Meeting with the Governor of the South African Reserve Bank; briefing by Financial Intelligence Centre on Memorandum of Unders

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Finance Standing Committee

24 June 2002
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Meeting report

FINANCE PORTFOLIO COMMITTEE & FINANCE SELECT COMMITTEE: JOINT MEETING
25 June 2002
MEETING WITH THE GOVERNOR OF THE SOUTH AFRICAN RESERVE BANK;
BRIEFING BY FINANCIAL INTELLIGENCE CENTRE ON MEMORANDUM OF UNDERSTANDING AMONG MEMBER GOVERNMENTS OF THE EASTERN AND SOUTHERN AFRICA ANTI-MONEY LAUNDERING GROUP

Co - Chairpersons:
Ms Hogan (ANC) & Ms Mahlangu

Documents handed out:
Presentation by the South African Reserve Bank:
International Economy
National Economy: Part 1
National Economy Part 2
South African Reserve Bank Quarterly Bulletin June 2002 (on Reserve bank website)
Briefing on the Memorandum of Understanding (ESAAMLG) - PowerPoint Presentation
Memorandum of Understanding - Appendix 1
Explanatory Memorandum to the Memorandum of Understanding - Appendix 2

Reserve Bank website:
http://www.resbank.co.za/

SUMMARY
The South African Reserve Bank presented its second quarterly report to the Committee. The Governor said that during last year everything looked fine but all of a sudden everything changed. The food price and oil price increased and the value of the Rand dropped. Looking to the future he was concerned because all those pressures were still present in the economy. The Governor said that the way in which the inflation target was introduced was not correct. He had no doubt that inflation targeting is the correct policy but that it was introduced too speedily. Commenting on the use of the CPIX as the measure and whether there might be some fine tuning of the measure used he said that for now the CPIX is the measure that is to be used. The Governor did not want to say anything that might cause the media to think that the use of CPIX as the measure would change.

The Special Advisor to the Financial Intelligence Centre briefed the committee on the Memorandum of Understanding Among Member Governments of the Eastern and Southern Africa Anti-Money Laundering Group. The Understanding creates a regional anti-money laundering group. South Africa would have to pay a $20 000 membership fee therefore the agreement needs to be ratified by Parliament. The agreement was not passed as it had not yet been signed by the Minister. After signature the agreement will be adopted by the Committee.

The sittings during the first week of recess have been cancelled. The MFM Bill will be finalised during the week of 29 July 2002.

MINUTES
South African Reserve Bank (SARB)
The Governor, Mr Mboweni, advised that the Deputy Chief Economist, Mr Bernie de Jager, would make a presentation. The Governor recommended that the presentation be kept short and more time be used for discussion.

Mr de Jager went through a few slides in the presentation.

Focus on the USA
Slide 5
The growth performance of the US is indicated in this slide. it shows that growth was strong in the first quarter of this year. a clear recovery from the last quarter of 2001. He said that this growth is unlikely to be maintained but added that the worst is over. There are varying opinions on exactly how robust the recovery will be.

Slide 6
In the US rise in unemployment is coming to a standstill. He said that there could be further improvement.

Slide 7
Headline inflation in April 2001 was at 1.6% and core inflation that excludes food and energy prices was at 2.5%.

SADC region
Slide 17 shows the table of inflation in the SADC region. Two countries namely Angola with inflation of 99% and Zimbabwe with inflation of 114% is not a good example of monetary policy making.

South Africa
Slide 18
Growth in real GDP slowed down in the first quarter. He said that this was not because of the weakness in demand but because of a strong growth in manufacturing in the last quarter of 2001. During the first quarter of 2002 the level of growth just returned to normal.

Slide 20
Real Gross Domestic Expenditure showed a strong growth. The slide reflects all expenditure in government, households and fixed investment. He said that this strength in demand did not have any macro economic impacts in that the spending was within the available disposable income.

Slide 21
The slide shows a strong growth in household spending in the first quarter.

