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After a massive outcry from civil society, Finance committee refuses to rubber-stamp greylisting bill

After a massive outcry from civil society, Finance committee refuses to rubber-stamp greylisting bill

Knitting clubs, church choirs and community sports clubs would have to register with the Department of Social Development if the General Laws Amendment Bill on combating money laundering and terrorist financing remains unchanged. But after sharp criticism of the 9½ days for public comment, more consultations are planned.

Tuesday’s decision by Parliament’s Standing Committee on Finance to ensure constitutionally compliant, meaningful public consultations is a win for civil society organisations. One after another they raised concerns with MPs about the rush to push through this draft legislation, and its proposed mandatory registration of nonprofit organisations.

The decision came as the National Treasury and the Financial Intelligence Centre (FIC) — again — raised the big stick of global anti-money laundering entity the Financial Action Task Force (FATF) deadlines that, if missed, would lead to South Africa’s greylisting, and increase the costs of financial transactions and doing business. 

But committee chairperson Joe Maswanganyi would have none of that. 

“Don’t bring bills to Parliament that you want processed in one month. Parliament is a legislative body, not a department.

Read more in Daily Maverick: “National Treasury moves to avoid greylisting, but knows it’s an uphill battle

“Right at the end when you realise your deadlines, you drop the bill in Parliament. It is not right. What we are faced with is not our problem. It is the problem of the executive. The department must take responsibility for tabling the bill late.”

Read more in Daily Maverick: “SA must take urgent steps to avoid being greylisted by the Financial Action Task Force

Forthright rebuke

It’s about as forthright a rebuke as they come on how Cabinet has juniorised, and perhaps even relegated, the legislative sphere of the state. 

The General Laws (anti-money laundering and combating terrorism financing) Amendment Bill was tabled in Parliament on 29 August.

Read more in Daily Maverick: “As SA moves to prevent global greylisting, alarm bells ring over broad definition of terrorist activities

That’s six weeks after the National Treasury first indicated to Parliament’s finance committees its concern over the fast-approaching deadline to meet FATF requirements, or face greylisting. 

But as far back as October 2021, the FATF published its report on South Africa which highlighted shortcomings on several fronts — including concerns over a national counterterrorism strategy, that only 2,000 of 5,000 Hawks specialist investigations posts are filled, and how law enforcement and prosecution services focus on money laundering and terrorism financing as a crime by itself, not an additional count on the charge sheet.

Throughout its 235-page report, the FATF repeatedly states that South African authorities’ actions are out of kilter with risks, including as a regional financial hub with a large informal economy and cross-border cash movements — but also how the focus falls on compliance, rather than taking proactive investigative and other measures.

It is unclear why exactly it took so long for the Cabinet, the finance ministry and the National Treasury to deal with the October 2021 FATF report and recommendations. Unless it was the establishment of yet another committee — the Interdepartmental Committee on Anti-Money Laundering and the Combating of the Financing of Terrorism — according to a recent parliamentary response by President Cyril Ramaphosa to DA leader John Steenhuisen.

“Given the role played by the interdepartmental committee and the minister of finance in guiding and leading this process, there is no need to appoint a person in the Presidency to coordinate the economic and security clusters,” said Ramaphosa.

Par for the course

Delays by Cabinet, ministers and departments are not unusual. Home Affairs Minister Aaron Motsoaledi brought the Electoral Amendment Bill some 18 months into the 24 months the Constitutional Court gave Parliament to ensure independents can contest national and provincial elections. 

And it was only in March 2022, some five years after the FIC amendment legislation came into effect in early 2017, that the required schedules setting out, among others, the accounting institutions, were tabled in Parliament by the finance ministry. The schedules are already under consideration by the National Council of Provinces (NCOP).

In Tuesday’s public hearings, it also emerged how vague the deadline is for Parliament to finalise draft legislation that effectively amends five Acts.

There has been talk about an end-of-2022 deadline since the mid-June meeting between Parliament’s finance committees and the National Treasury on the FATF report.

More recently, the talk has shifted to the February 2023 FATF meeting as the decider.

Then Ramaphosa’s September parliamentary reply to Steenhuisen returned to a year-end deadline.

“Both bills are currently being processed in Parliament and if enacted into law before the end of this year, will represent a substantial and critical step towards preventing greylisting,” said the President.  

