On 18 August, the Minister of Finance published an explanatory note on the General Laws (Anti-Money Laundering and Combatting Terrorism Financing) Amendment Bill (the Bill), which National Treasury plans to table before the National Assembly in the third quarter of 2022. The Bill intends to make amendments to four key pieces of financial legislation, changing the wording, and responsibilities to better secure South Africa's financial system from money laundering and terrorist financing.

A copy of the draft bill did not accompany the explanatory note. According to the explanatory note the Bill intends to amend the Financial Intelligence Centre Act, 2001; Trust Property Control Act, 1988; the Companies Act, 2008 and the Non-Profit Organisation Act, 1997.

According to the explanatory note some of the amendments expected in the Bill are:

The Financial Intelligence Centre Act, 2001

• amending the definitions of " beneficial owner", "domestic prominent influential person" and "foreign prominent public official", and inserting a definition of "prominent influential person";
• amending the powers and function of the FIC to inter alia include the provision of forensic information and allowing the FIC to request information held by other organs of state;
• amending the schedules of the Act so as to broaden the scope of accountable institutions to include credit providers, dealers in goods valued at more than ZAR 100 000 and dealers in crypto assets, Krugerrands and motor vehicles; and
• amending the schedules of the Act to include within the ambit of the Act estate agents, gambling institutions, trusts and company service providers as well as providers of certain non-life insurance policies.

The Companies Act, 2008

• inserting a definition of "beneficial owner";
• providing for a comprehensive mechanism through which the Companies and Intellectual Property Commission (Commission) can keep accurate updated beneficial ownership information;
• 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 to file such record with the Commission;
• providing for specified timelines within which the company must record any changes in this information; and
• specifying that persons who are convicted of offences relating to money laundering, terrorist financing, or proliferation financing activities are prohibited from registering as company directors.

The Trust Property Control Act, 1988

• inserting definitions of "accountable institution" and "beneficial owner";
• imposing certain requirements on trustees;
• specifying matters that would disqualify a person from being appointed or continuing to act as a trustee;
• providing for the removal of a trustee who becomes disqualified to continue to act as a trustee; and
• providing for access to information regarding beneficial ownership.

The Non-profit Organisations Act, 1997

• requiring registration in terms of this Act and
• requiring non-profit organisations to submit prescribed information about office-bearers, control structure, governance, management, administration, and operations of non-profit organisations to the director of the Non-profit Organisations Directorate.

The focus of the amendments is to effectively establish beneficial ownership and enable law enforcement agencies to better access information which would greatly assist in the investigation and prosecution of financial crimes.

The Bill is understood to be a response to South Africa's potential greylisting by the Financial Action Task Force (FATF). The FATF is an international independent inter-governmental body that develops and promotes policies to protect the global financial system against money laundering, terrorist financing and the financing of proliferation of weapons of mass destruction. The FATF, following its Mutual Evaluation Report of 2021 which assessed South Africa's system for anti-money laundering, counter financing of terrorism and counter financing of proliferation, has threatened to greylist South Africa.

The FATF Recommendations are recognised as the global anti-money laundering (AML) and counter-terrorist financing (CTF) standard. The Mutual Evaluation Report titled "Anti-money laundering and counter-terrorist financing measures South Africa" which was published in October 2021 evaluated South Africa's AML and CTF measures according to the FATF's set standards. South Africa came up short as it was found to be fully compliant with only three (3) of the forty (40) Recommendations of the FATF. South Africa was ranked as partially compliant or largely complaint with the remaining 40 FATF Recommendations.

Financial Action Task Force:

According to the report South Africa has a relatively high volume and intensity of crime and more than half of reported crimes fall into categories that generate proceeds. The main domestic proceeds-generating predicate crimes are tax crimes, corruption and bribery, fraud then trafficking in illicit drugs, and environmental type crimes. South Africa, as a large economy and a regional hub for sub–Saharan Africa, has a notable exposure to the threat of foreign proceeds of crime generated in the region being laundered in or through the country. South Africa is also exposed to terrorist financing risks associated with the financing of foreign terrorism, foreign terrorist fighters, and potential domestic terrorism.

Banks offer a diverse suite of products and services and act as the main entry point of the financial system including from abroad. Insufficient beneficial ownership transparency is an acute vulnerability as companies and trusts are often misused for money laundering or to carry out predicate crimes, making attorneys and trust and company service providers inherently vulnerable to misuse. Estate agents are also exposed with many known money laundering cases involving real estate.

The FATF gave South Africa until October 2022 to come up with a credible plan to tackle deficiencies in its ability to prevent financial crimes, failing which it could be greylisted at a review meeting to be held in February 2023.  If South Africa were greylisted, it would impact South Africa's position as a reputable financial hub in sub-Saharan Africa.  South Africa would be less attractive to foreign investors. A greylisting would make doing business in the country even harder with more compliance steps having to be required in certain transactions to ensure that AML /CFT risks were appropriately dealt with.

According to the FATF, South Africa has until the beginning of October 2022 to show that there is a sufficient plan to address the shortfalls identified in their report to avoid being greylisted.

South Africa's Prudential Authority:

Following the FATF's report in October 2021, the Reserve Bank's Prudential Authority published a report titled "Assessment of money laundering, terrorist financing and proliferation financing risk in the banking sector. The Prudential Authority is responsible for AML/ CFT supervision of financial institutions. The Prudential Authority has realised its risk assessment reports for the banking sector and insurance sector. The nature and extent of money laundering, terrorist financing and proliferation financing threats that the banking sector in South Africa is facing are assessed to be a high risk. It has also stated that a possible greylisting of South Africa relates to the criminal justice system and the ability of suspicious financial activity to be uncovered and prosecuted.

Some of the common threats and vulnerabilities identified by the Prudential Authority are:

• fraud, bribery and corruption;
• environmental crimes;
• tax-related offences or crimes; and
• cybercrime, including emerging technologies that may be used to commit crimes.

The common vulnerabilities identified across the banking sector were:

• an inability to identify domestic prominent influential persons;
• the inability of banks to obtain beneficial ownership information;
• the identification of cryptocurrencies and exchanges (as client types);
• non-face-to-face client onboarding and interactions;
• products that allow large volumes of cash deposits; and
• the lack of a single client view across a bank when a client has multiple business relationships or accounts with different business units within the same bank.

Action by the South African Government:

In response to the threat of greylisting, cabinet has announced the approval of new amendment bills that seek to take on money laundering and terrorist financing in the country. It has announced that, amendments will be made to the following pieces of legislation:

• the Financial Intelligence Centre Act;
• the Non-profit Organisations Act;
• the Trust Property Control Act;
• the Companies Act;
• the Financial Sector Regulation Act; and
• the Protection of Constitutional Democracy Against Terrorist and Related Activities Act.

National Treasury has indicated that a copy of the Bill will be available after its introduction in the National Assembly in the third quarter of 2022.

Written by Lerato Lamola-Oguntoye, Of Counsel & Christopher Williamson, Candidate Attorney from Webber Wentzel