Slide 22
In this slide the increased in household spending is explained as being caused by the 3% growth in household income.

Slide 23
Further illustrates the above points on household income in that debt as a % of disposable income declined to the lowest level in six years.

Slide 24
The slide illustrates how government adds to the expansion in domestic demand.

Slide 27
The overall savings in the economy has improved. This is especially due to savings in the corporate sector.

Slide 29
There is no strong recovery in employment levels.

Slide 30
The remuneration per worker in the non-agricultural sector rose substantially to a rate of 10.4% in the fourth quarter of 2001. Mr de Jager said that this has implications for prices.

Slide 31
This slide, however, shows that productivity is increasing. It did however not increase to a level that would maintain the unit labour cost. As a result there ha been an increase in the unit labour cost. There is an expectation that strong productivity in the second quarter will pull back the unit labour cost.

Slide 34
The slide illustrates the rise in the production prices of All-goods.

Slide 35
CPIX was at 9.2% in April and the Overall inflation was at 8.4%.

Slide 36
The balance on the current account is reflected. The Trade Account shows a substantial surplus. This means that there are more exports than imports. The Services account improves substantially but is still in the negative. The overall deficit on the current account improved. In the last quarter the account was in the red. At the moment the current account is in surplus.

Slide 37
The balance on the financial account reflects an inflow of capital in the first quarter of last year. MR de Jager said that the Governor had said at the Myburgh Commission that the weakness of the current account and financial account during the last quarter of last year was a factor that caused the depreciation of the Rand. It can now be seen that since these accounts have substantially improved, that there is an improvement in the Rand.

Slide 40
The slide shows the accumulation of gold and other foreign reserves. The SARB is not accumulating any reserves but is clear that the private sector is.

Slide 41
The slide indicates that South Africa has import cover for about 24 - 20 weeks. This means that for that amount of time there does not have to be any exports. The IMF says that a country should have at least 12 weeks of cover.

Slide 42
The slide gives the net open forward position. Mr de Jager said that he hoped that this slide would soon be out of the presentation because the forward position is almost wiped out.

Slide 45
The real effective depreciation of the exchange rate is reflected in the slide. From December 2000 - December 2001 the real depreciation was 31.6%. He said that this did however increase the competitiveness of South African producers.

Slide 46
The acceleration in money supply has been growing.

Slide 47 The amount of credit being extended by the SARB is decreasing.

Mr de Jager advised that the rest of the presentation was on the financial markets and it was not necessary to go through.

In summary he said that there had been strong demand in the first quarter but despite the strong growth the spending was still in the constraints of the gross disposable income.
In respect of inflation he said that the oil prices are stable at around $23 - 25/barrel. But despite all the positives mentioned in the presentation, one serious risk is the growth in nominal wages in the Public and Private sectors. This wage growth could be countered by an increase in productivity but he submitted that the University of Stellenbosch finds that inflation will grow.

Discussion
Dr Koornhof (UDM) commented that it was worrying that there is not sufficient growth in the economy to absorb the labour surplus. Secondly, he referred to slide 35 and said that it is clear that CPIX and overall inflation is above what was expected. He asked if towards 2003 if there is any chance of inflation being within the target. Lastly he asked what would the effect of removing the forward position be on the ordinary man on the street.

The Governor wanted to say a few words before answering questions. He said that Brazil had not to long ago showed stability. Suddenly things changed drastically. the igniting factor for his change was politics. The colleagues of the current President Cardoso is not showing a substantial lead in the opinion polls. Because it was the President that brought stability it was thought that those who succeed him would come from his party. At the moment, eventhough the election is a few months away, the leading candidate is Mr Da Silva who is the candidate of the Workers Party. He has a substantial lead in the polls. The Governor said that this is a major factor for Brazils problems. The market feels that he will not continue with Cardoso's plan. All that investors sees is the $245 billion foreign debt and worry about a possible default. The size of the Argentinian default was only $130 billion. The Governor said that as Brazil weakened the effects were felt here and therefore the exchange rate has again been weakening. He hoped that the markets could differentiate between us and Brazil because we were not in the same position. An important factor is that all this happened just as things started looking good for us.

