Maverick Citizen

OP-ED

Mandatory registration requirement in money-laundering and terrorist financing bill will badly hurt SA non-profits

Mandatory registration requirement in money-laundering and terrorist financing bill will badly hurt SA non-profits
South African women receive a hot meal in the informal settlement of Masincedane which is a beneficiary of the 9 Miles Project and Hope Southern Africa (HOSA) COVID-19 feeding scheme in Cape Town, South Africa, 28 April 2020. (Photo: EPA-EFE/NIC BOTHMA)

This is a perspective and plan for action around the Bill with a really long name (“The General Laws Amendment (Anti Money Laundering and Counter Terrorist Financing) Bill”) which was released for public comment on 27 September 2022 with only 8 business days given before submissions are due at noon on Monday 12 October. The Bill aims to avoid the (potentially catastrophic) “Grey-Listing” of South Africa by the Financial Action Task Force (FATF)  but takes, Copley argues, an unnecessarily broad, harmful and dictatorial approach to proposed mandatory regulation of the non-profit sector.

 I have spent my entire professional life in service of non-profits and seen up close the breadth and depth of the work being done and the audacity, innovation, unstoppable positivity and energy of these people who give their lives to serve a greater good.

I write this today to highlight the impact of a Bill currently out for public comment.  It is a highly-technical and wide-ranging Bill, and there are many detailed legal points to be made but, given the complexity and also the short time frame, I lay out here my summary of the context, impact and then a proposed reasonable adjusted approach to be taken.

I will a great sense of urgency as I write this:

  • there has been no consideration of, no appreciation of the sector in the last-minute mad rush to get this Bill through;
  • there was no prior consultation with the sector (27 September was the first time it was made available); and
  • being such an octopus of a Bill, it has been almost impossible to communicate the import, impact and nuance of it in a way which allows meaningful engagement and response by the broader non-profit sector.

There are those who think that the last-minute dash must be intentional but I am not a conspiracy theorist – I do not believe that those who govern us are organised or co-ordinated enough for this.

The Bill in its current form does not (as it should)  target  the corrupt and the treasonous who may be hiding in some non-profits, but instead takes broad aim at the whole of the non-profit community.

It requires the compulsory registration as an NPO of all trusts, companies or other associations of persons established for a public purpose. And it includes mandatory registration of foreign non-profits ‘operating’ in South Africa.

Those who are not registered, or who are not compliant will not be able to ‘operate’ in South Africa.

Just a quick bit of legal context: NPO registration is currently an add-on voluntary registration available to non-profit companies (NPCs), charitable trusts and voluntary associations whose founding documents contain basic good-governance protocols. The status requires an annual report lodged on activities and meetings, and annual financial statements to be lodged.

The Bill must be passed without delay as Grey-Listing will hit the non-profit sector first and hardest. South African non-profits receive an estimated R17,2 billion of foreign funding each year to perform the crucial work that government is not capable of, or is simply neglecting. Delays, or decrease of this funding is not tenable for a sector already hard hit by the increasing costs and evermore urgent for their work.

A level of exposure and oversight is of course required, but mandatory universal NPO registration is not required in order for South Africa to comply with Recommendation 8 of the FAFT which states (my emphases):

“Countries should review the adequacy of laws and regulations that relate to Non-Profit 0rganisations which the country has identified as being vulnerable to terrorist financing abuse. Countries should apply focused and proportionate measures, in line with the risk-based approach, to such non-profit organisations to protect them from terrorist financing abuse, including:

(a) by terrorist organisations posing as legitimate entities;

(b) by exploiting legitimate entities as conduits for terrorist financing, including for the

purpose of escaping asset-freezing measures; and

(c) by concealing or obscuring the clandestine diversion of funds intended for legitimate purposes to terrorist organisations.”

Recommendation 8 does not apply to the NPO sector as a whole.  Countries should take a targeted approach to implementing the measures called for in Recommendation 8, including oversight and regulatory mechanisms, based on an understanding of the diversity of the NPO sector and the terrorism risks faced by the domestic NPO sector. Given the variety of legal forms that NPOs can have, depending on the country, the FATF has adopted a functional definition of NPO. This definition is based on those activities and characteristics of an organisation which put it at risk of terrorist abuse, rather than on the simple fact that it is operating on a non-profit basis. Recommendation 8 only applies to those NPOs which fall within the FATF definition of a non-profit organisation:

“A legal person or arrangement or organisation that primarily engages in raising or disbursing funds for purposes such as charitable, religious, cultural, educational, social or fraternal purposes, or for the carrying out of other types of “good works”.”

