General Laws (Anti-Money Laundering and Combatting Terrorism Financing) Amendment Bill: public hearings

Meeting report

Opening Remarks

The Chairperson greeted and welcomed the Committee and all stakeholders. He noted the apology from Dr D George (DA) and recalled that Dr George had previously raised the issue of holding in-person Committee meetings in Cape Town. He said that, in the interest of accessibility to all stakeholders, online meetings are the better option as there have been complaints that the public hearings are elitist as not all who wish to give inputs have the financial means to attend the meeting in-person. This issue has been raised in the National Assembly and will be addressed.

He said that the Committee had invited stakeholders to make submissions regarding the General Laws Amendment Bill. Public participation is the cornerstone of a participatory democracy as those affected by decisions have the right to be involved in the process. The matters under discussion in this meeting will have a serious impact on business and other areas therefore stakeholder inputs are vital. As much as South Africa has an international obligation to comply with the Financial Action Task Force (FATF), there is a lot at stake for the South African public and stakeholders and their inputs will be taken into account.

The Chairperson said that the allocated timeframe for the public participation was shorter than it was supposed to be and noted that he received an email from Mr De Villiers that outlined complaints from his constituency regarding the time limitations. The process must not be rushed; the Committee would have to discuss a way forward. He then welcomed the stakeholder presentations.

Congress of South African Trade Unions (COSATU) and Southern African Clothing and Textile Workers’ Union (SACTWU) Presentation

Mr Etienne Vlok, National Industrial Policy Officer, SACTWU, presented on behalf of SACTWU and COSATU.

COSATU and SACTWU welcomed the Bill as a positive step forward by the government to address gaps and weaknesses in our existing legislation which hamper the nation’s ability to deal with money laundering and terrorism financing and to ensure that South Africa is able to avoid a consequential greylisting if we fail to do so.

Whilst COSATU and SACTWU supported the objectives and the necessary interventions provided for in the Bill, it was concerned that the Bill, in some instances, is not sufficiently clear enough with regards to the definition and issues of beneficial ownership and the modalities for disclosing it and to whom. It was equally concerned with regard to government’s ability and readiness to implement the various provisions provided for in the Bill once it comes into effect. Its proposals to amend the Bill dealt largely with the definition of beneficial ownership and sections in the Companies Act.

Mr Vlok noted that a beneficial owner should always be a natural person. Without a reference to a natural person, only the first layer of ownership may be pierced, and the actual owner may never be revealed. The Bill needs to ensure all layers are pierced to find the actual natural person who benefits from the shares. He said that this needs to be addressed in Section 52 and further explained that beneficial ownership data should be made publicly available for unions, shop stewards, workers, civil society, and journalists to continue to assist in the fight against tax evasion and corruption. He proposed amendments to the GLAB to ensure public access to beneficial ownership registers: clause 53 (a) and (b) of the Bill which proposes amendments to section 33 of the Companies Act, to require proactive disclosure regarding annual returns. He preemptively explained that privacy and data protection concerns are given legal effect through the Protection of Personal Information Act (POPIA) but that Section 37 and 38 of the POPIA Act lists a number of grounds on which the processing of personal information is not a breach of the act. He said these grounds could be used to substantiate the publishing of beneficial ownership data.

(See submission)

AmaBhungane and Corruption Watch Presentation

Mr Sanan Mirzoyev, Advocate and Research Associate at Freedom Under Law, and Ms Caroline James, Independent Consultant, and Researcher, Corruption Watch, jointly made the presentation.

The presentation highlighted that despite the genuine and valid reasons for the urgency with which this Bill was prepared, concern was expressed about the impact this haste has had on the content of the Bill and on the short time frame for public participation. This Bill did not merely address the FATF concerns as it significantly impacted the entities governed and regulated by the component pieces of legislation.

Despite welcoming the focus on beneficial ownership in the Bill, the submission identified several concerns, particularly concerning definitions. It requested Parliament to consider following a consolidated and simplified approach to defining beneficial ownership. This will ensure legal certainty and prevent the ongoing abuse of the system by those who have exploited complex structuring and arrangements in the past.

The submission stated that the Bill should only introduce a single definition of “beneficial owner” within the Financial Intelligence Centre Act. This definition should be sufficiently broad to cater for the various scenarios within which it will be applied. Secondary legislation (such as the Companies Act, Trust Property Control Act, etc.) should not seek to alter or expand the definition as that would introduce regulatory uncertainty and create loopholes that can be exploited.

