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anti-money-laundering

MPs insist on due process for Fica amendments aimed at avoiding grey-listing

Parliament’s finance committees last week decided they will not rubber-stamp National Treasury’s proposed amendments to the Financial Intelligence Centre Act (Fica) that are designed to prevent South Africa from being placed on the Financial Action Task Force’s grey list.

Grey-listing will have dire consequences for the country’s financial system and will create difficulties for businesses that engage in foreign trade.

Read: Clock is ticking for SA to avert something ‘worse than junk status’

The proposed amendments to Schedule 1 of Fica will significantly broaden the number of businesses that will become “accountable institutions”, which means they will have to meet all the Act’s compliance requirements when transacting (see the full list below).

One of the proposed additions to Schedule 1 are “high-value dealers”, which means any business where the value of a transaction is R100 000 or more per item.

Treasury wants to broaden the scope of Fica to bring the country’s anti-money laundering and counter terrorism financing legislation into line with the standards set by the FATF.

On 15 June, National Treasury and the Financial Intelligence Centre (FIC) briefed the National Assembly’s Standing Committee on Finance and the National Council of Provinces’ Select Committee on Finance on the proposed amendments to Schedules 1, 2 and 3 of Fica.

National Treasury hoped the committees would simply adopt its report and the amendments.

Time is running out

Treasury acting director-general Ismail Momoniat impressed on MPs that time was of the essence if South Africa was to avoid grey-listing.

The FATF is due to visit South Africa in October to see what progress has been made in remedying the defects identified during its “mutual evaluation” report in October last year. The country must also submit certain information to the FATF by November.

The FATF’s report identified the exclusion of certain non-financial businesses and professions, as well as dealers in crypto assets, as among the weaknesses in South Africa’s anti-money laundering legislation.

The international organisation will meet in February next year to decide whether it is satisfied with the action taken. If it is not, the FATF could grey-list the country.

Speaking from Berlin, where he was attending a plenary meeting of the FATF, Momoniat said Treasury had engaged in an extensive consultation process from 2017 to 2019 before drafting the amendments.

Treasury published the proposed amendments in June 2020 for comment, and they were tabled in May this year.

Momoniat said Treasury would bring additional “urgent” anti-money laundering legislation before Parliament in July.

However, after taking advice from the state law adviser, Standing Committee chairperson Joseph Maswanganyi and Select Committee chairperson Yunus Carrim agreed that a public participation process was not optional.

Momoniat said civic organisation Dear South Africa submitted 2 295 “non-material” comments during the public consultation process, of which 1 983 opposed the proposed amendments.

Maswanganyi said the committees needed to understand why the amendments had been opposed.

Although the committees appreciated the need for South Africa to avoid grey-listing, the amendments would have far-reaching implications, and those affected by them should have an opportunity to make themselves heard.

In view of the need to enact the legislation urgently, Maswanganyi and Carrim would meet to discuss ways to expedite the process.

The National Assembly is in recess from Monday until the middle of August, and the National Council of Provinces will be in recess from 27 June to 1 August.

Additions to the list of accountable institutions

The FIC’s executive manager: legal and policy, Pieter Smit, took the committees through the proposed amendments to the schedules.

Treasury wants to amend Schedule 1 to add the following entities to the list of accountable institutions:

Item 7A: Co-operative banks.

Item 20: High-value goods dealers. Any business that receives payment of R100 000 or more per item will have to comply with Fica. This will include motor vehicle dealers, Krugerrand dealers, and dealers in precious metals and stones. However, the wording of the amendment does not limit the item to specific types of goods – it encompasses any business dealing in high-value goods.

The amended wording of Item 20 will make motor vehicle dealers and Krugerrand dealers accountable institutions, so they will be deleted from Schedule 3, where they are listed as reporting institutions (Item 1 and Item 2, respectively).

Reporting institutions are obliged only to report suspicious and unusual transactions and transactions above the cash threshold, and they may not deal with persons or entities sanctioned by the United Nations. Effectively, no entities will be listed in Schedule 3, although the schedule will be retained in case it is necessary to make certain entities reporting institutions in future, Smit said.

