LPC Practical Vocational Training Guide: LPC Guide for Attorneys' Bookkeeping (Regulation 6(10)(i)) - LPC Guide for Attorneys' Bookkeeping (Regulation 6(10)(i))

Legal Practice Act — LPC Practical Vocational Training Guide: LPC Guide for Attorneys' Bookkeeping (Regulation 6(10)(i)) (source: https://lpc.org.za/wp-content/uploads/2026/03/i-LPC-Guide-for-Attorneys-Bookkeeping-ito-Regulation-610i.pdf) PRACTICAL VOCATIONAL TRAINING (PVT) STRUCTURED COURSEWORK PROGRAMME FOR CANDIDATE LEGAL PRACTITIONERS (CANDIDATE ATTORNEYS) Attorneys bookkeeping, in terms of Regulation 6(10)(i) Author acknowledgement Ismail Hussain SC 2026/2027 PVT Structured Coursework Programme Publication and Copyright information © 2026/2027 The South African Legal Practice Council. All rights reserved. No part of this publication may be reproduced, stored in a retrieval system, or transmitted in any form or by any means, electronic, mechanical, photocopying, recording, or otherwise, without the prior written permission of the South African Legal Practice Council. This intellectual property is strictly for the education and training of candidate legal practitioners as mandated by the Legal Practice Act 28 of 2014 and are not for commercial resale Acknowledgements The Legal Practice Council extends its gratitude to the Evaluator for his/her rigorous review, quality assurance, and contributions to the pedagogical effectiveness of this study guide: Reviewer: Ms., Hajira Bibi Kara (Practising Legal Practitioner) Published by: The South African Legal Practice Council National Office, Building 10, Riverview Office Park 100 River View Park Street, Halfway Gardens Midrand, 1686 GUIDE FOR ATTORNEYS’ BOOKKEEPING Regulation 6 (10)(i) FIFTEEN GUIDES There are fifteen guides for practical vocational training of candidate attorneys. This guide deals with the Attorneys’ Bookkeeping module in regulation 6(10)(i). OVERVIEW On 20 September 2014 Parliament assented to the Legal Practice Act 28 of 2014 (LPA). In terms of section 4 of the LPA, the Legal Practice Council (LPC) was established on 31 October 2018. The following day, on 1 November 2018 the bulk of the rest of the LPA came into effect. The Legal Practice Act regulates all legal practitioners whether on the practising roll or the non-practising roll. There are three forms of legal practice. They are an attorney, an advocate and an advocate with a Fidelity Fund certificate: see section 34 of the LPA. Under section 109(1)(a) of the LPA, the LPC published GN R921 in GG 41879 of 31 August 2018, as amended by GN R3779 in GG 49104 of 11 August 2023. The compulsory course work required in the regulations for candidate attorneys was standardised by the LPC in terms of the Norms and Standards. Regulation 6(10) reads: “(10) The programme of structured course work referred to in sub-regulation (1)(a) and (b) must be standardised and uniform throughout the Republic and comprise the following modules: (a) constitutional practice; (b) professional legal ethics; (c) personal injury claims; (d) high court practice; (e) magistrate’s court practice; (f) criminal court practice; (g) labour dispute resolution; (h) alternative dispute resolution; (i) attorneys’ bookkeeping; (j) wills and estates; (k) matrimonial law; (l) legal costs; (m) drafting of contracts; (n) information and communication technology for practice, and associated aspects of cyber law; and (o) introduction to practice management.” The LPC published the Norms and Standards on 11 December 2020 in Government Gazette 43981 under section 3 (g)(i) read with section 6(1)(b)(i) and section 95(1)(n) of the LPA. Regulation 6(10) requires candidate attorneys to be trained in the modules listed above. The similarity between regulation 6(10) for candidate attorneys and regulation 7(9) for pupils is not an accident. Section 32 of the LPA permits legal practitioners at any time, as determined in the rules and upon payment of the fee determined by the LPC, to apply to the LPC to convert their enrolment as attorneys to that of advocates and vice versa. Consequently, the training of candidate legal practitioners must allow for seamless section 32 conversions. Each guide per module deals with the requirements in regulation 6(10). Examiners are required to set questions drawn only from the latest LPC candidate attorneys’ curriculum and reading list. The combined curriculum and reading list is referred to as the “syllabus”. Each of the fifteen guides will assist training supervisors, mentors, busy legal practitioners and candidate attorneys to navigate the syllabus. The focus of the syllabus is on practical vocational training. INTRODUCTION TO EACH GUIDE Each guide per module in Regulation 6(10) is designed to assist candidate attorneys to understand, in real time, the minimum necessary under practical vocational training to become effective attorneys in practice. The essence of effective legal practitioners is the ability to read, to assimilate legal principles from that reading and to apply those principles to the facts of your client’s case and in argument before courts, tribunals, disciplinary bodies, and any other forms of formal gatherings and meetings. The guides avoid prolixity. However each guide requires dedicated concentration. For the examinations, candidate legal practitioners (candidate attorneys and pupils) must be up to date with the latest Constitutional Court and Supreme Court of Appeal cases to within one week before the date of each exam. The guides do not rehash what you studied at University. Your LLB proves your capability. This guide will assist you to prepare for the LPC admission examinations. More importantly, this guide will also equip you to be an effective, competent, calm and (reasonably) confident attorney when you enter the legal profession. REQUEST TO CANDIDATE ATTORNEYS FOR DUE DILIGENCE Please read this guide attentively. Please carry out all recommended court attendances. Please carry out all the recommended practical exercises. Please complete reading all the material in the LPC syllabus. Please note the notional hours to complete all 15 guides are 400 hours. Please note this guide, like the other fourteen guides, is sufficient for self-study. Please remember, the exams are based on the LPC’s most up to date syllabus (reading list). • Currently the most up to date syllabus dates from 28 March 2025: Notice 3086 of 2025 published in Government Gazette 52388. • Matters omitted from the LPC syllabus will not be in the examinations unless the statute, case or article under question is included in your exam paper and you are allowed extra reading time to consider that statute, case or article. • Matters mentioned in the LPC syllabus are the subject of exam questions. • You will be required to answer the exam questions from the perspective of: o Facts first o Law later • The LPC exams, also referred to as assessments, are practical in nature. • The questions will proceed from the following perspectives: – o What would you, as attorney of record, advise your client to consider? o What would you, as attorney of record, advise your client to do? o When and why would you refer a matter to another attorney or to counsel? o And similar practical questions. REFERENCES One of the products of Juta & Co Ltd is Jutastat. Many of the notes to this guide are downloaded from Jutastat. Please read the notes with care and diligence. This guide also relies on the Southern African Legal Information Institute (SAFLII). SAFLII is free and open access on the Internet. NOTE WELL The sequence of this guide follows the sequence in the most recent LPC syllabus of 28 March 2025 for candidate attorneys. The fifteen guides are designed to be updated when the LPC so requires. Bullet points below are drafted to assist you to grasp the material in the reading list. You must decide whether to accept or to amend the bullet points to suit your understanding. When there are no bullet points, you need nonetheless to read the rule or case or article to prepare for your exams. LPC SYLLABUS AND THE OFFICIAL SOURCE FOR ALL EXAMINATION QUESTIONS AT THE LPC ATTORNEYS’ ADMISSION EXAMS CURRICULUM READING LISTS AND COURSE CONTENT Introduction to bookkeeping and A sound understanding of Chapter 7 of the LPA. accounting principles Candidates will not be examined on their In particular Sections 84, 86, 87, 88 and 91. ability to carry out double entry accounting and their ability to manually write a set of An understanding of: Part XII of the rules as gazetted. books from prime entry to balance sheets. In particular Sections 54.6, 54.7, 54.8, 54.9, 54.10, 54.11, This includes manual entry into cashbooks, 54.12, 54.13, 54.14, 54.14.7.1, 54.14.7.2, 54.14.8, 54.14.9, ledgers and journals. 