President Zuma is holding off signing the new Fica bill passed by Parliament.
For months, South Africans have watched the standoff between the Treasury and the Presidency unfold, with much of the public’s focus on Minister Pravin Gordhan’s longevity in Cabinet. This has more broadly resulted in a crisis in government – one which has slowed its attempts to pass more comprehensive legislation to tackle financial crime and the financing of terrorism.
The Financial Intelligence Centre Amendment bill, intended to update South Africa’s anti-corruption and anti-money-laundering laws, was passed by both the National Assembly and the National Council of Provinces in May, but has still not been signed into law by President Jacob Zuma.
This is despite concerns that South Africa’s current legislation may not meet obligations set by the Financial Action Task Force (FATF) – a multinational anti-money-laundering body of which South Africa is a member – and that terrorist groups may be accessing funds and recruiting members in South Africa.
In addition to this, in March 2014 the bribery working group of the Organisation for Economic Co-operation and Development (OECD) raised concerns over the limited investigation and prosecution of foreign bribery in South Africa.
The widely anticipated pushback from the financial services industry, which would face increased obligations and regulation (and therefore extra costs and potentially lost business opportunities) did not materialise. Despite initial reservations, the Banking Association of South Africa (BASA) has in fact urged Zuma to sign the Fica bill into law.
The loudest voices in the opposition to this increased legislation have come from former government apparatchik Jimmy Manyi’s Progressive Professionals Forum.
In September, the ANC Youth League joined the chorus opposing the Fica bill, declaring that it was, “perpetuated by Monopoly White Capital”, and was an attempt by the government to “abdicate” its responsibility to fight financial crime. For industry insiders and political commentators alike these protestations – likely fuelled by self-interest – seem bizarre, especially in the light of growing international consensus over the safeguarding of financial systems and of increasing transparency and accountability in these systems.
Much like the broader standoff between Gordhan and Zuma, the Presidency’s slow response to the new Fica bill highlights both the political fissures present in Zuma’s administration, as well as the slow progress being made to tackle bribery, corruption and political patronage networks. This stalemate represents a hindrance to inculcating a culture of corporate compliance and securing South Africa from organised crime, extremist groups and money-laundering operations.
The new Fica bill is a comprehensive amendment to the current Financial Intelligence Centre Act (Fica), which in 2003 established the Financial Intelligence Centre (FIC), the state agency empowered to identify and investigate the unlawful proceeds of crime passing through South Africa’s financial system, and the regulations imposed on financial institutions and others to implement anti-money-laundering and identity verification controls. The amendment proposes several new obligations on the private sector, bringing the regulations in line with some FATF recommendations and international best practice:
• Flexible and ongoing due diligence:
For most South Africans, the acronym “Fica” recalls an often tedious journey through regulations, paperwork and bank queues to verify addresses and identities. This has become a staple of South African consumer life, but the amendment bill will empower accountable financial institutions to adopt a more flexible and nuanced way of complying with customer due diligence obligations. For example, the amendment suggests that institutions adopt a risk-focused approach, specifically tailored to the customers, countries, products and delivery channels being used at any given time. This may be a reprieve for the many South Africans who are excluded from the formal economy and will shift the focus of financial institutions from compliance box-ticking to understanding and targeting specific suspicious activity and risks. Accountable institutions will also be required to implement ongoing Know-Your-Customer (KYC) due diligence checks, scrutinising transactions in respect of the client’s source of wealth and individualised risk profile.
• Increasing transparency in the financial system:
Many wealthy individuals make use of trusts, partnerships or corporate entities to obscure their ownership of a specific asset or involvement in a transaction. The new bill will thus require institutions that fall within its ambit to identify and verify the beneficial ownership and control of juristic persons. This requirement also comes at a time when there have been growing international concerns over the use of opaque corporate vehicles, often in offshore jurisdictions, to engage in illicit transactions and avoid tax.
• Identifying “Prominent Persons”:
The Fica amendment bill defines two new classes of customers, namely “domestic prominent influential persons” and “foreign prominent public officials”. These individuals, and their family and associates, will be subject to enhanced due diligence and source of wealth checks by prescribed institutions, bringing local regulations in line with the monitoring of so-called “Politically Exposed Persons” under FATF requirements. Of note, the amendment extends beyond politically influential individuals, to include senior private sector executives in the employ of high-turnover companies or companies that contract with the state.
• Inculcating a culture of compliance:
In terms of the Fica amendment bill, all entities falling within the ambit of the legislation will be required to develop and implement a Risk Management and Compliance Programme – internal rules and processes aimed at meeting the obligations set by the amendment, focused more broadly on preventing terrorism financing and money laundering. All due diligence, Know-Your-Customer checks and internal compliance procedures must be documented by accountable institutions, and employees must be trained to recognise risks and apply Fica consistently.
The amendment would effectively modernise regulations on financial crime, and bring the country in line with its international obligations. Of course, these obligations are wildly unpopular among those who might find themselves classified as “prominent persons”, subject to greater scrutiny of their financial affairs and association with politicians and the state.
The loud and unfounded criticism provided by the amendment bill’s political opponents may provide the clearest indication of why it should be signed into law – and why businesses must take a robust, risk-focused approach to cleaning up the economy. (See Editorial).
•Thorne Godinho is an analyst at S-RM, an international risk consulting company with offices in Cape Town.
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