The Bill’s approach to nominee arrangements should be seriously reconsidered. In some instances, State Capture was enabled through nominee arrangements. With the country still reeling in the aftermath of State Capture, it is unclear what the intention of preserving these arrangements is. Further, the organisations foresee significant implementation challenges for South Africa should they follow this course. For one, compliance will be incredibly difficult to enforce and non-compliance will be even harder to detect. Their view is that this will hinder the country’s performance in FATF Mutual Evaluations, rather than improve them - especially since South Africa’s greatest weakness was found to be the effectiveness of its implementation.

The submission noted with extreme disappointment that the Bill does not seek to make beneficial ownership registers publicly available. Currently, there are only two mentions of public registers in the Bill. Civil society, academia, and the wider public would also benefit tremendously from being able to access beneficial ownership information, as they could assist in identifying corruption and tax evasion or expose conflicts of interest.

The purpose of compulsory registration of NPOs in this Bill appears to be to enable monitoring of NPOs as stipulated by FATF in its report. However, this is an overly-broad response and the measures implemented in the Bill will not achieve the standards established by FATF.

They recommended that the Task Team develop a list of characteristics and activities that will assist in identifying NPOs that are at risk of terrorism financing. These should be included or outlined in a report by the Task Team, which should be made publicly accessible.

(See submission)

NPO Working Group presentation

Ms Nicole Copley, Specialist Consultant, NGO Law, presented on behalf of the Working Group.

The Working Group stated that the non-profit sector has not been included during the consultation process for drafting this Bill. Many misunderstandings, misalignments and negative reactions could have been avoided if they had been consulted earlier. The Bill contains many provisions indicating a lack of understanding of the legal framework for non-profits and the practical administrative and compliance environment in which non-profits operate.

The presentation acknowledged the urgency of the matter and the risks associated with the threat of greylisting. It noted that around R17 billion of international donor funding would be paused or diverted if South Africa were to be greylisted. The NPO Working Group suggested that only the required parts of the Bill should be amended to avoid greylisting and ensure that foreign donor funding is not cut off from the non-profit sector.

The presentation further suggested a more targeted approach to regulation and oversight in line with the FATF functional definition of a non-profit. Should the bill be passed, all NPOs will be required to register.

If NPO registration is made compulsory:

Irrelevant excess data will hide the information being sought, slow the system even further, with negative impact on even non-profits which are already NPO registered and compliant

The NPO directorate systems will not be able to keep track of every organisation

It will not be possible for NPO directorate to identify and report criminal activities

If universal mandatory NPO registration is required, the non-profit sector will reject it, AND SA will fail the effectiveness test. 

The Bill, using the broad definition, will thus disrupt all organisations in the NPO sector regardless if they are registered and will cripple a sector that is largely unequipped to deal with the administrative burden that the Bill will impose.

Specific recommendations made by the Working Group:

Remove:

Compulsory registration with the NPO directorate for all non-profits

Compulsory registration of all foreign organisations who ‘operate’ in South Africa with the NPO directorate

Requirement of voluntary association “executives” to report (replace with committee or governing body)

Founders reporting for charitable trusts where the initial donor is deceased or no identifiable individuals

Include:

Require registration of conduit (on-donating) voluntary associations as Non-Profit Companies

Make foreign voluntary associations register with CIPC as NPCs

Member detail disclosure only where there is financial benefit to members

Change the definition of ‘constitution’ to founding document in NPO Act

(See submission)

Freedom of Religion SA (FOR SA) Presentation

Ms Daniela Ellerbeck, Legal Advisor, FOR SA, noted that religious organisations fall within the definition of NPOs for the purposes of the NPO Act.

Mandatory registration as NPO gives broad and intrusive powers to the State to prescribe changes to a religious organisation’s founding documents. It will affect the organisation’s autonomy and meddle in its doctrine. This breaches the doctrine of entanglement and limits section 15, 18, and 31 rights without the state offering section 36 justification analysis.

The duplication of process will impose administrative and financial burdens on religious organisations in addition to meeting compliance requirements set out by SARS / CIPC / Master’s Office.

The threat of imprisonment and/or a limitless fine is a concern.

FOR SA pointed out that DSD lacked the manpower to help religious organisations who want to comply.

The presentation recommended keeping NPO registration with the DSD voluntary, especially given the duplication of registration/reporting/compliance duties with other state institutions and already having to comply with various tax reporting requirements imposed by SARS.