Compulsory registration of all voluntary associations, trusts and NPCs with the NPO Directorate cannot and should not be pursued in this Bill as:

  • universal registration is not a necessary or reasonable measure to counter the perceived risk;
  • the history of compulsory registration in South Africa is fresh and fraught and an outcry will result;
  • a long, deep and wide consultation is required, and time does not allow for this;
  • human rights, privacy and freedoms are unnecessarily breached by the Bill as it is (opposition will be huge and vocal);
  • a focused and risk-based approach is what FAFT requires;
  • trusts and NPCs are already in a system so there is no need to make it mandatory for them to register as NPOs (or they and the systems will take a double-hit);
  • the NPO registry system cannot deal with the large number of applications which would have to be processed. Dramatic slow-downs in already slow responses are expected;
  • the NPO Directorate sits inside a government department which is not trusted by and is inappropriate for a wide part of the non-profit sector;
  • the NPO current database is at least 10 years out of date due to political interference with the duty of the Director to deregister non-compliant organisations;
  • the NPO system does not have the granularity and searchability of data functions to allow, for instance, ineligible board members to be located, identified and notified;
  • the NPO system is not secure, is vulnerable to breach and unstable;
  • the human capacity at the NPO Directorate is limited – it is evident that documents lodged are not read or understood. Reports are a box-ticking exercise.  There is currently no meaningful engagement with the content of reports or the content of annual financial statements lodged; and
  • the deluge of data on any department arising from universal registration will bury and make impossible to find the actual illicit flows of funds and fraudsters, terrorists and criminals who are sought.

In the short time available, a focused approach is required. My suggestions are:

  1. Focus on identified risky organisations and deal with just those unregistered voluntary associations which are conduit funders (receive and on-donate funds) of over R1 million per year (the same bar as compulsory VAT registration and with the same types of rules on anticipating whether this will occur and discounting once-off big years);
  2. Designate these as ‘conduit voluntary associations’; and
  3. Require that they are registered with CIPC as NPCs (CIPC has capacity and systems and is improving them all the time).
  4. For foreign organisations carrying on non-profit activities in South Africa, as those which are foreign companies and trusts are already catered for in the relevant Acts and it is just foreign associations which need to be brought into the loop I suggest that we do not require compulsory NPO registration but amend the Companies Act to also apply to foreign unincorporated organisations.
  5. (Leave NPO registration voluntary at this time, and build capacity, interact, possibly develop a universal independent registry with proper planning and consultation.) DM

Nicole Copley is founder of ngoLAW.

Gallery

Comments - Please in order to comment.

  • Virginia ILIFF says:

    The PVO Act in Zimbabwe, which is marketed as lso protecting against Money Laundering, presents Government with the real opportunity of undermining or even closing any NGO whose activities are uncomfortable for the Government, in particular for Human Rights organisations..

  • Cunningham Ngcukana says:

    Why should it hurt the NPOs to register? The author of the article has not made a very compelling case but there is a compelling case to have them registered given the era we are living of terrorism, state corruption, money laundering all these have been identified and explained in the Mutual Evaluation Report of the FATF until Ninetyone Asset Management raised concern early this year with Treasury and the Minister on greylisting. Terrorism has emerged precisely because of these unregistered NPOs throughout the continent and even here next door in Mozambique. NPOs have a tendency to want to hold governments accountable but not themselves. We need to know the directors/ trustees, the purpose of the NPO, sources of its funding and beneficiaries of their activities.
    A country with undocumented immigrants coming from conflict countries has to have very rigorous systems of monitoring of every NPO as some people have been found to supporting terrorist acts in Nigeria, Somalia and Mozambique. Others are a conduit for stolen public funds and other run NPOs as scams in education, social care with the Life Esidimeni tragedy and others run orphanages to steal social grants. These excuses do not wash we need to register everybody in the NPOs and hold them accountable.

  • Erna Kruger says:

    I whole-heartedly agree with Nicole Copley and commend her suggestions as both reasonable and absolutely critical. As an NPO that has been in existence for 20 years now, we have seen the gradual loading of the sector with more and more regulations and paperwork, totally disproportionate to and in most cases in complete denial of the fact that these organisations work to serve the greater community and in fact do not make any money. These added and completely nonsensical regulations may indeed spell the end for numerous organisations, joining the ranks of those which have already buckled under the pressure of a shrinking funding base and hostile Government sector.

  • virginia crawford says:

    I agree in part but can’t see the problem with registering. I worked with NPO’s in the 90s and there is no question that money is squandered, misspent and stolen. Five star accommodation and foreign travel funded by donated monies without any cost/ benefit discussion allowed; private cars bought for staff and similar unethical behaviour. What I don’t understand about the bill is where banks are held responsible for stolen money flowing through their systems. When new cars and houses are bought cash, us there any responsibility for sellers to report this?

  • John Wallace says:

    Excellent article highlighting yet another sledgehammer approach to a complex problem where every good citizen gets knocked down in the puerile expectation of flushing out the baddies!

    The FATF report highlighting RSA’s inadequacies was released in October 2021 (a full year ago) and here we are with Government scrambling at the 11th hour to ward off the inevitable.

    The problem is a serious one and deserves a cooperative approach where REAL solutions can be developed and implemented in partnership between Government and the private sector.

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