54.14.10 and 11, 54.14.12, 54.14.13, 54.14.14, 54.15, 54.16, The course content must integrate modern 54.19, 54.20 accounting technologies. This will better equip practitioners to handle financial Where must the records be kept in order to comply with the management within a modern digital rule? How to electronically store accounting records and to landscape. preserve them. How historic data may be retrieved and Note that manual transaction recording presented for inspection when required. Retention of has been eliminated within the accounting records Rule 54.9 profession. The use and application of firewalls and anti-virus software for the firms accounting system. GENERAL Candidates must be introduced to the What is an asset? following: What is a liability? - Electronic banking as used by What is income? attorneys’ practice What is an expense? - The available software commonly What is a fixed cost? used by attorneys to comply with What is a variable cost? the accounting requirements of the What is a business expense? LPA and Regulations and Rules What is a private expense? e.g., Xero, QuickBooks, Pastel. Law74, Winlaw, Practice Manager Consider paragraph [17] in Mosselbaai Boeredienste (Pty) Ltd etc. v OKB Motors CC (Case no 1216/21) [2023] ZASCA 91 (09 - How to enter daily transactions June 2023) into the system - Monitoring the trust account using 1. Introduction the available software Legislation - A brief introduction to AI and Section 34 of the Legal Practice Act 28 of 2014 Blockchain in Legal Accounting Chapter 6 Part 1 of the Legal Practice Act The role of the LPFF Section 84 of the Legal Practice Act Law firm financial management Section 86 of the LPA - Handling trust money in accordance with Section 87 of the Legal Practice Act client instructions Financial Intelligence Centre Act 38 of 2001 - The principle that funds held in trust do Rules not belong to the firm/practice and an Rule 54.1, 54.6 and 54.7 attorney is compelled to account for every cent Caselaw - You must never have an overdrawn trust Supreme Court of Appeal Judgment of Hewetson v The Law account Society of the Free State 2020 (5) SA 86 (SCA) - Under no circumstances can a trust Cirota and Another v Law Society of Transvaal 1979 (1) SA account be used as a business or personal 172 (A) account. The trust account is not a Law Society, Transvaal v Matthews 1989 (4) SA 389 (T) piggybank. Botha and others v Law Society, Northern Provinces 2009 (3) - Properly and accurately accounting for all SA 329 (SCA) read the head note trust account monies; client by client Incorporated Law Society, Transvaal v K 1959 (2) SA 386 (T) - Reconciling the trust account on a read head note monthly basis Law Society, Cape v Koch 1985 (4) 379 refer to head note Use recurring EFTs from the business Law Society of the Cape of Good Hope v Budricks 2003(2) SA account to pay the trust account bank 11 (SCA) at 171 I-J charges and fees Law Society of Cape of Good Hope v Dippenaar (715/04) - Interest on trust money [2006] ZAWCHC 51 - Reporting compliance. Law Society of the Northern Provinces v Mabunda and Another (LEGODI JP) [2019] ZAMPMBHC 8; 2734/2018 Trust accounting and record keeping Candidates must learn that the following 2. Cashbooks (Books of Prime Entry for are the fundamental obligations: Cash/Banking transactions) and the respective Banking - Deposit and/or receipt all trust money Accounts received into the trust bank account; - Hold it exclusively for the relevant client; Candidates must be introduced to cloud-based accounting - To be paid to that client or as the client systems that automate transaction recording. directs; How modern software can import bank statements directly into - Account properly to that client for such the cashbook, analyse and process them and automatically post trust money; to the client’s ledgers. - Trust account records must be maintained How software can automatically collate Client Business which clearly disclose the position of the Ledger with Client Trust Ledger to determine the amount to be money in the trust account; software is transferred at the end of the month and how to minimise the available which will automatically display risk of overdrawn Trust Accounts. this information whenever the attorney or Brief introduction to AI-driven accounting tools which can any regulatory authority requires it; analyse transaction patterns, detect anomalies, flag suspicious - They must be kept in such a manner as to activity in trust accounts, reducing human oversight and other enable them to be conveniently and errors and misappropriation of Trust funds. properly reviewed by the LPC and the Brief introduction to how transactions recorded on LPFF; Blockchain are immutable and publicly verifiable, preventing - They must be up to date, clearly show the unauthorised alterations and ensuring accountability. amount of trust money held for each client; - As far as practicable, they must be secure Candidates are expected to understand Part XII of The Rules against retrospective alteration or deletion. Rule 54.8 and 54.14.7.2 - Firms will need to have systems and Rule 54.9, 54.10 and 54.19 controls in place to ensure compliance with Rule 54.11 these rules and the nature of those systems Rule 54.14.15 must be appropriate to the nature and Rule 54.14.15.2 and 54.14.15.3 volumes of client transactions dealt with Rule 54.14.16.1 and the amount of client money held or Rule 54.14.16.1 and 54.14.16.2 received. Rule 54.14.7.2 Candidates must know how to deal with Rule 54.16 client investment funds. Know what is an Rule 54.34 and 54.35. investment practice – see rule 55. 3. Bank Reconciliation Financial reporting and analysis Compliance with legal and regulatory Manual bank reconciliation methods have become redundant. requirements Candidates are not expected to learn these methods and will Technology tools for bookkeeping not be examined on bank reconciliation. Candidates are expected to be familiar with automated bank Differentiate between a Legal Practice and reconciliation tools. a Legal Practitioner. Differentiate between Bookkeeping and 4. Value Added Tax (VAT) Accounting and the importance thereof in Legislation the Legal Profession. Value-Added Tax Act 89 of 1991 Acceptable financial reporting - Candidates are required to understand the following: International Financial Reporting Standards - What is value added tax? (IFRS). - What is output VAT? Legal Practitioners must have proficient - What is Input VAT? numeracy skills. - Offset by practice of output and input VAT? Financial Intelligence Centre Act (FICA). - Who must register for VAT? - Purpose of FICA? - How to calculate VAT - Duties and obligations placed on a Legal - Software required to manage VAT Practice by the Act. 5. The Trust Position Legal Practitioners’ Fidelity Fund (LPFF). Rules - Establishment of the fund. Rule 54.14.8 - The role of the LPFF. Rule 54.15.1, 54.15.2 and 54.15.3. - Trust Account and Investment interest payable to the fund. 6. Miscellaneous - Trust Account bank charges. Rules - Refundable audit fees. Rule 54.9 - Payment of unclaimed/unknown Trust Rule 54.14.10, 54.14.11, 54.19, 54.20, 54.21, 54.22, 54.23, monies. 