(See submission)

Cause for Justice Presentation

Ms Liesl Pretorius, Legal Advisor, Cause for Justice (CFJ), said it is crucially important that all South Africans be given an adequate opportunity to comment on the Bill. By allowing an inordinately short period for public comments, the Committee is falling foul of its constitutional obligation to facilitate effective public participation in the law-making process. This would make the Bill unconstitutional on procedural constitutional grounds as the public has not been afforded sufficient time to critically consider the merits of specific clauses in any detail. The presenter requested an extension of the call for comments for at least a further 30 days or, alternatively, remove parts of the Bill dealing with the NPO Act.

The presentation noted that the Bill seeks to amend certain sections of the NPO Act, including making registration mandatory and requiring all NPOs to comply with existing provisions of the Act and proposed new provisions in the Bill (or face criminal sanctions). This is a drastic change from the current status quo: from encouraging voluntary registration and compliance to the threat of imprisonment and fines. The proposed amendments will impose legal obligations and limit the constitutional rights of NPOs, their governors and office-bearers, the majority of whom are unlikely to ever be involved in money-laundering financing terrorism.

Ms Pretorius asked three questions regarding the Bill; first, are the measures in the NPO Act the least restrictive means to achieve the purpose of preventing money laundering and combatting terrorism financing in the NPO sector? Secondly, is the burden of placing additional compliance obligations on law-abiding citizens and non-profit entities a constitutionally justifiable cost of reducing money laundering among those who conduct criminal enterprises by way of non-profit entities outside the scope of the NPO Act? Lastly, what is the level of assurance that making the NPO Act compulsory will translate to the prevention of money laundering enterprises in the NPO sector?

(See submission)

Media Monitoring Africa (MMA) Presentation

Mr William Bird, Director, MMA, said that MMA fully endorsed the previous submissions and indicated that the Bill is fatally flawed in its current form.

Ms Tina Power, Senior Associate, Power Singh Inc, said that the MMA's concerns are both procedural and substantive and align with many of the views presented by the NPO sector in this meeting. She welcomed the Chairperson’s comments on the importance of public participation but said that this process had fallen far short of the Constitutional standard required for meaningful and effective public participation. The public is entitled to be consulted and to have their voices heard. Section 59 of the Constitution places the duty on the National Assembly to facilitate public involvement in legislative processes of the Assembly. Due to tight and unreasonable timelines, participation in this process has been neither meaningful nor effective. The timeline of events was outlined and highlighted that there were less than ten days for public comment and less than10 minutes in this meeting for oral submissions.

She noted substantive concerns relating to the proposed changes in the NPO Act, such as mandatory registration.

MMA submitted that the rushed nature of this law reform process and the proposed blanket registration requirement shows little regard for the important role of NPOs in South Africa. This does not align with constitutional imperatives. In their view, compulsory registration for NPOs has the potential to violate the right to freedom of association. At this stage, such limitation appears to fall short of a necessary, proportionate, reasonable, and justifiable limitation.

Mr Bird added that civil society was not consulted in developing this Bill and suggested that the Bill, or sections relating to the NPO Act, need to be withdrawn.

(See submission)

Open Ownership Presentation

Ms Karabo Rajuili, Director: Country Programmes, Open Ownership and her colleague, Mr Tymon Kiepe, Head of Policy and Research, presented.

Ms Rajuili agreed with the necessity of the Bill and explained that the submission would centre around the proposed amendments to the following legislation through the General Laws Amendment Bill (GLAB):

• Trust Property Control Act of 1988
• Financial Intelligence Centre Act of 2001
• Companies Amendment Act of 2008
• Financial Sector Regulation Act of 2017

Mr Kiepe acknowledged the challenge of creating a robust definition of beneficial ownership but said that it is necessary and that the current definition in the Bill would need to be amended. The definition does not sufficiently cover all relevant forms of ownership and control and does not specify that ownership and control can be held both directly and indirectly. The definition should comprise a broad catch-all definition of what constitutes beneficial ownership, including a non-exhaustive list of example ways in which beneficial ownership can be held. The definition should specify a threshold and include a clear prohibition of agents, custodians, employees, intermediaries, or nominees acting on behalf of another person qualifying as a beneficial owner. Clearer consideration for the treatment of nominee ownership arrangements would be beneficial, particularly in the amendments to the Companies Act.

Ms Rajuili said that a key recommendation is for competent authorities to have timely and direct access to information held in the beneficial ownership register by a public authority. She noted that it would be prudent for the legislation to consider the already revised recommendations from the FATF Mutual Evaluation Report to avoid the process needing to be repeated in a few years.

On the public availability of the register, she said that a global best practice is emerging of data being accessible to the public without barriers. She elaborated on the mitigation of the potential negative effects of the publication of the data.

