We recently posted an article on the potential effects of South Africa being “greylisted”, focused primarily on what this means, why this is happening and why it is important. This follow-on article takes a deep dive into the potential legislative amendments to the Financial Intelligence Centre Act 38 of 2001 (FICA) that are being implemented to bolster South Africa’s defences against money laundering and terrorist financing, but more importantly as an urgent mechanism to avoid being greylisted.

R0058_ Update Article Illustration How South Africa is Legally Tackling Potential Greylisting

The General Laws (Anti-Money Laundering and Combating Terrorism Financing Amendment Bill) (the Bill) was tabled on 29 August 2022 after Cabinet approved its tabling in Parliament at its meeting on 17 August 2022. The introduction of the Bill seeks to amend the below 5 pieces of legislation and is aptly named as an “omnibus bill”, as all amendments in terms of the below Acts are incorporated into one holistic Bill:

  • FICA
  • the Trust Property Control Act
  • the Nonprofit Organisations Act
  • the Companies Act
  • the Financial Sector Regulation Act
This legislative overhaul aims to address technical compliance deficiencies and inadequacies in combating financial crime in light of the Financial Action Task Force’s (FATF) 40 Recommendations and in terms of the FATF’s Mutual Evaluation Report of South Africa - October 2021, which subjected South Africa to a year-long observation period. The FATF, of which body South Africa is a member, is a global inter-governmental money laundering and terrorist financing watchdog and standard setter. According to the FATF, the 40 Recommendations, which ensure co-ordinated global counter-measures aimed at preventing money laundering, organised crime, corruption and terrorism, provide standards and various recommended protocols, covering the criminal justice system, law enforcement, the financial system and international co-operation and have been recognised and adopted by several international bodies.

South Africa has enlisted the assistance of the World Bank and the European Union for recommendations on how to avoid greylisting, tackling financial crime and corruption and also to strengthen its AML/CFT framework. A useful case study in implementing and turning around greylist status is Mauritius, who turned around this status in under a rarely achieved 2 year period and should South Africa be greylisted, useful lessons may be learnt from engaging with Mauritian authorities such as their Financial Intelligence Unit and Financial Services Commission. Mauritius is currently compliant with 39 of the 40 FATF Recommendations.

Running in conjunction with the Bill, a further potential legislative enactment has been pushed through, namely the Protection of Constitutional Democracy against Terrorist and Related Activities Amendment Bill, 2022, which aims to address 14 of South Africa’s technical deficiencies of the abovementioned FATF Recommendations and aims to give more power and further procedural mechanisms to regulatory authorities to fight financial crime.

The amendments to FICA are largely technical in nature and do not substantially change customer due diligence principles and provisions but will result in the establishment of a stronger AML/CFT/Proliferation Financing (PF) regulatory framework.

Some of the amendments include the following:
  • Inserting new definitions and creating a distinction between domestic and foreign politically exposed persons and prominent influential persons;
  • strengthening the rules of beneficial ownership in their application to trusts and companies, and to regulate the controllers of non-profit organisations (NPOs)
  • the inclusion of a definition of “proliferation financing” or “proliferation financing activity” and to require Accountable Institutions to take into account proliferation financing risks when developing their RMCPs

Similarly with the transitioning from FICA to the FIC Amendment Act in 2019, including a rules to a risk-based approach for Accountable Institutions in terms of identifying, assessing and mitigating against the ML/TF risks to which they are exposed, and the aligning of South Africa’s AML/CFT regulatory framework with international standards and best practices set by the FATF, the Bill aims to further bolster its continued alignment to, and practical implementation of, such standards.

 

Although the addressing of technical deficiencies and legislative inadequacies is a positive start, the real difficulties will lie in actually ensuring that the potential amendments are pragmatically adhered to and practically implemented and that South Africa’s investigative and prosecuting authorities have the capacity and willingness for expedited investigations, prosecutions and ultimately asset forfeitures in the fight against a plethora of financial crimes.


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