Responding to Dr. Koornhof the Governor said that he agreed that the employment situation is a major problem. All that the SARB can do is present the picture and have it generate discussion. He hoped that the relevant committees like labour and trade and industry take up the issue with the departments.

In respect of the inflation outlook and targets he said that it is very clear that as far as the target for 2002 is concerned, there is nothing the SARB can do influence the outcome. The decisions were taken in 2001 and everything looked spot on until all of a sudden things changed. The oil prices, food prices and exchange rate increased. He jokingly said that the Agricultural Minister should explain the food prices. Whether the 2002 target has been missed or achieved can only be determined next year. Looking forward is the task of the SARB and the Governor said that outlook is concerning because all the pressures are still present. Food prices, money supply growth and oil prices are all concerns that are still present. He said that the exchange rate did stabilize but Latin America had a negative impact on this.

He added that that at the end of the day inflation must be dealt with. The SARB must remain focussed on the target of 3-6%. Something that worried the governor a lot was that there was no substantial buy in to the inflation target framework. He said that people act as if there is no framework. The public sector, private sector and trade unions are all guilty of this. the Governor never knew of any political party who spoke to its supporters about inflation targeting. When there is a major national project like the inflation target the Governor said that there must be a buy in or else there will be much problems. Parastatals were increasing tariffs 100 times more than the inflation target and rates and taxes were also increased far higher than the target. He said that most mayors don't even know about inflation targets. He said that he had tried all that is humanly possible to tale inflation targeting to the people but it has not worked. The SARB has held monetary forums all over the country but the message has not gotten through.

The Governor, as a result of that experience, concluded that the manner in which the targets were introduced were perhaps too hurriedly done. He said that Spain had 5 years of discussion before introducing the target. The more debate the more people gets galvanized and the process of the buy in takes place before implementation. He emphasized that he was in no way criticizing government but just indicating the importance of buy in. Once there has been buy in the people will ask the correct questions and ask themselves if after they have recovered their cost if they are charging prices above the target. The Governor indicated that he had been thinking of having a National conference in an attempt to get people to buy into inflation targeting.

In response to Dr Koornhof's question on the forward position he said that it had improved significantly. If the book is cleared then there will be less exposure and the exchange rate risk will be less.

Mr Mnguni (ANC) asked the Governor if he thought that South Africa was taking something from developing countries and imposing it on a developing country. He was referring to inflation targeting.

The Governor replied that South Africa is not imposing a developed countries policy on this country. He said that inflation targeting is a good policy and that many Central Banks were trying to come into the framework. The only problem was the speed in which it was implemented.

Ms Taljaard that the lack of debate on inflation targeting in the public arena also means that there has been no debate on the measure to be used. She said that it is clear from slide 35 that CPIX might not be best measure to use.

The Governor said that the CPIX is the current measure. The policy is in place and now everyone must buy into it. He said that the policy should not be changed. Those who said that the CPIX was the correct measure must explain why.

Mr Mahlangu (ANC) asked if there were ways to control process to ensure that it is within the inflation targets.

The Governor replied that a programme was started to interact with municipalities. There has already been one meeting with executive mayors. The SARB also want to speak to councillors and tell then about inflation targeting. The SARB has started moving the process to sensitize a broader number of people.

Ms Hogan commented that CPIX would not be changed as the measure being used but asked if there was room for fine tuning this measure that is being used.

The Governor replied that he did not want to make comments that will cause Reuters to print that the CPIX is going to be changed. For this reason he could not talk openly on the matter.

Ms Mahlangu (ANC) commented that the SARB has said today that the exchange rate did have a role to play in the increase of food prices. Food prices has an impact on inflation. she asked if the SARB is still only interested in inflation and not protecting the value of the currency.

