was suspended on condition that the motor vehicle dealer did not repeat its misconduct.
- The FIC revisited the initial penalty it imposed after taking into account the motor vehicle dealers’ inability to report on nine CTR’s in the amount of R 456 300.00 being transactions that occurred whilst the motor vehicle dealer operated under Pradz Trading CC. The FIC reduced the amount immediately payable to R507 000.00.
Appeal
The motor vehicle dealer challenged the administrative sanction imposed by the FIC, by taking it to the FIC Appeal Board. The FIC Appeal Board found no reason to interfere with the findings of the FIC and subsequently endorsed the decision.
Appeal before the High Court
The motor vehicle dealer thereafter pursued a further appeal before the High Court of Gauteng. The appeal was based on the following averments:
- the calculation of the penalty imposed in respect of the CTRs was incorrect.
- the failure by the FIC appeal board to have regard to the correct factors in arriving at the amount of the administrative sanction.
- the decision that the conduct of the motor vehicle dealer was grossly negligent was incorrect.
The motor vehicle dealer sought a variation of the decision of the FIC Appeal Board. It argued that the factors that must be taken into account when determining an administrative sanction were not considered in terms of section 45C(2) of FICA.
The finding of the Court
The High Court evaluated the facts of the case against the provisions of FICA and noted that a Court does not have an unfettered discretion to interfere with the findings of the FIC Appeal Board unless the court finds grounds that the sanction imposed was strongly inappropriate. The Court highlighted that it does not have the power to substitute its value judgment for the FIC’s in the absence of a mistake of law, or evidence that the discretion was not exercised judiciously. The Court found that the motor vehicle dealer had failed to discharge its onus to prove on a balance of probabilities that the FIC had exercised its discretion impulsively, upon an incorrect legal principal or in a biased manner. The appeal was dismissed with costs.
Conclusion
The Gauteng High Court delivered a stern reminder that a decision made by a supervisory body such as the FIC will not be interfered with unless compelling circumstances exist. In the absence of such circumstances, the decision rendered by the FIC will stand.
It is imperative that accountable and reporting institutions diligently acquaint themselves with their obligations in terms of FICA. Failure to comply with these statutory obligations may lead to substantial fines and penalties being imposed. This is in addition to the reputational damage that a business may suffer as a result of being found to be non-compliant with the law.
Speak to a Masthead Compliance Officer or contact us for more information on how Masthead can assist you to be compliant in terms of the FICA requirements.