54.24, 54.25, 54.26, 54.27, 54.28, 54.29 and 54.30 Rule 54.36. Opening a Legal Practice Rule 54.31, 54.32 and 54.33. Closure of a Firm. INDEX Overview – Fifteen Guides pages 1 to 3 LPC syllabus and the official source for all examination questions at the LPC attorneys’ admission exams pages 4 to 6 Index pages 7 to 8 Introduction to Bookkeeping page 9 Business Account vs Trust Account page 9 Manual Bookkeeping page 9 The Legal Regulatory Framework pages 9 to 10 The Legal Practitioners Fidelity Fund (LPFF) page 10 What is Trust Money? pages 10 to 11 What is a Trust Account? pages 11 to12 What Distinguishes a Trust Account? page 12 Summary page 12 What are the Practical Implications for your Practice? page 12 An Important Obligation page 13 Non-compliance page 13 Strict Control page 13 Chapter 7 of the LPA pages 14 to 15 The Accounting Rules pages 15 to 16 Retention of Accounting Records and Files page 16 Updating Accounting Records pages 16 to 17 Keep Trust Money Separate page 17 Accounting to Clients pages 17 to 18 Payments to Client page 18 Payment from Trust Account page 18 Accounting Requirements pages 18 to 19 Trust Balances page 19 Deposits page 20 Short exercise page 20 Interest Payments page 20 List of Balances page 20 Notifications page 21 Compliance page 21 Reporting page 21 Reconciliation Statements pages 21 to 22 How does Accounting Software work in Preparing Bank Reconciliation Statements page 22 Some Accounting Terminology pages 23 to 26 • What is an Asset? page 23 • What is a Liability? page 23 • What is Income? page 24 • What is an Expense? page 24 • What is a Fixed Cost? page 24 • What is a Variable Cost? page 24 • What is a Business Expense? page 25 • What is a Private Expense? page 25 • Internet Banking (electronic banking) pages 25 to 26 Relevant Case Law pages 26 to 28 • Hewetson v The Law Society of the Free State page 26 • Cirota and another v Law Society, Transvaal page 27 • Law Society, Transvaal v Matthews page 27 • Botha and others v Law Society, Northern Provinces page 27 • Incorporated Law Society, Transvaal v K page 27 • Law Society, Cape v Koch page 27 • Law Society of the Cape of Good Hope v Budricks page 27 • Law Society of Cape of Good Hope v Dippenaar page 28 • Law Society of the Northern Provinces v Mabunda and Another page 28 Introduction to Accounting Software pages 28 to 29 FICA Compliance pages 29 to 30 What must Attorneys do? pages 30 to 32 ATTORNEYS’ BOOKKEEPING Introduction We commence this guide by stating that you are never to forget that Trust Funds are not your funds nor the funds of the firm. These funds belong to client and how you manage and administer those funds represent the core instructions of this guide. Any failure to manage trust funds according to the LPA, its regulations and rules, will have serious consequences for the practitioner and the firm. The Code of Conduct will also assist you in the administration of these funds. Business Account vs Trust Account It must be said that an attorney’s practice is also a business. No business can be successfully conducted without proper financial accounting. A legal practice operates both a business banking account and, where applicable, a trust banking account. These accounts serve different purposes and must never be mixed. Due to the administration of trust funds, this business has to be regulated. It is regulated by the LPC, in terms of the LPA, regulations and rules. There is further regulation by the Legal Professionals Fidelity Fund. In this guide we will assist you to understand the whole regulatory regime. Manual Bookkeeping This no longer exists. The attorneys who do their own accounting, make use of accounting software. Most attorneys and firms will engage an accountant to keep financial records and to comply with the LPC’s regulatory and oversight requirements. We recommend that you approach the partner or accountant in your firm and ask them to show you which accounting software is in use. Also ask the accountant to demonstrate how it works; and in particular how each attorney’s transactions, on a daily basis, are captured onto the system. Ask to see how reports regarding the trust account are generated; such as trust balances and how the system flags potential irregularities. The Legal Regulatory Framework Trust practices are highly regulated and the LPA and regulations provide for comprehensive oversight over the operating of a trust bank account by a firm of attorneys. The following establishes the legal framework. Whilst we deal with much of this in the guide below, you are nevertheless expected to be familiar with the following: Section 34 of the Legal Practice Act 28 of 2014 Chapter 6 Part 1 of the Legal Practice Act Section 84 of the Legal Practice Act Section 86 of the LPA Section 87 of the Legal Practice Act Financial Intelligence Centre Act 38 of 2001 Rules Rule 54.1, 54.6 and 54.7 The Legal Practitioners Fidelity Fund (LPFF) The purpose: • Section 25 of the Attorneys Act 53 of 1979 established the Attorneys Fidelity Fund. Its purpose was and still is to compensate members of the public who suffered financial loss due to theft of trust money by attorneys or their staff. • Section 53 of the LPA provides that the Attorneys Fidelity Fund continues under the name Legal Practitioners Fidelity Fund. You are expected to read Chapter 6 of the LPA, we deal with some of those sections below. The principal role of the fund: The LPFF was restructured to accommodate advocates (section 34). The LPFF’s principal role is to protect members of the public against theft and misappropriation of trust money. It also plays a role in enhancing the credibility of the profession and it promotes trust in the profession. The LPFF promotes ethical legal practice. Can you tell how the LPFF is funded? Below we deal with trust accounting and compliance. What is Trust Money? Let us begin with the obvious; it is not the firm’s money and it is certainly not your money. These are funds entrusted to the firm by a client or an individual, corporate entity or institution who is in a relationship of trust with the firm or an individual attorney. In plain language, trust money does not belong to the firm. It is money held on behalf of a client or third party and must be administered strictly in accordance with the client’s mandate and the Legal Practice Act. Let us look at some examples: - Deposits paid to a firm, by a client, to cover payment for fees and disbursements in a matter for the client; - Proceeds of settlements, such as a payment from the Road Accidents Funds or a payment for damages for personal injury; - Deposits paid to an attorney, to be held by the firm pending the completion of a commercial or property transaction; - Payments from a deceased estate, pending distribution to heirs; - Money paid to an attorney, by parties engaged in a dispute, to be held pending resolution of a dispute; - Rent money paid to an attorney by a tenant for the benefit of a lessor….etc Such funds MUST be kept separately in a TRUST ACCOUNT at an approved bank. The trust account is completely separate from an attorneys personal account or business account. Mixing these funds is absolutely prohibited and subject to strict oversight by the LPC, in terms of the LPA, Regulations and Rules. We discuss this below. Trust money can only be paid or disbursed strictly according to client authorization or instructions. In the legal profession, Trust Funds and Trust Accounts are treated as sacred. In the 21st century, the exchange of assets and non-fungible tokens e.g. Bitcoin are covered by, and subject to, the trust accounting regime. Trust property may include digital assets where legally recognised, provided that such assets are capable of being held and accounted for in compliance with the Legal Practice Act and FICA. What is a Trust Account? A trust account in relation to a legal practice is dealt with in section 88 of the LPA (see further detail below). It is a trust account at an approved bank (approved by the LPC and LPFF), designated as a trust account into which money is deposited. Trust Bank accounts must be designated “trust account” and the bank must be put on notice that the money in the trust bank account is trust money. The Banks have agreed to the following: - Charges are limited; - Interest is paid on credit balances at an agreed rate; and - Interest earned, after bank charges, are remitted to the LPFF. What Distinguishes a Trust Account? A trust bank account differs from a practice’s general (practice or office) bank account as follows: - The trust account is a statutory requirement (section 86 of the LPA); - Contains money received for, or on behalf of any person (such as a client); - The funds are protected against creditors of the practice; - The money is not used for payment of creditors of the practice; and - The trust account must never be overdrawn. NOTE: the business bank account of a practice is a general account and is kept separate from the trust bank account. Summary Four essential qualities distinguish trust account money from other money: One: the funds are held by the practice in a trust banking account; Two: the funds are held on behalf of someone else; Three: the funds are subject to the directions of the person it belongs to; and Four: the funds are not available to be used for any purpose other than as directed. What are the Practical implications for your practice? The fundamental obligations are as follows: - Deposit all trust money received into the trust banking account; - Hold it exclusively for the relevant client; - To be paid to that client as the client directs or instructs; - Account