The Governor replied that the view still stands. For the working class and the poor the concern is the cost of goods at the shop. He Said that the SARB must worry when food prices go up. He added that the exchange rate is important to the price system in the country and it cannot be ignored.

Mr Nene (ANC) asked what happened to the profits made by the SARB.

The Governor said that a certain percentage, he was not sure if it is 1/10 was held back and allocated to SARB reserve account. The rest was paid to the government.

Ms Taljaard referred to slide 56 and said that expenditure by national government shows a steep increase. She asked what % expenditure on interest repayments resulted in the increase. Secondly, she referred to the exchange controls and the government policy of gradual liberalization. She said that certainty was pertinent and referred to the October circular as adding to the uncertainty when it comes to implementation of policy.

To the first question the Governor replied that expenditure is merely reported by the SARB, anything more the SARB cannot comment on.

In answering the second question he said that the SARB is responsible for implementing government policy on exchange control. Implementation strictly follows the policy. Some people might have thought that gradual liberalization meant that they can infringe a little bit and they will get away with it. This is clearly not the case. The October circular simply made it clear that there cannot be currency trade without an underlying transaction.

Mr Mnguni asked why the situation in Brazil affected us.

The Governor replied that for the significant part of the year sentiment towards the emerging markets improved. The interest rate differential on loans to emerging markets were reasonable. Now, due to what has been happening in Brazil, the differential has widened. This explains the Rand volatility over the past couple of days.

Briefing by the Financial Intelligence Centre (FIC)
Mr Michel, Special Advisor to the FIC briefed the committee on the Memorandum of Understanding Among member governments of the Eastern and Southern Africa Anti-Money Laundering Group.

The ESAAMLG is a regional anti-money laundering group in Africa. The memorandum of understanding acts as a base document for active membership. South Africa is waiting for the document to come form Dar-Ras-Salaam and then the Minister will sign it. Thereafter it can be adopted by Parliament.

The focus of the presentation was to brief the committee on the Approval by Cabinet of for the signing of the Memorandum of Understanding. The memorandum will need to be adopted by August therefore the briefing is being held now so that when the Final Document is ready the committee could pass it and it can be ratified by Parliament. It has to be ratified because South Africa would have to pay $20 000 membership fees.

The first part of the briefing focussed on the content of the explanatory memorandum.

The Second part focussed on the structure of the ESAAMLG, the requirements for membership and the relationship with the Financial action Task Force (FATF). An important point is that ESAAMLG membership is required for FATF compliance.

Mr Michel advised that one of the ESAAMLG objectives are to adopt and implement the 40 FATF recommendations. After September 11 the 4 has been increased to 48 to deal with the threat of terrorism.

The Explanatory Memorandum is attached hereto as Appendix 2.

Discussion
Ms Taljaard asked from where the funding would come.

Mr Michel replied that membership fees are already part of the FIC budget.

Ms Hogan asked what were the additional 8 FATF recommendations.

Mr Michel said that the 8 new ones included the obligation on states to:
- criminalise the finance of terrorism
- the finance of terrorism must be linked to money laundering
- confiscate terrorist assets
- report suspicious transactions
- co-operate internationally
- pay attention to wire transfers
- pay attention to non-profit organisations; and
- alternative remittance.

Mr Michel said that the last three recommendations were not yet properly thought through.

Ms Hogan asked who defined terrorism because on CNN it seemed that everything Palestine did was seen as an act of terrorism and what Israel did was not. She was concerned if the definition is very wide, then whose agenda was being pushed.

Ms Joemat (ANC) shared this concern.

Mr Michel replied that the Law Commission is busy with anti terrorist legislation that will define terrorism in the South African context. The second issue is the FATF and UN concern around the definition of terrorism.

Ms Taljaard asked to what extent the three recommendations that were still under discussion legally binding.

Mr Michel replied that the current members of FATF have agreed to implement those 3 recommendations.

