Red tape worries with FIC Bill

FIC Bill : lengthy hearings expected….

Sent to clients 1 December….. Parliament has expressed strong doubts that there will be enough time left in the current parliamentary year to pass the FIC or Financial Intelligence Centre Amendment Bill despite Treasury’s call that international pressure was being placed upon South Africa to update its governance ability to monitor international financial crime.

The Bill intends enhancing South Africa’s anti-money laundering (AML) to combat better the financingmoney crime of terrorism by amending the anchor Financial Intelligence Centre Act “so as to define or further define certain expressions” in the basic Act in order to structure an entity to monitor counter-intelligence of financial crime and to penalise those in dereliction of the new rules.

Hearings from public sector

In that alone, there are many differences of opinion on terminology. This will no doubt emerge during hearings on the Bill from the public sector and many queries will also surround the establishment of a Financial Intelligence Centre in its envisaged form.

Also, the powers provided the Bill, it is feared by a number of Opposition members, may add the layers of “red tape” to current SA financial investment procedures, “thus contributing further to the belief that South Africa is an unfriendly business destination.”     Hearings are expected to re-emphasise this whilst the need for AML tightening.

yunus carrimYunus Carrim, chairperson of the Standing Committee on Finance, known for his commitment to detail and the meticulous observation of constitutional requirements, expressed his dismay to Mr. I Momoniat, Treasury Deputy Director-General for Tax and Financial Policy, that such a long and highly controversial Bill being was being introduced by National Treasury at this point of the parliamentary calendar under the general description of “a few minor amendments called for in terms of constitutional court decisions.”

This was echoed by MPs across party lines, to which must be added the obvious delays that might be caused by the current strike by NEHAWU and parliamentary committee working staff.

Criminalising comes up again

In response, Mr. O Makhubela, Chief Director; Treasury Financial Investments and Savings, said that there were serious consequences associated with non-compliance with international norms, such as the risk of heavy fines from overseas regulators and lack of multinational business confidence.

Ismael Momoniat of Treasury joined the debate to add that the new Financial Intelligence Centre (FIC) “had to have teeth in order to forestall international enquiries” and situations that might arise such as the large fines imposed on MTN by Nigerian regulators “which tended to undermine potential investor confidence” in the same manner that BNP Paribas was harmed by the $9bn fine imposed on by the USA for violating USA sanctions against Sudan, Iran and Cuba.

MPs complained that small companies in South Africa were not as big as Paribas or necessarily the same size as MTN and they were going to find the intrusions envisaged by the FIC impossible to give full compliance to.

Treasury responded with the assurance that it would be left to the discretion of the FIC whether to impose a fine or simply issue a warning and the nature of the transaction and its size.

Main purposes

Treasury said in their briefing document that the four principal objects of the Bill, which were to alignmoney laundering the country with international standards on money laundering and to counter terrorist bodies; to enhance customer due diligence within financial institutions; to provide for the implementation of the UN security council resolutions relating to the freezing of assets of persons suspected of financial crimes and for the FIC to introduce a risk-based approach by financial entities to the current aspects international financial crime.

Treasury countered the argument that dis-investment would being encouraged by the Bill with the argument that failure to implement the Bill would result in lower levels of investment going forward as a result of a lack of compliance with international rules by South Africa.

Prominent persons

momoniatMuch debate took place over the definition of “prominent persons, both domestic and foreign” who were to be the subject of investigation and Ismail Momoniat was at pains to state “there was no implication or presumption that prominent persons being investigated were presumed to be involved in any financial crime.”

Probably the provisions most likely to affect entities operating in South Africa are the clauses affecting due diligence. Those that are accountable in terms of the Act will be required to undertake ongoing customer due diligence overviews in order to establish the identity of “the beneficial owner” and the customer’s identity.

These classifications are intended to aid accountable institutions to “properly identify their clients” but do not entail a presumption that these prominent persons are more likely to be involved in any criminal activity.

Furthermore the FIC requires the entity to establish “the purpose and intended nature of the business relationship, and to keep information relating to the business relationship up to date and to scrutinise transactions in order to establish if the transactions are consistent with the accountable institution’s knowledge of the customer and the customer’s business, and to identify anomalies in transactions patterns”.

Obscurification

One of the main objectives, Momoniat said, was for Treasury to establish that entities did not “hide true identities behind trusts” or confuse transactions by moving money through “a corporate veil representing a spider’s web.”

A “beneficial owner” is defined in the proposals to be in respect of a judicial person, the natural person who, independently or together with a connected person, owns or controls the juristic person directly or indirectly, including through bearer share holding.

Risk Management

The concept of responsibility for risk management and industry compliance has been included in the Bill, Ismael Momoniat said.  It places this responsibility “on all accountable institutions to develop, document, maintain and implement” anti-money laundering anti criminal financial transaction programmes and to “ensure that employees are trained to comply with the new Act for which the board of directors or the senior management of the accountable institution are (also) responsible”.

Hearings will commence once Parliament is able to provide the necessary platform, not available at the time due to striking parliamentary workers and staff.
Other articles in this category or as background
Parliament steps up its financial oversight role – ParlyReportSA
Financial Sector Bill after Ponzi thieves – ParlyReportSA
Draft Cybercrime Bill drafts industry – ParlyReportSA
South Africa on international cybersecurity – ParlyReportSA

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