properly to that client for such trust money; - Trust account records must be maintained which disclose clearly the position of the money in the trust account; - They must be kept in such a manner as to enable them to be conveniently and properly inspected by the LPC; - They must be up to date, clearly show the amount of trust held for each client; - As far as practicable, they must be secure against retrospective alteration or deletion. The above obligations are dealt with in more detail below. An Important Obligation A trust account is not to be overdrawn. A bank account is overdrawn when payments are made out of the account when there are insufficient funds to meet the payment. The bank will nevertheless honour the payment from funds it will advance and debit the trust account, thus leaving it overdrawn. Should this happen, then funds must be immediately advanced to the account by the practice to prevent the trust account from remaining overdrawn. Non-compliance Failure to strictly comply with the provisions of the LPA relating to trust accounting and the regulations will have the following serious consequences: - Loss of client money; - Temporary concealment of those losses; - Imprecision within the trust account; - Inability to reconcile the trust ledger with the trust bank account; - Complaints from clients to the LPC; and - Insurers declining claims against your professional indemnity insurance policy. Inevitably your firm will attract an audit by the LPC. Strict Control A legal practitioner acts in a fiduciary capacity when holding trust money. Any misappropriation, deficit, or improper accounting constitutes serious misconduct and may result in the consequences enlisted hereunder, which is not exhaustive. So, what happens if an attorney appropriates funds for him or herself without client authorization, or misappropriates trust funds? Terrible things happen, like: - Disciplinary action by the LPC; - Loss of your fidelity fund certificate; - Suspension; - Being struck of the roll of practicing legal professionals; - Getting sued; - Criminal prosecution, you will go to jail!!! Eish Below we set out the legislative provisions, regulations and rules that apply to an attorneys trust account. Chapter 7 of the LPA The foundational principles for attorneys’ accounts management, appears in this chapter. It is important to read the sections in this chapter and this guide will assist in understanding and application. ➢ We begin with section 84; which provides that a practicing attorney must be in possession of a Fidelity Fund Certificate. There are some exceptions, stated in the section. What are they? ➢ An attorney may not receive or hold funds or property belonging to any person unless that practitioner is in possession of a Fidelity Fund certificate. A Practitioner must apply for a certificate to the LPC, this is done online. Visit the LPC website and go to the portal for Fidelity Fund certificates. Consult your principal on how this is done. For a first-time applicant, the latter will have to complete a legal practice management course approved by the LPC. Consult the LSSA website for details of their approved practice management course. Note that a fee is payable on application. Find out how much you will have to pay and what are the requirements to qualify for a fund. Read section 85. ➢ You must read section 86 which states that every legal practitioner must operate a trust account. Such account must be opened at a bank approved of by the Fidelity Fund. You have to read section 63 (1)(g). How does the Fund manage this? Can you tell what happens to interest accrued to the practice’s fidelity fund? ➢ Funds held by the practice on behalf of any person must be deposited into the trust account. Section 86 regulates the opening and operation of trust accounts. Candidates should read this section carefully. They must also understand what is to happen to interest accrued on the trust account. Section 86 further allows a practice to invest trust funds in a separate trust savings or investment account for the benefit of a client. ➢ Go and ask your firm’s accountant to show you how this is done in practice. From your reading of section 86, can you determine what happens to the interest accrued on such savings accounts? How much of that interest must be paid to the Legal Practitioners’ Fidelity Fund? ➢ You must read section 86 (6), this is important compliance. Can you tell if the practice is restricted as to the choice of bank, where the trust account is to be opened? ➢ Section 87 regulates accounting records and reporting obligations. It provides that a trust account practice must keep proper accounting records. Such records must contain the following information in respect of: o money received and paid on its own account; o any money received, held or paid on account of any person; o money invested in a trust account or other interest-bearing account referred to in section 86; and o any interest on money so invested which is paid over or credited to it. ➢ Note that the LPC or the Fidelity Fund (the Board) may inspect the accounting records of any trust practice to satisfy itself that the provisions relating to the trust account (section 86) are being complied with. This function is supported by provisions around full disclosure of all documents pertaining to the keeping and administration of the trust account. You will be held to account for every cent that is deposited into your trust account and every cent that you pay out. There are no exceptions and no indulgences. ➢ Section 87 (3) defines what is meant by “accounting records”. Read this subsection and can you state, in your own words, what is intended by “accounting records”. Ask your principal to show you how the firm’s compliance with section 87 is carried out. Talk to the firm’s accountants; with the permission of your principal. ➢ Consider section 87 and answer this question: What happens when the client disappears after a sum of money was paid into your trust account? Does this money then belong to the firm? ➢ We recommend that you have a good understanding of section 88. This is fundamental to the administration of funds held by the firm in their trust account. This section explicitly states that any funds standing to the credit of any trust account does not form part of the assets of the trust account practice or of any attorney, partner or member thereof. Do not, under any circumstances, treat this money as your own or that it somehow belongs to the firm. Any mismanagement of trust funds, will destroy your career for ever. The Accounting Rules The LPC made accounting rules in terms of section 95 of the LPA. Here we introduce to some of the more important accounting rules, which appear in Part XII, in particular, rule 54. Note that this part of the rules applies only to legal practitioners conducting a trust account practice. Let us consider the following rules: ➢ Rule 54.6 requires a firm to keep, in an official language of the Republic, such accounting records, which record both business account transactions and trust account transactions, as are necessary to enable the firm to satisfy its obligations in terms of the LPA. Accounting records must be kept according to acceptable financial reporting frameworks. The LPA publishes guide lines from time to time on reporting frameworks, ask your firms accountant to show you these guidelines and look at how the financial records are kept (what system of accounting or accounting software is being used) and why it is acceptable to the LPC and the Fidelity Fund. ➢ This rule supports the requirements of sections 86 and 87 of the LPA. Go back and read these sections again. The rule provides for the recording of assets and liabilities, a record of daily transactions of money received and paid; see section 87 (1) and (3) of the LPA. ➢ Rule 54.6.3 further supports sections 86 (3); (4) and (5). All money received, held and paid on account of any other person, funds invested by the firm and interest received have to be recorded. ➢ Rule 54.8 is fundamental to attorneys accounting and it provides that: “The accounting records shall distinguish in readily discernible form between business account transactions and trust account transactions.” Retention of accounting records and files ➢ The firms accounting records, and all files and documents relating to matters dealt with by the firm on behalf of clients must be retained for at least seven years. The records and documents must be retained in