There were no further questions.

APPENDIX 1
MEMORANDUM OF UNDERSTANDING AMONG MEMBER GOVERNMENTS OF THE EASTERN AND SOUTHERN AFRICA ANTI-MONEY LAUNDERING GROUP

Considering
the threat posed by the activities of money launderers;

Determined to preserve and maintain social, economic and political stability in the Region;

Acknowledging the need for expertise and training to ensure the effective implementation of money laundering counter-measures and the support of non-member countries and international orqanisations in sustaining such training programmes; and,

Acknowledging that regional and international co-operation is critical in the fight against money laundering and reaffirming their commitment given in various Commonwealth meetings including those of Heads of Government, and Law and Finance Ministers to adopt and implement the 40 Recommendations of the Financial Action Task Force (FATF).

Acknowledging the need for the development and implementation of notional anti-money laundering legislation in the respective countries which is in accordance with international anti-money laundering strategies.

The Governments party to this memorandum have reached the following understanding:

- Objectives
Member countries of the Eastern and Southern Africa Anti-Money Laundering Group (ESAAMLG) agree to:
(a) adopt and implement the 40 Recommendations of the Financial
Action Task Force,
(b) apply anti-money laundering measures to all serious crimes; and
(c) implement any other measures contained in multilateral agreements and initiatives to which they subscribe for the prevention and control of the laundering of the proceeds of all serious crimes.

II - Members
1. Member countries are:
(a) those Commonwealth countries within the Eastern and Southern Africa Region (initial subscribers) which subscribe to this Memorandum either:
(i) by signing this Memorandum at the meeting held in Arusha, Tanzania on 27th August 1999: or
(ii) within six months thereafter
(b) any country within the region, other than an initial subscriber to this Memorandum of Understanding, whose application for membership of the group is approved.
2. Applications for membership by a country described in paragraph 11.1 (b) will be considered by the President in consultation with other member countries within 12 months of receipt. Countries will be admitted as Members upon approval of their application by two thirds of the Member countries and their subscription to this Memorandum.

Ill - Co-operating and Supporting Nations
1. Co-operating and Supporting Nations are countries which express their support for the objectives of the Eastern and Southern Africa anti Money Laundering Group.
2. Co-operating and Supporting Nations are committed to the mutual evaluation of their progress in implementing the 40 Recommendations of the FATF and will make such contributions to the work and/or resources of the ESAAMLG as are permitted by their respective national laws and policies.
3. Other countries that are not Members of the ESAAMLG may become Co-operating and Supporting Nations. All future Co-operating and Supporting Notions must express their commitment to the support of the ESAAMLG and have undergone a positive mutual evaluation by the FATF or an FATF-style regional body.
4. Countries may apply in writing to the President of the Ministerial Council to become Co-operating and Supporting Nations. Applications will be considered by the President in consultation with other Member countries within 12 months of receipt. A Country will be considered a Co-operating and Supporting Nation upon approval of their application by two thirds of the Member countries.

IV - Observers
Observers are:
1. (a) Organisations which actively support or otherwise are interested in the objectives of the ESAAMLG,
(b) Countries which are considering Membership or becoming Cooperating and Supporting Nations;
(c) Any other country or organisation, after appropriate consultation, invited by the President of the Council with members;
2. Initial observers to the ESAAMLG are the Commonwealth Secretariat, the UN Global Programme Against Money Laundering, the FATF Secretariat, the World Bank, the IMF, Interpol, the World Customs Organisation, the African Development Bank, the SADC Secretariat, the COMESA Secretariat and the EAC secretariat, East African Development Bank, and the Eastern and Southern Africa Development Bank;
3. An Organisation or country, may apply in writing to the President of the Council to become an Observer. Applications will be considered by the President in consultation with other Member countries within 12 months of receipt. Organisations or countries, will be admitted as Observers upon the approval of their applications by two thirds of the Member countries.