They noted that while the sections concerning trusts in the Trust Property Control section of the Bill have robust provisions, this is not carried through to other sections, particularly the proposed amendments to the Companies Act. Open Ownership, noting that each jurisdiction must effect sanctions that are in line with domestic legal frameworks, provides guidance for effective, proportionate, dissuasive, and enforceable sanctions which include considerations for sanctions for noncompliance with disclosure requirements, including for non-submission, late submission, incomplete submission, or false submission. Based on experience with emerging best practice, the organisation advises advise that:  Sanctions that cover the person making the declaration, the beneficial owner, registered office bearers of the company, and the declaring company should be considered. Sanctions should include both monetary and non-monetary penalties. Relevant agencies should be empowered and resourced to enforce the sanctions that exist for noncompliance. Data on noncompliance should be made available.

(See submission)

Johannesburg Stock Exchange (JSE) Presentation

Dr Leila Fourie, Group CEO, Mr Andre Visser, Director Issuer Regulation JSE, Mr Louis Cockran, Legal Counsel, and Ms Anne Clayton, Head: Public Policy and Regulatory Affairs, presented on behalf of the JSE.

Ms Fourie said that the JSE is very supportive of South Africa’s role in the global effort to address money laundering and the financing of terrorism and she recognized the urgency to implement the measures to demonstrate progress toward increasing the effectiveness ratings of the immediate outcomes and to improve the technical compliance within the FATF recommendations.

Ms Clayton said that the Bill had not been subjected to a public consultation period before the call for public comments by the Committee. She explained that the JSE supports the introduction of a central beneficial owner register but that the proposed amendments to the Companies Act are unworkable for publicly listed companies. The increasing regulatory burdens on publicly listed companies have contributed to a number of delistings on the JSE. She said that many other countries have implemented a beneficial owner registry but that they provide exemptions from reporting to the beneficial owner registry for publicly listed companies, where other mechanisms provide adequate transparency of ownership information. Implementing the proposed amendments could lead to the listed companies moving their primary listings from South Africa to a jurisdiction with sensible, practical, and effective disclosure agreements, which will have negative outcomes for the growth, vibrancy, transparency and global attractiveness of the South African markets.

She said that the majority of the registered holders in South Africa are nominees who act as the registered holder of the securities on behalf of the underlying beneficial interest holders. This is different from beneficial ownership in the context of the FATF recommendations which refer specifically to the natural persons who own or exercise ultimate effective control over a juristic person. This difference poses a challenge.

Ms Clayton recommended refining the definition of a beneficial owner and providing a correct and appropriate distinction between the concepts of legal ownership and beneficial ownership of a company. The presentation further recommended, among others, that the Minister be given the power to exempt certain companies from the requirement to file a record of the natural persons who ultimately own or control the company.

(See submission)

Discussion

The Chairperson noted the concerns that the presenters made regarding the lack of time for stakeholders to make qualitative submissions. He asked the Parliamentary Legal Advisor to give input on how these concerns could be accommodated.

Adv Frank Jenkins, Senior Parliamentary Legal Advisor, Constitutional and Legal Services Office, said that the public participation process could be a make-or-break issue for a Bill. It is within the rights of the Committee to allow for the stakeholders to submit further written submissions and the Committee may then choose to have another meeting for oral submissions to take place. This process can continue until the Bill is passed and the Committee does the clause-by-clause consideration.

Mr J De Villiers (DA) said that it is clear that most stakeholders felt that the public participation process was unreasonable. He suggested that the process be extended by 20 days. It is in the interest of South Africa and avoiding greylisting that the Bill is not rushed as there are clearly aspects that need to be refined and further investigated.

Ms P Abraham (ANC) agreed with Mr De Villiers. She asked National Treasury what processes have been followed up until this point. What is at stake if the timeline is shifted?

Mr G Skosana (ANC) noted that the overwhelming majority of presenters complained about the timeline and said that it would be seriously unfair not to give an extension. He said that it is clear that there are reservations about the Bill, especially relating to NPOs, and it would be prudent for presenters to have more time to present detailed legal arguments on these matters. He echoed Ms Abraham’s question about the consequences of shifting the timeline.

Adv S Swart (ACDP) supported the views of the Committee members on the lack of time for public participation, especially since the Bill will have far-reaching, unintended effects on the NPO sector. He said that the Committee cannot proceed with dealing with the Bill until submissions are received. The Committee has an obligation to allow for proper public hearings regardless of what National Treasury says about the timeline.

Mr W Wessels (FF+) agreed with the sentiments on extending the time for public participation and said that it would be in the best interest of the constitutionality of the Bill for the extension to be granted as the Bill may be challenged at a later staged due to a lack of public participation.