the firm’s main office or branch office and must be well secured. Note that many firms are moving away from paper work and paper records, this includes client files and accounting records. All work is conducted electronically. Electronic records may be hosted offsite, the LPC requires such electronic record to be reasonably secured and must remain available to the LPC for purposes of inspection. Find out from your firm where their records are being hosted and how the process happens. Find out in what format the accounting records are hosted and who has access to them. Updating Accounting Records ➢ Rule 54.10 is another fundamental provision for the proper keeping of accounting records. This rule provides that: “A firm shall update and balance its accounting records monthly and shall be deemed to comply with this rule if, inter alia, its accounting records have been written up by the last day of the following month.” This is no longer such an onerous task as all firms use accounting software which will update and balance the records as required by this rule. Please go and check with your firm’s accountant and find out which accounting software is in use and ask for a demonstration to see how monthly balances are updated. Firms that fail to do this, inevitably find themselves in trouble with the LPC. Keep Trust Money Separate ➢ Rule 54.11 is crucial; you must understand the concept of keeping trust money separate. The rule states that “trust money shall in no circumstances be deposited in or credited to a business banking account.” This is a rule that must be strictly adhered to. Notice that it is written in peremptory terms. No exceptions nor any indulgences will be tolerated. It will not be possible to account for trust funds, if they are not kept separately. This is what happens: • The firm must make transfers from its trust banking account to its business banking account at least once a month; • In doing so the firm ensures that, when making a transfer from trust baking account to its business banking account; the amount transferred is identifiable with, and does not exceed, the amount due to the firm. The trust creditor (the client) from whose account the transfer is made is identified; and • The balance of any amount due to the firm remaining in trust is capable of identification with corresponding entries appearing in its trust ledger. This process is done by accounting software as no firm keeps physical books of prime entry. Accounting to Clients ➢ Rule 54.12 provides that every firm, shall within a reasonable time after completing the work, account to the client in writing. A copy of each account is expected to be retained for not less than five years. ➢ Each account must detail the following: • All amounts received from client or other sources in connection with the matter; • A record of all disbursements made by the firm in connection with the matter; • A record of all fees and other charges, such as disbursements, charged or raised against client. Where there was an agreed fee, then the account must state this and record the amount so agreed; and • Any amount owed to or by client. ➢ These transactions are also recorded using accounting software. Look at the firms accounts and ask the accountant or the partner in charge to show you how the system is used to account to client. Payments to Client ➢ Rule 54.13 provides that: “A firm shall, unless otherwise instructed, pay any amount due to a client within a reasonable time. Prior to making any such payment the firm shall take adequate steps to verify the bank account details provided to it by the client for the payment of amounts due. Any subsequent changes to the bank account details must be similarly verified.” The law is clear; the onus is on the firm to verify the bank account details before making electronic or any other form of payment. This is to protect the firm from cyber-fraud where fraudsters will trick the firm into making payment into one of their own accounts, opened in the name of client. Read the case of ENS v Hawarden 2024 (5) SA 9 (SCA) Payments From Trust Account The following are important practical steps that have to be taken when an attorney makes payment out of the trust account: ➢ First see to it that the client’s ledger account has sufficient funds and they are available for that purpose. In plain language; does the client have sufficient available money; ➢ Secondly the attorney or the practice must obtain clients instructions or authority to transfer or make payment. The attorney must retain, on record, the details of the instruction; ➢ Thirdly payments made to a third party, and even client, must be made in a form that permits the crediting of money only to the account of the intended payee. In plain language, you must be certain about the payee’s identity and you must verify the bank account. It is best to request from client an evidential document from the payee in person. See further discussion about this in the chapter on case law. Accounting Requirements Rule 54.14 is important. It pertains to the keeping of accounting records and it contains sound advice for all firms. Especially during an era where accounting and banking is carried out electronically. Whilst electronic processes have made the work of attorneys cheaper and more efficient, there is nevertheless an ever-present danger of cyber-crime. The following must be noted: ➢ The firm shall maintain its accounting records in terms of the LPA and these rules; ➢ The firm is obliged to report to the LPC, in writing, any loss, theft or destruction of any of its records. It will do so immediately after such incident; ➢ Where the firm uses accounting software, all electronic records must be backed-up and located in a safe remote location; ➢ Where accounting records are maintained in electronic form (all firms do this), the firm must provide adequate precautions against loss of records through damage or system failures; the firm must further ensure that it is at all times capable of retrieving electronic records. ➢ All firms use electronic banking and must have an audit trial for all payments from trust account, which system must verify a payee’s banking account details. Note that attorney’s firms are a prime target of cyber fraudsters. Fund diversions are particularly common. Ask your firms accountant to show you how firewalls and audit trials work and how they guard against cyber-attacks. Trust Balances ➢ Rule 54.14.7.3 is important and must be complied with. This is what it provides: “A firm shall ensure that the total amount of money in its trust banking account, trust investment account and trust cash at any date shall not be less than the total amount of the credit balances of the trust creditors shown in its accounting records.” This ensures that at any given time, the firm is able to pay any amount held in favour of a client in its trust account. Any failure in this regard will immediately attract the attention of the LPC and an audit will follow. Currently, law firms use accounting software which is designed to comply with this rule and any deviation is immediately ringfenced and reported. Ask you the firms accountant to demonstrate to you how this works. ➢ Rule 54.14.9 also provides that no account of any trust creditor is in debit. Current accounting software will alert the firm if this happens. In this regard read rule 54.14.11; it reads as follows: “A firm shall immediately report in writing to the Council should an account of any trust creditor be in debit, together with a written explanation of the reason for the debit and proof of rectification.” Any failure to comply with this will certainly attract an audit by the LPC. Deposits Firms routinely request deposits to cover disbursements (like counsel’s fees) in carrying out their instructions. This money must be credited to the firms trust banking account as soon as possible. Short exercise As a short exercise, read rule 54.14.14, which deals with how a firm makes payments out of its trust account. Can you answer these questions: One, what withdrawals or payments can be made from the firms trust account? Two, what funds can you transfer from the firms trust account to the business account and; Three what must happen before such withdrawals or transfers from trust to business can take place. Interest Payments Go back and read sections 86 (3) to (5) of the LPA and you have to comply with this rule. Interest accrued must be paid over to the Fidelity Fund as directed in rule 54.14.16. This