MONEY LAUNDERING LAWS
National Treasury moves to avoid greylisting, but knows it’s an uphill battle
On Monday, 29 August, the National Treasury has tabled in parliament a range of amendments to existing laws aimed at strengthening South Africa’s commitment to fighting corruption, money laundering and terrorist financing.
The National Treasury has acknowledged that it will be difficult to demonstrate to the world that South Africa has sufficient measures in place to combat money laundering and terrorist financing activities, and avoid being ranked alongside high-risk countries such as Syria and Turkey.
The Paris-based Financial Action Task Force (FATF), an intergovernmental body that assesses countries’ ability to combat illicit financial activity, gave South Africa an October 2022 deadline to come up with a credible plan to tackle deficiencies in its laws to prevent money laundering and other financial crimes.
Failure to do so will probably result in South Africa being placed on a greylist of high-risk countries when the FATF holds a follow-up review meeting in February 2023. This will be a reputational blow to South Africa, as in the eyes of the developed world, the country will not be seen as serious about preventing financial crimes or having proactive measures in place for preventing such crimes from happening.
On Monday, 29 August, the treasury tabled in parliament a range of amendments to existing laws aimed at strengthening South Africa’s commitment to fighting against corruption, money laundering and terrorist financing, and addressing concerns raised by the FATF about the country’s shortcomings to track the flow of money.
In announcing these amendments, the treasury also made an admission, saying it might be difficult for South Africa to avoid a greylisting in the next six months. “… South Africa will have the harder task of demonstrating the effectiveness of its Anti-Money Laundering and Combating of the Financing of Terrorism (AML/CFT) laws and frameworks, including demonstrating that the country has credible national risk assessments to deal with money laundering and terror financing …,” the treasury said in a statement dated 29 August.
The operations of commercial banks and non-financial sectors such as the legal profession, gambling sector and real estate agents will be under more scrutiny if South Africa is greylisted, as they handle and move large volumes of money from different jurisdictions. For example, commercial banks facilitated payments and largely failed to detect red flags in financial transactions during the State Capture years, when money was moved mainly from state-owned entities to those belonging to a coterie of politically connected individuals.
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To avoid greylisting, the treasury says South Africa also has to demonstrate that it is serious about prosecuting individuals linked to the State Capture project, and that the country’s investigative and prosecuting authorities “are able to demonstrate speedy investigations, prosecutions and asset forfeitures for financial crimes and corruption”.
The FATF gave South Africa 18 months to address specific shortcomings in its ability to prevent financial crimes, which were outlined in a mutual evaluation report published in October 2021.
The report found that South Africa was compliant with only three of FATF’s 40 benchmark recommendations to combat illicit financial activity. In the report, the country was ranked poorly as its lax anti-money laundering measures allowed wrongdoers to move money without alarm bells being set off by financial institutions. The money flows, without alarms going off, potentially financed terrorist activity.
Should South Africa fail to demonstrate sufficient progress in addressing its deficiencies in combating money laundering and terrorist financing by October 2022, the country will join high-risk countries/regions such as Albania, Burkina Faso, Cambodia, Haiti, Pakistan, South Sudan, Syria, Turkey, the United Arab Emirates and Yemen. These places are deemed to have weak measures to combat money laundering and terrorist financing activities.
The treasury has pushed the following amendments to existing laws to strengthen procedures that combat money laundering and terrorist financing activities. The amendments have been tabled in Parliament for debate, mainly the standing Committee on Finance and the Select Committee on Finance, dealing with treasury operations, public finances and financial laws in South Africa.
The National Treasury has tabled amendments to the following laws:
- Trust Property Control Act, 1988, overseen by the Minister of Justice and Correctional Services. Amendments will allow imposing certain requirements on trustees of a family trust, including disqualifying a person from being appointed or continuing to act as a trustee if they face criminal charges, and setting out ways in which a trustee can be disqualified if they are no longer deemed fit to lead.
- Nonprofit Organisations Act, 1997, overseen by the Minister of Social Development, will require nonprofit organisations to submit prescribed information about their office bearers, control structure, governance, management, administration and operations of nonprofit organisations.
- Financial Intelligence Centre Act, 2001, overseen by the Minister of Finance, to amend the definitions of ‘‘beneficial owner’’, ‘‘domestic prominent influential person’’ and ‘‘foreign prominent public official’’, and inserting a definition of ‘‘prominent influential person’’; by amending the objectives of the Financial Intelligence Centre and amending the functions of the centre to include the provision of forensic information by empowering the centre to request information held by other organs of state.
- Companies Act, 2008, overseen by the Minister of Trade, Industry, and Competition, inserting a definition of ‘‘beneficial owner’’; by providing for a comprehensive mechanism through which the Companies and Intellectual Property Commission (registration of companies) can keep accurate and updated beneficial ownership information; by requiring a company to keep a record of a natural person who owns or controls the company in terms of the definition of ‘‘beneficial owner’’, and by providing for specified timelines within which the company must record any changes in this information;
- Financial Sector Regulation Act, 2017, overseen by the Minister of Finance, by inserting a new chapter dealing with beneficial owners into the act, or owners of a business, which defines ‘‘beneficial owner’’, and empowers standards and regulator’s directives to be made about beneficial owners. DM/BM