Lawmakers are dashing to push by adjustments to the law to avoid SA being greylisted by the Financial Action Task Force (FATF) – however they’re dealing with some stiff pushback.
One of the legal guidelines being polished earlier than being offered to parliament is the clumsily worded Protection of Constitutional Democracy in opposition to Terrorist and Related Activities Amendment Bill, often known as the anti-terrorism invoice.
Read: ‘Greylisting has potentially serious implications for the economy’
Last week parliament’s Portfolio Committee on Police heard a number of displays from civil society teams involved concerning the potential lack of freedoms due to the free wording of phrases like “terrorist activity” within the invoice.
More than 26 000 South Africans commented on the invoice by way of the DearSA public participation platform and 99% had been in opposition to it, primarily for the possibly chilling impact it may have on political protest, free expression, the press and spiritual exercise.
Fine line
“It is clear that SA needs stronger anti-terrorism legislation, but the public participation campaign we ran on this bill suggests we have to get this legislation right or risk losing some of our freedoms,” says Rob Hutchinson, CEO of DearSA.
“There is deep concern in the country over the bill as it is currently worded, particularly the vagueness of what constitutes terrorist activity and the danger that legitimate political protest or religious activity could be deemed terrorism.”
South Africans are positively involved about terrorism, however don’t need to sacrifice primary freedoms within the course of.
Speaking at a public listening to final week, Portfolio Committee on Police chair Tina Joemat-Pettersson stated one of many main causes behind the anti-terrorism invoice is the greylisting risk.
Read: Controversial invoice goals to clamp down on crypto for terrorism financing
In his medium-term price range speech final week, Finance Minister Enoch Godongwana referenced the greylisting risk and the truth that two payments had been at present earlier than parliament “aimed at addressing weaknesses in our legislative framework”.
“This will be a significant step towards meeting the 40 recommendations made by the FATF,” stated Godongwana. “We are also required to implement laws on anti-money laundering and corruption more effectively.”
Lax regulatory regime
An subject highlighted by the FATF is the lax regulatory regime for non-financial establishments akin to actual property brokers, attorneys, casinos and sellers in treasured metals and stones.
Also talked about had been digital asset service suppliers (Vasps) akin to crypto exchanges, nearly all of which pre-emptively display screen shoppers for cash laundering (ML) actions and topic them to the identical Know Your Customer (KYC) guidelines utilized by the banks.
The latest declaration of cryptos as a monetary product beneath the Financial Advisory and Intermediary Services (Fais) Act, and the truth that crypto corporations should now apply to be licensed as monetary providers suppliers (FSPs), takes a few of the sting out of the greylisting risk.
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Another subject highlighted by the FATF is the problem in establishing helpful possession. “Significant ML [money laundering] risks remain largely unaddressed for beneficial owners of legal persons and trusts, cross-border movement of cash, and criminal justice efforts are not yet directed towards effectively combating higher risks such as ML related to corruption, narcotics, and tax offenses,” says the FATF.
The potential to peel again the company veil, one thing not but included within the Companies Act, would have made it simpler to cease the Guptas earlier than they inflicted such carnage on the nation, as they had been ready to cover their helpful possession in offshore trusts and complicated company constructions.
The Fiduciary Institute of Southern Africa (Fisa) is lobbying the Parliamentary Standing Committee on Finance to redraft sections of the General Laws (Anti-Money Laundering and Combating Terrorism Financing) Bill which is being fast-tracked by parliament, and which might in flip introduce adjustments to the Trust Property Control Act.
In specific, Fisa is anxious concerning the inclusion of trustees within the definition of ‘beneficial owner’.
“Broadly, South Africa is under pressure to tighten its laws relating to anti-money laundering and combating terrorism financing,” says Louis van Vuren, CEO of Fisa. “In sure jurisdictions, laws require ‘beneficial owners’ of a authorized entity to be recognized.
“We have no problem with the apparent aim of increased oversight over trust assets under certain conditions, but it would appear that the drafters of the bill have simply lifted the term from foreign legislation without regard for the existing trust law in South Africa.”
Van Vuren says the proposed adjustments fly within the face of present belief law, introduces ambiguities into the definition, and is phrased in such a manner as to create confusion and probably make criminals out of these merely fulfilling their fiduciary obligation.
Fisa says it’s disillusioned that it was not consulted within the drafting of the brand new laws, and factors out that trusts wouldn’t have authorized character in SA law, whereas a few of the proposed amendments appear to work from the idea that they do.
The impact of the proposed adjustments might open the door for untimely vesting of sure rights of belief beneficiaries, restrict trustees’ discretion, and curtail the present rights of trustees and the founding father of a belief, says Fisa.
This could possibly be by amending the Trust Property Control Act to:
- Exclude a trustee from the “beneficial ownership” definition as they don’t seem to be a helpful proprietor of a belief and shouldn’t be included within the definition; and
- Place on the trustee affordable duties of oversight over who the people concerned within the belief occur to be by maybe amplifying the definition of “trustee” and inserting these duties on trustees by simply together with “trustee” subsequent to “beneficial owner” within the related sections the place applicable.
George Herman, chief funding officer at Citadel, says it appeared unavoidable that South Africa can be greylisted early subsequent 12 months for failing to take sufficient steps in opposition to illicit cash flows, however at the least it seems as if National Treasury and parliament are lastly beginning to take the precise steps to get off the listing rapidly and stem the inevitably damaging influence this destiny could have on GDP.
The International Monetary Fund (IMF) just lately warned that greylistings strangle authentic fund inflows into bothered nations.
Mauritius was greylisted in February 2020 and later blacklisted by the EU as a high-risk nation, inflicting a 1% drop in GDP.
Read: Greylisting may work for SA
The island nation was faraway from the listing lower than two years later due to compliance actions taken by the federal government.
“South Africa will have to do the same and really step up its prosecutions of financial crimes, such as corruption and money laundering, to get off the grey list quickly,” says Herman.
Listen to this special-report podcast during which Ryk van Niekerk finds out extra concerning the greylisting debate from Intellidex founder Stuart Theobald (or learn the transcript right here):