rule concludes (54.14.16.5) that a practitioner shall be guilty of misconduct for failing to pay interest that vests in the fund. A distinction must be drawn between : • Section 86(2) trust account; and • Section 86(3) investment account This must be clearly distinguished. Interest on a section 86(2) trust banking account accrues to the Fidelity Fund. Interest on a section 86(3) investment accrues to the client, subject to agreed fees. Lists of Balances As you would have noticed by now, the rules provide for various oversight mechanisms and checks and balances to ensure that trust funds are kept separately, operated according to the act and rules and strictly according to client instructions. A further oversight requirement is for every firm to extract trust balances. The firm must extract a list showing all persons whose money is held in trust, each such person must be identified by name. The total balance must be compared to the credit balance of the firms trust banking account. To be compliant with the rules, the firms trust account balance must not be in deficit, or less than what is owed to clients. Notification Every firm must notify the LPC in writing of the name and address of the bank/s at which the firms trust banking account/s are kept. Note that the LPC may require the firm, on 10 days’ notice, to provide it with a statement from such bank reflecting the balance of such trust banking account. See rule 54.16. Compliance ➢ Rule 54.19 states as follows: “Every partner of a firm, and every director of a juristic entity referred to in section 34(7) of the Act, and every advocate referred to in section 34(2)(b) of the Act, will be responsible for ensuring that the provisions of the Act and of those rules relating to trust accounts of the firm are complied with.” Make a note of this. Reporting ➢ Rule 54.20 requires a firm, at its own expense, to appoint an auditor to prepare the firms accounts and report to the LPC once a year. Failure to do so will compromise the firms Fidelity Fund certificate. Read the rules and ask your firms accountant to explain how the firm complies with its reporting responsibilities. ➢ You must take note of Rule 54.36; “Unless prevented by law from doing so every legal practitioner is required to report to the Council any dishonest or irregular conduct on the part of a trust account practitioner in relation to the handling of or accounting for trust money on the part of that trust account practitioner.” This is an important onus as the LPC works on an honour system which makes it possible to oversee compliance. Compliance with the Act and Rules is taken seriously; this is emphasised in Rule 57.1. ➢ Rule 57.1 states: “Failure by a firm to comply with any of the provisions of the rules contained in Part XII of the rules shall constitute misconduct on the part of the partners or directors of the firm.” Reconciliation Statements The bank reconciliation explains differences between the bank statement (an external record) and the control account or cash book (an internal record). Before attorneys began using accounting software, differences between the cash balance in the bank statement and the cash balance in the firm’s accounting records, were common place. This was also caused by the use of cheques which were recorded in the firm’s books, but were not yet cleared by the bank. With manual accounting or bookkeeping, errors were made by the firm and errors were made by the bank. These differences in balances required a bank reconciliation statement to be prepared. Manual payments, involving physical payments at a bank and cash payments are no longer used. In fact, it is not advisable for attorneys to receive large amounts in cash. Payments to your trust account must come through a banking system. Electronic payments have eliminated much of the errors and delays that caused differences between the balance in the bank statement when compared to the balance in the firm’s cash book. Nevertheless, one may still have to prepare bank reconciliation statements; most of the commonly used accounting software will prepare a conciliation statement without the attorneys having to do it themselves. The purpose was to control moneys received and payments made. Check with your firm what bank reconciliation tool is being used. How does accounting software work in preparing bank reconciliations? ➢ The software draws transactions directly from the bank statement. And includes deposits, withdrawals, bank charges, interest etc. ➢ The system then compares transactions in the firm’s cash book and the transactions in the bank statement. The comparison is done by matching items with the same date, amount and reference. ➢ The system then flags the unmatched items; such as unrecorded deposits, bank charges not recorded, interest earned and bank and firm’s errors. ➢ The system thereafter posts automatic adjustments and updates the cash book instantly. ➢ The next step is when the system calculates the reconciled balance. It makes adjustments and calculates the adjusted cash balance and confirms that it matches the bank balance. ➢ Finally, it generates a bank reconciliation statement. You do not have to know how to manually make entries in the firm’s books. No one does that any more. Some accounting terminology Here we present some commonly used accounting terms, used in a law firm, that you must understand. What is an asset? Every firm will have assets. This is represented by property, both movable and immovable. The firm may own the building where its main office is located. That building is an asset; a long-term asset. The firm owns equipment, furniture and fittings and motor vehicles; these are movable assets. Assets are generally used to generate revenue for the firm. These are long-term assets. A firm may own other forms of assets, such as intangible assets; such as copyright, trademarks and patents. Also, the firm’s goodwill is an intangible asset. Many firms have long-term investments; this too is an asset. You will come across a term; “current assets”. This means assets that are converted to cash within the firm’s financial year. Cash at bank is such an asset, accounts receivable, is current assets; such as fees owed to the firm. Assets are recorded in the firm’s books from acquisition to eventual disposal. Some asset’s value is reduced over time through depreciation. Assets are recorded in the firms balance sheet. What is a liability? While assets represent what the practice owns; liabilities represent what the firm owes. Liabilities are what the firm owes to others and is obliged to pay the amount owed. A good example is a bank loan. Liabilities are financial obligations; the firm will be obliged to pay back the loan and pay interest on that loan. Purchasing vehicles and other equipment through a credit agreement or a finance contract, will attract liabilities. The firm may be obliged to pay rent to the lessor of the building they occupy. The firm has an obligation to pay wages and salaries; these are known as current liabilities. Liabilities are recorded on the liabilities side of the balance sheet and may appear as “current “or non-current liabilities. Assessed tax is owed to SARS and that is a liability the firm must pay. What is income? Income is an inflow of economic benefits into the firm. The main source of income for a law firm is fees charged for services rendered. The firm may have other income such as income form investments, rental, commission etc. The firm may sell an asset and the proceeds are income. Note that how income is dealt with differs from an incorporated firm and a sole practitioner or partnership. Taxation of income is also dealt with differently. You can consult the firm’s accountant to find out how the accounting system records income. What is an expense? Every practice will generate expenses in the ordinary course of business. This will represent an outflow of funds from the firm. Expenses can reduce profits unnecessarily if not dealt with responsibly. Typically, a firm will incur expenses such as wages and salaries, rent, electricity water and rates, repairs and maintenance, software updates, subscriptions, fuel etc. All expenses of the firm must be recorded to determine what profit the firm earned from fee income; this in turn determines the firms tax obligations. You will see that many firms will record certain expenses as “disbursements”. These are expenses such as counsel’s fees, sheriff’s fees, experts’ fees, IT consultants’ charges etc. What