The Chairperson said that a balance would need to be struck between international obligations, the pressure to comply with FATF regulations, and the consequences of passing the Bill in its current form, where it greatly affects the NPO sector.

Mr Vukile Davidson, Chief Director: Financial Sector Policy, National Treasury, said that the technical compliance aspects contained in this Bill are necessary to avoid the greylisting.

Mr Pieter Smit, Executive Manager: Legal and Policy, Financial Intelligence Unit (FIC), said that his explanation would not place any undue pressure to circumvent or shortcut any processes required for the Committee to deliver on its own mandate and responsibilities. The FATF expects South Africa to present a first report on the steps taken to address the findings of the Mutual Evaluation by November 2022. This report will be referred to a panel of reviewers who will analyse the report and form a view on whether South Africa has taken sufficient steps to address the findings. A meeting will be held with the reviewers in January 2023 to address any questions or points of clarification. The report will then serve at the FATF meeting in February 2023; based on the outcomes of the review of the report, the FATF membership will decide whether South Africa has done enough to address the findings, in which case a greylisting would not be justified, they will then continue to monitor South Africa. If it is found that South Africa has not done enough to address the findings, South Africa will be greylisted and the FATF will formally set a task for South Africa to address the specific findings. South Africa will remain greylisted until it can convince the FATF that it has addressed those specific action items. This may take between two and three years. FATF does not consider work that is in progress as having achieved an outcome yet, in the case of legislation, it will only be considered to have achieved an outcome if it is enforced and applied in practice.

He said that the FATF treats all countries being monitored equally and consistently so they do not consider requests for extensions or additional time so there is no scope for asking for additional time from the FATF. He added that the Bill is not the only step that South Africa has to take in addressing the findings that require legislative amendments but without addressing the necessary legal amendments, it will be impossible for South Africa to argue that enough has been done to justify not being greylisted despite anything else that might have been achieved by then.

Mr Davidson said that a greylisting would have a massive and disproportional effect on the most vulnerable who rely on financial services. He noted the useful and constructive comments that presenters made in the meeting and said that there may be a way to reconcile some of the issues raised in a way that does not imply massive delays. A way forward needs to be found that addresses the concerns raised by the public while achieving what is in the common interest of South Africans.

The Chairperson said that this Bill was tabled in Parliament recently and that Parliament is not to blame for delaying the process. The Executive should take responsibility for tabling the Bill very late despite needing to report back to FATF. Parliament received the Bill late and is working to comply. Parliament derives its mandate from the people and it would be a mockery of democracy if the public is not given the due time to present their views.

Adv Swart agreed with the Chairperson and said that National Treasury needs to provide an explanation why it had taken so long. He asked how this Bill could be finalised by November given the massive impact it will have, especially on the NPO sector. The Bill then needs to still go to the National Council of Provinces, the President still needs to consider it, and in its current form, there will likely be petitions to the President. Given this, it is highly unlikely that the Bill will be finalised by November. If the issues regarding the NPO sector are addressed, many of the challenges of the Bill will be removed, if not, it will be an extended process. He urged National Treasury to address these issues quickly to ensure that the Bill could be processed in time.

The Chairperson asked Adv Jenkins if the time for public participation is extended, what impact would it have on processing the Bill in terms of time frames?

The Committee Secretary said it is up to the Committee to decide on an extension and the length of an extension. He highlighted that the Medium-Term Budget Policy Statement (MTBPS) process is coming up but that does not stop the Committee from using other days to hold sittings or to have meetings in the afternoon after already scheduled meetings. Any meeting over and above what has already been approved needs to be submitted to the House but that is not an issue.

Adv Jenkins suggested that stakeholders be given an extension for submissions while continuing with the Bill. The Committee can choose to engage with the public on certain matters, such as the NPO issue. The Committee can look at the problem, what burden it will put on non-profits etc.

The Chairperson said that if that is the case, the Committee will have to amend the programme for the fourth quarter to accommodate the pressure from the public. He said that the programme would be amended to allocate time for dealing with this Bill after National Assembly sittings and on Thursdays and Fridays while providing enough time for stakeholders to make another round of submissions.

The Committee agreed with this way forward.

Mr Davidson thanked the Committee for the compromise and said that National Treasury would urgently engage with the NPO sector to devise a solution.

The Chairperson asked that National Treasury not bring Bills to Parliament that they want to be processed in one month; it is not proper and in the spirit of participatory democracy. He reiterated that the executive must take responsibility for tabling the Bill late.

The Chairperson thanked all the stakeholders and members present.

The meeting was adjourned.