V - Funding
1. The activities of the ESAAMLG will be funded by annual contributions from Member countries as decided by the Ministerial Council and by contributions from Co-operating and Supporting Nations or any other source approved by the Ministerial Council.
2. Member countries will bear the cost of their participation in the activities of the ESAAMLG.

VI - Structure
The Eastern and Southern Africa Anti-Money Laundering Group comprises:
a) The Ministerial Council (the Council);
b) The Task Force of Senior Officials (the Task Force);
c) The Secretariat.

VII - The Council
1. Subject to Chapter Xl, the Ministerial Council will be the key Decision Body within the ESAAMLG and consist of at least one ministerial representative or duly authorised alternate from each Member country.
2. The Council will meet at least once a year.
3. The Council shall elect a President and a Vice-President from among its number provided always that:
(a) The President and the Vice-President may not represent the same Member country:
(b) The President and the Vice-President include among their number one Minister representing legal or law enforcement interests and one Minister representing financial interests.
4. The Council will:
(i) approve the Annual Report;
(ii) approve the Financial Reports for the previous financial year;
(iii) approve the Work Programme for the following year/s;
(iv) approve the budget for the following year;
(v) Establish a Secretariat and appoint the Executive Secretary and
where relevant, the Deputy Executive Secretary of the Secretariat;
(vi) appoint the Chairman and the Vice Chairman of the Task Force;
(vii) appoint an External Accountant and an Auditor;
(viii) adopt Evaluation Reports on Member countries;
(ix) decide on policy matters including the adoption of any international anti-money laundering standards;
(x) approve the admission of new Member countries, Co-operating and Supporting Notions, and Observers;
(xi) take appropriate action with respect to Member countries that do not
comply with this Memorandum
(xii) determine the location of the Secretariat;
(xiii) discuss any other business of which written notice has been given
to the Secretariat at least three months prior to the meeting of the
Council; and
(xiv) agree on the date and venue of the next meeting of the Council.

VIII - The President
1. The President will hold office for a term of one year and will chair meetings of the Council.
2. The President will represent the ESAAMLG at meetings of other intergovernmental groups dealing with anti-money laundering and other occasions determined by the Council.
3. In the event that the President is unable to perform any official function, the Vice President will assume the duties and powers of the President.

IX - The Vice-President
The Vice-President will undertake such functions as may be delegated by the President.

X - The Task Force
1. Each Member will be represented in the Task Force by such senior officials as may be appropriate provided that each member shall nominate one senior official as head of delegation.
2. The Task Force will meet at least twice annually.
3. The Task Force will be chaired by the Chairman in the event of his/her absence the Vice-Chairman will deputise.
4. For submission to the Council, the Task Force will:
(i) prepare the draft agenda;
(ii) consider the draft Annual Report;
(iii) consider the Financial Reports;
(iv) review progress in the implementation of the approved Work
Programme;
(v) consider the draft Work Programme for the following year;
(vi) consider a budget for the following year;
(vii) make recommendations for the appointment of the External
Accountant and an External Auditor;
(vii) develop, consider and recommend proposals for funding;
(ix) consider self and mutual Evaluation Reports on Member countries;
(x) make recommendations on policy matters, including the adoption of any revised Recommendations;
(xi) make recommendations on the admission of new Member countries, Co-operating and supporting Nations, and Observers; and
(xii) recommend candidates for the positions of Executive Secretary and
(Deputy Executive Secretary).
5. The Task Force may, with the consent of the President establish an Executive Bureau standing sub-groups to undertake specific tasks; and ad hoc groups, as appropriate, to deal with specific issues including day to day management of its work.

XI - Procedures at Meetings
1. A validly constituted quorum for a meeting of either the Council or the Task Force will exist when at least one half of the Member countries are present.
2. All Member countries participate in meetings. Co-operating and Supporting Nations and Observers may, subject to contrary resolution by Member countries, participate in meetings.
3. Only Member countries present have the right to vote and each Member country has one vote at a meeting of the Council.
4. Co-operating and Supporting Nations and Observers may participate in the discussion of evaluations unless the' evaluated Member country objects.
5. Resolutions of the Council will be adopted by two-thirds majority of the Member countries present.
6. Notwithstanding the provision of Article XI.5, all resolutions relating to financial issues will be determined by consensus.