Item 21: South African Mint Company. The South African Reserve Bank and the SA Mint asked that the SA Mint be listed separately, instead of falling under Item 20, to remove uncertainty about its need to comply with the Act.

Item 22: Crypto asset service providers (what the FATF calls virtual asset service providers), such as crypto exchanges and providers that enable people to store their crypto assets.

Item 23: Clearing system participants for the facilitation of electronic fund transfers. This is to enable the capture of electronic payments made through non-bank clearing houses. Currently, this service is limited to banks, but it is expected that non-bank institutions will enter this market.

Amendments that will widen the scope of Fica

The following amendments to entities already listed in the schedule will bring more people or businesses within the scope of Fica:

Item 1: Legal practitioners. The provision will be updated to take account of the repeal of the Attorneys Act and the introduction of the Legal Practice Act, to make it clear that advocates who practise in the same way as attorneys (dealing directly with the public) are also accountable institutions.

Item 2: Trust service providers. The amendment clarifies that anyone who provides trust services (setting up a trust, managing trust property, acting as professional trustees), regardless of their profession, is an accountable institution.

Smit said trust service providers are one of the FATF’s key focus areas, because it provides information on the parties that operate from behind a trust and that may use a trust as a veil to conceal the true ownership of property.

Item 8: Long-term insurance business. The amendment will bring a wider scope of life insurers under Fica, although Smit did not provide details. The amendment is also required to take account of the Insurance Act, which replaced parts of the Long-term Insurance Act and the Short-term Insurance Act.

Item 11: Credit providers. Smit said the amendment will bring a much broader range of money-lending activities, including micro-lenders, under Fica.

Item 16: The reference to the Ithala Development Finance Corporation will be deleted, because its business is mainly the provision of credit, so it will be covered by the amended Item 11, which includes similar institutions, such as the Land Bank.

Item 19: Money remitters. The wording currently refers specifically to “money”. It will be changed to clarify that it also covers businesses involved in the transfer of “value” without funds actually being sent from one location to another.

The other amendments to Schedule 1 are of a technical nature:

Item 4: Authorised user of an exchange. The reference to the repealed Securities Services Act will be replaced by the Financial Markets Act.

Item 12: Financial services providers. The amendment clarifies that this item covers a person who provides either intermediary services or advice, not only both.

Changes to the list of supervisory bodies

Schedule 2, which lists the institutions that supervise compliance with Fica, will be amended as follows:

Items 1 and 2: These are technical amendments to change the references from the Financial Services Board to the FSCA and from the Registrar of Banks to the Prudential Authority.

Item 5: Deletion of the Independent Regulatory Board for Auditors (Irba). When Fica was enacted in 2001, it was understood that auditing firms provided a range of financial services, not only the auditing of financial statements. It was envisaged that Irba would ensure compliance with non-auditing functions. But the FAIS Act provided a better framework for regulating these financial services. Auditors need to report suspicious transactions, but pure auditing functions do not fall under Fica.

Item 6: Deletion of the National Gambling Board (NGB). Gambling, such as casinos and horse-racing, fall under the provincial licensing authorities and is covered by Item 9 of Schedule 1. Amendments to the National Gambling Act in 2008 envisaged that the NGB would supervise online gambling. Smit said these amendments have not been brought into operation, and it appears that a policy won’t be introduced to regulate internet gambling, which is illegal. The NGB therefore has no role to play in enforcing Fica.

Item 8: Deletion of the reference to the law societies. The Legal Practice Act has transferred the regulation of the legal profession from the provincial law societies to the Legal Practice Council (LPC). Smit said the LPC has indicated it does not have the capacity to include Fica compliance and supervision in its responsibilities. As a result, the FIC will be the default supervisor of the legal profession. However, the FIC will have to work closely with the LPC, because, for example, only the LPC has the power to remove an attorney from the roll.

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