is a fixed cost? A fixed cost is a cost that does not change or become varied but remains constant during the financial year, irrespective of the firm’s activities. These are some examples; mortgage payments, lease payments, salaries of permanent staff, insurance payments, servicing credit agreements. It is important to record fixed costs in the firm’s books of account as it is important to determine the profitability of the firm. It is necessary to determine operating budgets for the firm and cost controls. What is a variable cost? This is an expense that varies with activity. For example, the firm undertakes a long trial in the high court. The cost of travel for that month will increase until the trial ends. The cost of travel varies. So, the cost of petrol remains the same, but due to the extra travel, the cost of travel will vary upwards. What is a business expense? This represents any expense to the firm that was incurred in the ordinary course of the business of the practice. These are expenses that are necessary to run the practice in order to make a profit. This does not include the personal expenses of the partners or directors. This includes, inter alia, wages and salaries, utility bills, rent, IT updates, subscriptions, office supplies, insurance and interest payments. In other words, all expenses related to the business of the firm. What is a private expense? This is a personal cost or expense of a partner or director of the firm that is not incurred for business purposes of the firm and it cannot be charged to the firm and reflected in the firms profit and loss account. Some examples are; school fees for the partner’s children, paying for the partner’s personal credit card, the director’s medical expenses, cost of a director’s personal expenses such as clothing and groceries, personal cell phone account and cost of data etc. Can these expenses be paid out of the firms trust banking account? If a partner’s personal expense is paid by the firm, it can only be paid out of the business account and it will be treated as drawings. Internet Banking (electronic banking) All firms of attorneys, as well as individual attorneys, make use of electronic banking. Banking of any kind has always been subject to all kinds of frauds. Electronic banking is no exception. As a trust account practitioner, you have to be particularly vigilant; especially when you or your firm is making payments from the trust account to the bank of the recipient. Payments out of the business account are also fair game for fraudsters. Recently we had two judgements dealing with “Spoof emails” and diverting of funds using email phishing. The fraudsters hack into emails and make the email look as if it is from a trusted source, but the payment instructions were altered to divert the payment into a fraudulent account. This is generally known as email interception fraud. Attorneys have become victims of such fraud and both the latter and their clients have suffered loss. This kind of fraud can be devastating in conveyancing transactions, where funds are paid out of trust after property is transferred. In this regard read two judgements, they set out the legal basis for a claim by a victim of cyber- fraud. Mosselbaai Boeredienste (Pty) Ltd v OKB Motors CC (Case no 1216/21) [2023] ZASCA 91 (09 June 2023) This is a full bench decision. The second judgement is from the SCA; ENS v Hawarden 2024 (5) SA 9 (SCA) The basic advice is that you never make any electronic funds transfers or payments without first verifying that the account details actually belong to the payee. It is preferred if you double check. Do not merely rely on an email or the unreliable assurance of an incompetent employee. Take the responsibility yourself and carry out verification. Relevant Case Law For a practicing attorney, being able to find the appropriate cases and applying the law to the facts of one’s matter, is very much part of your vocational skills. It is therefore important for you to read the cases in the reading list and find the points that assist you in understanding the law. In plain language; get into the habit of reading judgements, it is primary authority and binding on a judge. The cases in the reading list have important guidelines regarding an attorney’s duties and obligations to comply with the LPA, the regulations and rules, insofar as it relates to accounting in a trust practice. Hewetson v The Law Society of the Free State 2020 (5) SA 86 (SCA) This decision dealt with the misappropriation of trust funds. The firm comprised of a husband-and- wife team; where the husband misappropriated trust funds while his wife was temporarily away from the practice. The issue was whether the wife was guilty of misconduct in not reporting her husband timeously to the LPC. The SCA set out the standard to be observed by an attorney when uncovering trust fund misappropriation and the obligation to report such misappropriation to the LPC. Look at the order the SCA made, do you think it was fair. Do you believe that the wife should be stuck off immediately? How would you decide this issue? There is a very recent decision on this issue, which is not in the reading list. See LPC v Kgaphola and another 2026 (1) SA 84 (SCA). this case concerns failure on the part of an attorney to comply with the LPA and rules regarding the fidelity fund certificate and failure to notify the LPC of the opening of a trust account and his failure to pay his subscription fees. There was also a failure to register with FICA. Read this judgement; do you agree with the sanction imposed by the SCA? Cirota and another v Law Society, Transvaal 1979 (1) SA 172 (A) This case emphasised, an already well-established principle, that failure to keep proper books of account is a serious contravention of the Act. The court struck the attorney off the roll. Do you agree with the order made by the court? Law Society, Transvaal v Matthews 1989 (4) SA 389 (T) Here the attorney became involved in the business of his clients; which was property development. This attorney failed to keep proper books of account. He also misappropriated trust funds. Read only the headnote and see how the attorney committed misconduct. Can you write this down? Botha and others v Law Society, Northern Provinces 2009 (3) SA 329 (SCA) Read the head note only. The firm’s accounts were described as chaotic and dishonest. Why did the court come to this conclusion? Where there any other serious complaints about transgressions by this firm? What are they. Do you believe that the court was correct in striking them off? Whose best interests was the court protecting? Can you write this down. Incorporated Law Society, Transvaal v K 1959 (2) SA 386 (T) Read the headnote. This judgement makes an important statement of the law. The attorney in question was struck off the role. Can you explain, in your own words why the attorney was found not to be fit and proper to practice as an attorney. Can you explain each factor that was taken into account for the decision to strike. Law Society, Cape v Koch 1985 (4) 379 This is an application to strike off the attorney from the practicing roll. Read only the head note. Can you state what is the standard of proof in an application to strike an attorney off? What did this attorney do that was so wrong with regard to his trust banking account. Can you write this down. What was the risk, the court addressed in this judgement, and what was the courts finding? Law Society of the Cape of Good Hope v Budricks 2003(2) SA 11 (SCA) at 171 I-J Read the head note and work out how a court exercises its discretion when faced with the issue of when and how an attorney should be struck off. The court explained a three-phase or threefold inquiry. What is this three-phase inquiry, can you write it down. What did the court find as the only appropriate remedy in this case? Law Society of Cape of Good Hope v Dippenaar (715/04) [2006] ZAWCHC 51 At paragraph (15) the court stated the following when dealing with “in the discretion of the court” “leave no doubt that the question of fitness is now no longer essentially a finding of fact but an exercise of discretion.” The court then pointed out that there was a three-stage inquiry. What is that three stage inquiry and can you write it down? The following is quoted in the judgement: “It is clear on authority that the usual penalty for misappropriation of trust funds is striking off and this is understandably so; the proper administration of monies entrusted to an