But on Tuesday, FIC’s executive manager for legal and policy, Pieter Smit, told MPs that South Africa would have to report back to the FATF in November. 

“The FATF expects the first report on the steps we are taking by November 2022. That will be referred to a FATF panel of reviewers.” 

This process will form a view of whether South Africa has taken sufficient steps to meet the FATF recommendations, or whether it’s still a work in progress. This will be discussed at a face-to-face meeting in January 2023 where, Smit said, “We will be formally discussing the FATF panel of reviewers’ conclusions,” before the final report is submitted to the February 2023 FATF meeting. 

The FIC executive manager told MPs that legislation in progress doesn’t count in the bid to stave off greylisting by the FATF. 

Anti-terrorism bill

The other draft law in this process is the Protection of Constitutional Democracy against Terrorist and Related Activities Amendment Bill that Police Minister Bheki Cele brought to Parliament in July 2022. Parliament’s police committee held a day’s public hearings in early September that also raised constitutional concerns.

But enactment before 31 December means adopting both draft laws in the National Assembly, processing and adoption also in the NCOP, and referral to the Presidency, which must do its own due diligence before the President signs the bills into law. 

Even if all that were to happen before 31 December, it would be too late for the review process starting in November, although it may be introduced in the January 2023 face-to-face meeting. 

It’s vague. And it’s the outcome of the executive taking 10 months to carry out its processes — and then expecting Parliament to fulfil its constitutional lawmaking responsibilities in next to no time.

That’s in addition to some charged legislative amendments like the mandatory registration of nonprofit organisations.

Mandatory registration of non-government organisations has cropped up repeatedly over the years. Distrust of NGOs delivering services and advocating for good governance and human rights has run deep in a government wanting to claim credits for service delivery even as it struggles to deliver. 

In the days of the Jacob Zuma administration, the then state security minister David Mahlobo frequently talked of regime-change motives of NGOs and NGOs fronting security agents. Or, as he put it, without providing details or proof in his 2016 Budget Vote speech: “They [(NGOs] are just security agents that are being used for covert operations.”

Tuesday’s public hearings highlighted the General Laws Amendment Bill’s proposed mandatory registration with the Department of Social Development’s NPO Directorate as an effective punitive double whammy for South Africa’s R17-billion non-government organisation sector. 

Visit Daily Maverick’s home page for more news, analysis and investigations

MPs were told that the NPO Directorate of Social Development had no expertise in risk assessment, terror financing and money laundering. Its lack of capacity meant it was unable to deal with the swathe of registrations that under the current phrasing of the draft law would include knitting clubs, sports teams and church choirs.

The FATF report also highlighted the directorate’s capacity and anti-money laundering expertise and capacity shortfall. The report, which focuses on risk identification rather than mandatory registration, recommended that a “competent authority responsible for the supervision or monitoring of NPOs” should be part of the security cluster.

But charitable trusts are already registered with the Master of the High Court — it falls under the Department of Justice which is part of the security ministerial cluster — and not-for-profit companies are registered with the Companies and Intellectual Property Commission (CIPC).

The National Treasury’s chief director for financial sector policy, Vukile Davidson, told MPs: “We will urgently engage with the NPO sector”, and the constitutional concerns were not “insurmountable”.

But the bill is out of the National Treasury’s hands. Now a property of Parliament, any changes to, for example, the mandatory NPO registration can only be a proposal that must meet MPs’ muster for inclusion in the final legislation that’s taken to the House.

How this turns out remains to be seen. But it’s all rather vague. DM


Comments - Please in order to comment.

  • Peter Smith says:

    One of the biggest loopholes to launder money is created by the electronic banking systems. Despite institutions having all the FICA details of each account holder, they only use the account number for verification. They allow the user to choose any name to link to a beneficiary account number. That name is shown on the account statement. The banking system even allows a user to link a different name which will show on the beneficiary account statement for payments. This facilitates fraud and money laundering and can only be detected by going through a forensic auditing process. This loophole is easy to fix as the banks already have all the FICA details. It does not require any changes in laws as, prior to electronic banking, banks were obligated to verify account numbers AND account names when clearing cheques. This solves not only money laundering but also commercial fraud. But the ANC is not likely to support this as it will also eliminate fraudulent payments to ghosts employees.

