Government takes giant step to prevent potential greylisting

Two major pieces of legislation that may see South Africa avoid being greylisted by the Financial Action Task Force (FATF) have been passed by both houses of parliament.

The General Laws (Anti-Money Laundering and Combating Terrorism Financing) Amendment Bill as well as the Protection of Constitutional Democracy Against Terrorism and Related Activities Bill will be in effect by February next year when the FATF plenary session takes place in Paris, France.

FATF identified weaknesses in the effective investigation and prosecution of money laundering, terrorist financing, corruption, tax-related crimes and fraud in SA.

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Amelia Warren, candidate legal practitioner at ENSafrica, says government is now able to show that it has taken concrete steps to amend the technical deficiencies that were identified.

Policy interventions

The two amendment bills will address 16 of the 20 technical areas of non-compliance identified by the FATF. They were introduced in the National Assembly in July and August, and passed by the National Council of Provinces on 13 December.

They will now be sent to the president for assent and signed into law after the normal constitutional process has been followed.

The remaining deficiencies will be addressed by smaller pieces of legislation and other amendments, including recent amendments to the schedules of the Financial Intelligence Centre Act (Fica).

These include:

Recommendation 1: Assessing risk and applying a risk-based approach. This recommendation provides that countries should identify, assess and understand the money laundering and terrorist financing risks they face, and apply resources aimed at ensuring the risks are mitigated effectively.

Recommendation 2: National co-operation and co-ordination. Countries should ensure that policymakers, law enforcement agencies, supervisors and other relevant competent authorities have effective mechanisms in place that enable them to cooperate concerning the development and implementation of policies and activities to combat money laundering and terrorist financing.

Recommendation 14: Money or value transfer services. Countries should take measures to ensure that natural or legal persons that provide money or value transfer services are licensed or registered (mostly dealt with in Fica amendments).

Recommendation 32: Cash couriers. Countries should have measures in place to detect the physical cross-border transportation of currency and bearer negotiable instruments, including through a declaration or disclosure system.

Committed to fighting corruption

National Treasury says in a statement that the passing of the bills demonstrates the government’s commitment to fight corruption and terror financing. It “represents a giant step towards South Africa complying with the 40 FATF recommendations”.

“When enacted into law the two bills will improve South Africa’s adherence to international best practice in combating financial crimes and corruption,” it adds.

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Amendments to the schedules of Fica mean that a wider category of credit providers, high-value goods dealers, informal money providers, the South African Mint, co-operative banks, and crypto asset service providers are now in the accountable institutions net.

The Financial Intelligence Centre (FIC) earlier said the increased sectoral coverage will address the scope of weaknesses identified by the global money laundering and terrorist financing watchdog.

“The additional sectors will improve the FIC’s ability to obtain information concerning the financial activities of customers from a wider range of financial, non-financial institutions and crypto asset service providers,” the FIC said in a statement.

Era Gunning, banking and finance executive at ENSafrica, explains that businesses dealing in high value goods and that receive payments in any form to the value of R100 000 or more will have to register with the FIC as an accountable institution and comply with the provisions of the act.

This means they will have to implement customer due diligence (including identification and verification), appoint a money laundering control officer, and set up a risk management and compliance programme which sets out the risk-based approach the institution will follow to deal with the provisions of the act. Employees will have to undergo training to comply with Fica to spot potential breaches.

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Broader powers for regulator

In order to address weaknesses in SA’s ability to investigate and prosecute financial crimes and corruption, the role of the regulator has been amended. It will in future be able to produce forensic evidence and to request information from other organs of state. This broadens the power and scope of the FIC to implement the law, Warren earlier told Moneyweb.

Another amendment relates to the identification of beneficial owners of companies and entities in the Companies Act. A beneficial owner is the natural person who is in control of a legal entity.

The accountable institution must identify who the “warm bodies” are to prevent people from laundering money by hiding behind a company structure.

A public register will be established, as has been done in the EU, to identify the beneficial owner of each company.

The amendments to the Fica schedules are affective from Monday (19 December).

Gunning warns that there is still a “significant amount of work to be done” and that the amendments will result in a permanent increased administrative burden for many companies.

This article originally appeared on Moneyweb and was republished with permission.
Read the original article here.