attorney by his client is perhaps the most fundamental and important of the duties of an attorney and anything less than complete observance of those duties will not be tolerated by the Courts.” Make a note of this and never forget it. Law Society of the Northern Provinces v Mabunda and Another (LEGODI JP) [2019] ZAMPMBHC 8; 2734/2018 The following appears in the judgement: Trust money shall in no circumstances be deposited in or credited straight to a business banking account. An attorney must ensure that when making a transfer from its trust banking account to its business banking account, the amount transferred is identifiable with, and does not exceed the amount due to it, the trust creditor from whose account the transfer is made is identifiable, and the balance of any amount due to it and remaining in its trust banking account is capable of identification with corresponding entries appearing in its trust ledger. Read this carefully, can you say which rule of accounting is being referenced. Introduction to Accounting Software All commercial enterprises, from small businesses to multi-national corporates, use accounting software to manage their financial records. The same applies to attorneys. The difference with attorneys is that their choice of accounting software should be limited to those systems that can process financial transactions in compliance with trust accounting. Here are some popular systems currently preferred by local attorneys: LegalSuite; used by many firms, it is locally developed and caters for trust accounting and compliance. It also assists the practice with FICA compliance. LawPracticeZA; this system claims to be designed for South African law firms. It is capable of being used for trust accounting. It can be used for trust ledger controls and reconciliation. Lexpro Accounting; this system is claimed to be designed specifically for South African attorneys. It covers trust accounting and has features that include automated trust transfers, section 86 investment reporting, full financial reporting and bank reconciliations. Look at some of the systems mentioned in your course content above. You can lookup other systems on the internet. What you must do is go to your firm’s accountant and find out what software or accounting system is being used. Find out why the firm chose that particular system. Ask for a demonstration of how it works. You are now familiar with the requirements for trust accounting, dealt with above, ask the accountant to show you how the system is used to comply with the requirements of regulation 54. FICA Compliance On the 1 July 2003, The Financial Intelligence Centre Act 38 of 2001 (FICA) came into effect. Its purpose is to fight financial crime such as money laundering, tax evasion, and terrorist financing activities. Similar legislation exists in other countries that are designed to monitor movement of money derived from unlawful activities. ➢ At a G7 summit meeting in 1989 an inter-governmental body know as the Financial Action Task Force (FATF) was formed. Its purpose is to evaluate the effectiveness of local and international money laundering control structures. In addition, the Financial Action Task Force was commissioned with setting standards and promoting effective implementation of legal, regulatory and operational measures to combat money laundering, terrorist financing and other related threats to the integrity of the international financial system. ➢ This resulted in “grading” countries according to their controls and oversight over the movement of money. A poor grading will compromise the country’s reputation as an investment destination. ➢ Pressure from the FATF to implement effective money laundering control legislation led to the development of the Financial Intelligence Centre Act (FICA). South Africa’s commitment to the implementation of FATF recommendations codified in FICA, meant South Africa became the first African country to become a fully-fledged member of FATF. South Africa was accepted as a member of the FATF in June 2003 after it was evaluated and found to have developed a comprehensive legal structure to combat money laundering activities. ➢ Attorney’s practices became a target for money laundering, tax evasion and funding for terrorist activities. For instance, grey money is deposited into an attorney’s trust account and the money is then introduced or “washed” into the mainstream banking system. Be careful, you could fall victim quiet unwittingly. Strict compliance with FICA will assist you and your practice. ➢ As a result, the LPC has repeatedly advised attorneys to comply with FICA. What must Attorneys do? An attorney’s practice is regarded as an “Accountable Institution” in terms of the definition of an accountable institution in section 1 read with schedule 1 of FICA. This means that you must register with the Financial Intelligence Centre (FIC). This is not optional. ➢ Read Chapter 3 of FICA and note the following: The Duty to Identify clients. (section 21) Before doing any work (especially anything involving money), attorneys must identify and verify clients. For natural persons, you must obtain full names, SA identity number or passport, Proof of residential address and contact details. For juristic persons (companies, close corporations, trusts etc) you must obtain registration documents, business address (registered address only is not adequate), details of directors, members and trustees. You must establish and record beneficial ownership and the authority of the person instructing you. You must verify these details by carrying out a CIPC search. Can you tell how one goes about doing this? In plain language, you are expected to know who is the client, who actually controls the money and why are they instructing you. (It may be a sham transaction, beware?) Risk Based Approach FICA works on a risk-based approach, all clients are not treated equally. Every client is expected to be classified as low, medium or high risk. A high-risk client will be a foreign national, complex trusts and persons who have high exposure. Look for high risk indicators, such as large sums of cash transactions, funds from unclear sources, funds from outside the country, foreign currency etc. Keep Records for Five Years Attorneys must keep records for 5 years. You will be expected to keep client identification documents; transaction records, information about source of funds, risk assessments and correspondence. The records may be stored and held in secure digital format. Note: You must ensure they understand the different retention requirements for records relating to accounting and client matters versus FICA-related records. Practitioners must know which records fall under each requirement and ensure they are stored securely and can be retrieved when needed. Reporting Obligations You must read Chapter 3 that details an attorney’s reporting obligations to FIC. An attorney must disclose to FIC if the latter inquires if a person or entity is a client of the firm. Cash transactions, over the prescribed limit (R25 000), must be reported (section 28). Section 29 provides that an attorney’s practice must report suspicious and unusual transactions. The reporting procedures are in Section 32. Can you tell how a report can be made? Compliance Program A law firm is expected to formulate and implement an internal program and rules to comply with FICA. Such internal rules must comply with prescribed requirements of FICA (section 42). The act further requires the firm to train its employees to comply with FICA and the firm must appoint a person who will take responsibility for employees’ compliance (section 43). The Trust Account You saw in the discussion above that an attorney must have strict controls over the firms trust account. We know from experience that certain individuals target attorneys’ trust accounts for the purpose of money laundering. Therefore, an attorney is obliged to verify the source of funds before accepting it into the trust account. It helps to match the deposits into trust to specific matters and monitor the trust account for any unusual movement of funds. Have accounting software to assist you with this, a system that can also carry out reconciliation. Non-compliance Take this very seriously, a sentiment often repeated by the LPC, there are consequences for non-compliance. Read Chapter 4, can you state what penalties are imposed for non- compliance? January 2026 I Hussain SC

Best Selling Products

Latest Articles