XII - The Secretariat
1. The Secretariat will perform technical and administrative functions under the direction of the Executive Secretary.
2. The Secretariat, under supervision of the Chairman of the Task Force, will:
(i) implement the Work Programme approved by the Council; (ii) administer the approved budget;
(iii) co-ordinate and participate in mutual evaluations:
(iv) co-ordinate and make technical recommendations on the self-assessment of members, disseminate self-assessment questionnaires, and collate and analyse the responses thereto:
(v) identify training and technical assistance needs of Member countries and facilitate the provision thereof;
(vi) act as a liaison between the ESAAMLG and third countries and organisations involved in countering money laundering and related matters;
(vii) monitor anti-money laundering developments and on authorisation by the Chairman, participate in activities not included in the Work Programme;
(viii) receive applications on behalf of the Chair;
(ix) receive notices of intention to withdraw and notify Members accordingly; and
(x) discharge any other responsibility assigned by the Task Force or the Council.

3. The Secretariat will submit to the Task Force:
(i) the Annual Report;
(ii) the Financial Reports;
(iii) the Work Programme for the following year;
(iv) the budget for the following year.

XIII - National Committees
Member countries will, in accordance with applicable domestic law, establish Standing Anti-Money Laundering Committees or similar entities, comprising senior representatives of relevant disciplines: Legal and Judicial, Financial, and Law Enforcement.

XIV - Self Assessment
Members agree to participate in an ongoing Self Assessment Programme co-ordinated by the Secretariat.

XV - Mutual Evaluation
Members agree to participate in a programme of mutual evaluation conducted in accordance with Mutual Evaluation Procedures approved by the Council.

XVI - Languages and Authentic Text
The official language of the ESAAMLG will be English.

XVII - Accounting Period
The financial year will be from the first day of July to the 30th day of June.

XVIII - Financial Reports
1. The External Accountant will submit to the Task Force financial statements comprising a balance sheet, income and expenditure, cash flow and source and application of funds by 31 July each year.
2. The External Auditor will carry out an annual audit of the books and accounts of the ESAAMLG, and prepare and submit a report to the Council within 3 months of the end of the financial year.

XIX - Amendment of this Memorandum
This Memorandum may be amended by con'3ensus of the member countries.

XX - Entry into Effect
(i) This Memorandum will enter into force when seven Member countries have signed and advised the President that their constitutional requirements have been satisfied.
(ii) For any country which signs subsequently it will take effect on the date on which that country notifies the President that its constitutional requirements have been satisfied.

XXI - Withdrawal
A withdrawal by a Member or a Co-operating and supporting Nation or an observer will take effect three months after receipt by the secretariat of written notice of intention to withdraw.

DONE AT ARUSHA, TANZANIA on the 27th day of August 1999 in fourteen originals all in the English Language. Each State shall retain the one original.

IN THE FAITH WHERE OF the undersigned have placed their signatures at the end of this MOU.

