South Africa risks becoming a pariah in financial intelligence scales

24 Jan 2017

Business Leadership South Africa (BLSA) unreservedly supports the swift signing into law of the Financial Intelligence Centre Amendment Act, passed by Parliament in May 2016. The legislation is of pivotal importance and the objections to it are without merit.

“This bill is about the prevention of money laundering, white collar crime, corruption, terrorism and other nefarious financial activities. South Africa has been a global leader on these issues but we now risk becoming a pariah. It is vital that the Act is signed into law as soon as possible. We believe there is no legal or constitutional reason it cannot be signed into law,” says Bonang Mohale, Deputy Chairman of BLSA.

Here follows summary of BLSA submission to parliament:

Why the legislation is important for the country

This legislation is critical for the well-being of our financial system and economy, as well as important for our national standing on the continent and globally.

Firstly, the amendment is critical in the fight against terrorism, white-collar crime, tax evasion, corruption and organised crime. It  strengthens South Africa’s ability to detect, discourage and prevent money laundering and the financing of terrorism. It helps us to combat particularly costly forms of corruption, to the benefit of all South Africans. This is why South Africa enacted the Financial Intelligence Centre Act in 2001; joined the Financial Action Task Force (“FATF”) in 2003; ratified the United Nations Convention Against Corruption (“UNCAC”) in 2004; and, very recently, committed to implement the G-20’s High-Level Principles on Beneficial Ownership Transparency. Through these actions South Africa has created a valuable and deserved reputation for taking seriously the combating of money laundering and the financing of terrorism. We do not want to our country to become known as a soft target for criminals.

Secondly, the amendment highlights South Africa’s leadership role in Africa and our commitment to the highest standards of governance. South Africa is the only African member of the FATF and of the G-20. We are also a founding member of the Open Government Partnership. The FATF’s standards for combating money laundering and the financing of terrorism constitute international best practice, and are reinforced by the G-20’s High Level Principles. The Open Government Partnership, which South Africa helped to launch in 2011, is dedicated to promoting transparency, empowering citizens, fighting corruption, and using technology to strengthen governance.

The amendment simultaneously meets the FATF’s standards and honours the commitment we have already made on beneficial ownership transparency as members of the G-20 and the Open Government Partnership. It should be noted that the International Monetary Fund, the OECD, the Basel Committee on Banking Supervision, the G-20, the World Bank, and other international organisations all monitor closely South Africa’s efforts to combat money laundering and the financing of terrorism. A set-back in this area will damage our standing with these organisations.

Thirdly, the amendment strengthens South Africa’s financial sector and oversight of it. The financial sector is a large employer. Almost all South Africans, directly or indirectly, are users of the financial system, often on a daily basis. The financial sector is also the custodian of the nation’s savings. It is in South Africa’s interests to implement and promote world-class regulatory frameworks that support the continued deepening and sophistication of South Africa’s financial sector, and enhance its regional and global competitiveness.

The objections to the legislation are poorly founded

BLSA believes that none of the objections raised are well-founded in law or policy. This includes the single concern raised by the President, namely that the that section 45B(1C) of the amendment may be impermissibly overbroad, and may unjustifiably violate the right to privacy, because it allows for warrantless searches.

Similar provisions for warrantless searches exist in other South African legislation, such as the Criminal Procedures Act, and are compatible with the Constitution. Further, the powers to be given to the FIC in respect of warrantless searches extend only to accountable institutions as defined in the FIC Act and do not extend to private individuals. This demonstrates that the clause is not overly broad.  In this regard, BLSA fully supports the submissions made by Business Unity South Africa and the Banking Association of South Africa to the Joint Standing Committee on Finance.

We note that no concerns over the constitutionality of the amendment were brought to the attention of Parliament during the process of its development. This process included extensive public consultations, during which submissions from multiple interested stakeholders were received or heard.

The costs of further delay to ordinary South Africans

BLSA welcomes the tight timetable and thematic focus prescribed by the Standing Committee.

It should be noted that the amendment is part of South Africa’s response to the FATF’s 2009 review of South Africa’s anti-money laundering (“AML”) and combating of financing of terrorism (“CFT”) laws, which produced a range of recommendations for improving those laws. The amendment also aligns South African law with revised standards adopted by the FATF in 2012. These standards require all FATF members to introduce and adopt a risk-based approach to the design of AML and CFT laws, so as to close loopholes for criminals and terrorists.

As a member of the FATF, South Africa cannot ignore these standards. They do not represent mere guidance or advice. They require and compel members of the FATF to act, by implementing laws that give effect to those standards.

The FATF has already placed South Africa on a watch-list for inadequate progress in addressing the obligations of its membership. In February 2017, South Africa is due to report to the FATF on its progress in implementing the required legal reforms. We are concerned thata failure to sign this legislation into law will raise the risk of the FATF publishing an adverse statement against South Africa.

An adverse statement by the FATF will automatically increase the scrutiny of foreign financial institutions on transactions originating from South African banks. Some foreign banks may decide to ‘de-risk’ by severing their correspondent banking relationships with South African banks. This will reduce the number of connections between South African banks and the global financial system, and hamper the South Africa’s ability to process cross-border payments and international transactions. This may impact activities as varied as transfer payments, payments for exports, and transactions related to foreign capital.

Conclusion

There is no justification for any further delay to the promulgation of the amendment. This legislation is central to the efforts of government, business and labour to avert a downgrade to junk and enhance our standing in the global economy.

It is manifestly in the national interest, therefore, to ensure the amendment becomes South African law as soon as possible.

info@probonomatters.co.za

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