    • Cunningham Ngcukana says:

      Yes, the Global Association of Risk Professionals (GARP) has pointed to the dangers of digital banking to regulators in its recent papers. But, there are issues raised by the NPOs that are in the article that cannot go unchallenged. The taxi industry and taverns have been means to launder drug money and proceeds of crime such as bank robberies and heists. A church choir if the church is registered cannot be required to register. Churches are also used to launder drug money in particular charismatic churches and they must be required to register and people who have considerable wealth to pay taxes and must account for the very expensive cars they drive. Knitting clubs is an exaggeration by NPOs. Coming to community sports clubs as they require fund raising from the public they ought to register and caution has to be made as some of these clubs can be professional later. The issues with difficulties regarding registration must be raised because we cannot say something cannot be done because of incompetence within government or inefficiencies that must be addressed. People still go to the incompetent and inefficient health facilities and meet with indifferent public servants as in licensing departments or home affairs. The same as municipal offices that never resolve billing queries.

  • Jeremy Stephenson says:

    As CJ Zondo pointed out in his report, the banks have way too much unilateral power already. But despite this absolute stranglehold over the innocent affairs of ordinary people, the banking system allowed unknowable trillions of South Africa’s public money to be siphoned off via China and the UAE. The response, as always in this age of institutionalised incompetence, is to find ways to make the lives of ordinary people even harder, as if registering your hiking club as an NPO would have somehow prevented the destruction of, say, Transnet.

    • Blake Cuningham says:

      Spot on. It’s not as if ticking a box for FATF (unelected technocrats) is going to prevent money laundering. Will be pure downside for us plebs as usual. Seems to be getting portrayed by financial commentariat as an own goal for investment, but foreign investors already have enough reasons to be wary.

      South Africa should institute policy that is constitutional, and works for ordinary citizens, that goes through democratic process – not last minute ultimatums. Our laws should not be motivated by chasing approval from some committee in Paris.

  • Cunningham Ngcukana says:

    The incompetence and arrogance of the ANC government cannot and must not be condoned given that the financial services sector raised the matter and offered assistance to both the National Treasury and the Minister. This was done with the full knowledge of the staff challenges at National Treasury. The issues raised in the October 2021 were summarised by Ninetyone and Firstrand and how to deal with them including possible political intervention in the meeting of G20 finance ministers held in Indonesia. The Portfolio Committee is not to blame for failure by the Treasury and the Minister to take up the offer of assistance by the financial services sector. This included seconding of personnel to Treasury to assist so that the greylisting could be averted. This left Ninetyone CEO in the Financial Mail with no alternative, but to call it a tax on incompetence. The Presidency was even advised that a meeting with the financial industry be called to map out a strategy to avert greylisting and this was not taken up. Instead, we saw the Reserve Bank trying to shift the blame onto banks in very weird statements to hide the incompetence. The other issue raised by the FATF is the failure to prosecute state capture cases by the NPA and to recover laundered funds and the lies of the Department of Justice regarding the Guptas as at that time there were no charges or case numbers.

  • Alan Watkins says:

    registration with the Department of Social Development is a near impossibility. I should know. I have helped my daughter complete this process for her NPO, an animal rescue organization. You get the forms you fill them in, print out the required supporting documents and send them off. And you get nothing. So you follow up. Email postboxes are all full and phones are not answered. You persevere and persevere , literally hundreds of hours later you get through to someone. Mostly, staff just hang up after a short conversation. Eventually, many calls later, you find out your registration has been unsuccessful, no reasons given. Okay so the form has been completed incorrectly. Then it likes drawing teeth to get an answer on HOW the form has been incorrectly completed. So you correct in and send it in. Start process all over again, you are informed 9 months later that registration has failed again, no reasons given, many hundreds of hours later you get to the point where you have a conversation during which the DSD official tells you that one (or two) of the supporting documents was defective in some way. Okay so correct that and start again. Many months later, success. The only saving grace in our process was that somewhere along the line we got the direct phone number of an official who was not particularly helpful but did seem to know what was going on. And we just pestered her until she gave us the correct information and we were able to complete the process.

  • Craig A says:

    Despite all of these new laws being implemented years ago (FICA/POPIA….) there is more money laundering done now than ever before. Everyone knows who the launderers are, yet nothing happens to them. So let’s make a new law to get the 99% of the population to ‘comply’. Most people don’t have any extra money to finance their own lives, never mind a terrorist organisation. This is just more red tape to create a smokescreen so that the real criminals can get away with it.

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