FOR THE GOVERNMENT
OF THE REPUBLIC OF
BOTSWANA

FOR THE GOVERNMENT
OF THE REPUBLIC OF
KENYA

FOR THE GOVERNMENT
OF THE KINGDOM OF
LESOTHO

FOR THE GOVERNMENT
OF THE REPUBLIC OF
MALAWI

FOR THE GOVERNMENT
OF THE REPUBLIC OF
MAURITIUS

FOR THE GOVERNMENT
OF THE REPUBLIC OF
MOZAMBIQUE

FOR THE GOVERNMENT
OF THE REPUBLIC OF
NAMIBIA

FOR THE GOVERNMENT
OF THE REPUBLIC OF
SOUTH AFRICA

FOR THE GOVERNMENT
OF THE KINGDOM OF
SWAZILAND

FOR THE GOVERNMENT
OF THE REPUBLIC OF
SEYCHELLES

FOR THE GOVERNMENT
OF THE UNITED REPUBLIC OF
TANZANIA

FOR THE GOVERNMENT
OF THE REPUBLIC OF
UGANDA

FOR THE GOVERNMENT
OF THE REPUBLIC OF
ZAMBIA

FOR THE GOVERNMENT
OF THE REPUBLIC OF
ZIMBABWE

APPENDIX 2
EXPLANATORY MEMORANDUM TO THE MEMORANDUM OF UNDERSTANDING FOR THE EASTERN AND SOUTHERN AFRICAN ANTI-MONEY LAUNDERING GROUP (ESAAMLG)

1. The proposal to establish a regional anti-money laundering group in Africa was first recommended at a workshop held in South Africa in October 1995. The Eastern and Southern African Anti-Money Laundering Group (ESAAMLG) was launched at a meeting of Ministers in Tanzania in 1999. Nine countries from the Commonwealth were represented at the launch, including South Africa.

2. The launch meeting agreed on a Memorandum of Understanding to establish the Group as well as the objectives of the Group. It also agreed that once seven countries had signed the Memorandum, the Group would be formally established

3. Observers from the Financial Action Task Force (FATF), the Caribbean Financial Action Task Force (CFATF) and the Commonwealth Secretariat were also present.

4. The Republics of Kenya, Malawi, Mauritius, Mozambique, Namibia, Seychelles and Uganda, and the United Republic of Tanzania signed the Memorandum of Understanding. More recently Swaziland became a signatory.

5. The objectives of the ESAAMLG are to:
- Adopt and implement the 40 Recommendations of the FATF;
- Apply anti-money laundering measures to all serious crimes; and
- Implement any other measures contained in multi-lateral Agreements; and
- Initiatives to which they subscribe for the prevention and control of the laundering of proceeds of all serious crimes.

6. The Memorandum established the structure of the ESAAMLG, which is comprised of:
- Ministerial Council,
- Task Force of Senior Officials and
- Secretariat, although, pending the establishment of a permanent secretariat, a technical advisor has been funded by the Commonwealth Secretariat to advance the work of the Group.

7. The Memorandum provides for co-operating and supporting nations who are not members of the Group, but express their support for the objectives of the Group.

8. The Memorandum also provides for observer countries or organisations.
The initial observers to the Group are the Commonwealth Secretariat, the UN Global Programme Against Money Laundering, the Financial Action Task Force Secretariat, the World Bank, the International Monetary Fund, Interpol, the World Customs Organisation, the African Development Bank, the Southern African Development Community Secretariat, the Common Market for East and Southern Africa Secretariat and the East African Community Secretariat, and the East African Development Bank.

9. Any country which signs the Memorandum subsequent to the founding meeting will have its membership take effect on the date on which that country notifies the President of the ESAAMLG that its constitutional requirements have been satisfied.

10. A withdrawal by a country or observer will take effect three months after receipt by the Secretariat of written notice.

11. South Africa complies with all provisions required to become an active member of the Group.

12.The financial implications for Government are that a small annual membership fee of US$ 20,000.00 would be paid to support the administrative costs of the ESAAMLG.

ends
18 June 2002
Compiled by:
M. Michel
Special Advisor to the Financial Intelligence Centre
National Treasury

COUNTRIES WHICH HAVE SIGNED THE ESAAMLG MEMORANDUM OF UNDERSTANDING
Kenya
Malawi
Mauritius
Mozambique
Namibia
Swaziland
Seychelles
Tanzania
Uganda

COUNTRIES WHICH HAVE NOT SIGNED THE ESAAMLG MEMORANDUM OF UNDERSTANDING
Botswana
Lesotho
South Africa
Zambia
Zimbabwe

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