General Laws (Anti-Money Laundering and Combatting Terrorism Financing) Amendment Bill: National Treasury response to public submissions

Meeting report

The Chairperson welcomed everyone to the meeting. He said that the time for submissions made to the Committee on the General Laws (Anti-Money Laundering and Combatting Terrorism Financing Amendment Bill [B 18-2022]) had been extended as stakeholders indicated the timeframe was too short to prepare. He said a report published recently showed an 85% probability that South Africa will be greylisted. It is a negative report. Which methodology did this business use to arrive at such a percentage and why? This is a matter of national interest. The country has to avoid greylisting because it will have dire consequences for the economy of South Africa. It will have an impact on the image of South Africa internationally. He said it was disappointing to see that people would publish this but not come to Parliament and indicate what should be done to avoid greylisting. South Africans must work together to avoid greylisting, despite the challenges.

Dr D George (DA) said he did not agree with the Chairperson’s assessment of the report. The report did not encourage greylisting at all. In fact, it was setting out the consequences of greylisting. The report was not advocating for greylisting and he welcomed the report. The report alerted the public to the possible consequences of greylisting which is indeed a possibility for South Africa. South Africans should work together to avoid greylisting. He suggested that the authors of the report present their findings to the Committee on the possibility of greylisting.

Presentation by NT
Mr Vukile Davidson, Chief Director: Financial Sector Policy, National Treasury (NT), introduced the initial/preliminary response by NT to submissions received on the Bill. He said that there were 43 commentors in total and that 30 of those commentators were from the non-governmental organisation (NGO) sector. The general thread throughout the comments was the short period within which to comment on the Bill. The majority of the commentators supported the Bill in general in its objective to address the technical compliance deficiencies identified in the Financial Action Task Force (FATF) Mutual Evaluation Report and as one of the initiatives in government’s action plan to prevent the country from being greylisted. The comments received were constructive. They had assisted in enhancing some of the draft proposals to amend the respective Acts which would be put to the Committee for consideration during its deliberations on the Bill.

Ms Jeannine Bednar-Giyose, Director: Fiscal and Intergovernmental Legislation, NT, took the Committee through its response to each of the comments received.

(Please see the presentation attached for the detailed comments and NT’s responses)

In light of the comments regarding the proposed mandatory registration of all non-profit organisations (NPOs) under the NPO Act, this matter is undergoing careful consideration to develop drafting refinements to present to the Committee. However, not all NPOs will be required to register. Two types of NPOs will have to register: those that make donations to individuals or organisations domiciled in a foreign country, including when such individuals are physically in South Africa, and any NPO that provides humanitarian, charitable, religious, educational, or cultural services outside of South Africa’s borders. NT mentioned that wording would be included to explicitly make it clear that the directorate does not have the discretion to refuse registration if the requirements of the Act are complied with. This will be done to ensure that the power of registration would not be able to be exercised in a manner that would potentially infringe on the rights to freedom of association and freedom of religion.

Similarly, wording potentially will be proposed to ensure that the grounds on which a NPO could be deregistered could not be exercised only in respect of non-compliance with requirements in the Act. If an NPO makes donations or provides services outside of South Africa (the activities for which registration is required) without being duly registered, it would be subject to a penalty. If the scope of NPOs who must register are narrowed, some of the other concerns and comments may potentially fall away.

The helpful proposals from commentators relating to the definition of “beneficial owner” in the Trust Property Control Act, the Companies Act, and the Financial Sector Regulation Act, were certainly appreciated. The refinements to the definitions contained in the tabled Bill are being developed and will be presented to the Committee. The suggestion to remove cross-referencing in the definitions of other legislation to the definition in the Financial Intelligence Centre Act will be implemented. Other refinements to the definitions to ensure that the definitions capture the appropriate scope of natural persons relevant to the particular legislation will be proposed.

Mr Christopher Malan, Executive Manager: Compliance and Prevention, Financial Intelligence Centre (FIC), said that interdepartmental cooperation on beneficial ownership transparency is developing a national integrated, inter-operable and harmonised Beneficial Ownership Registry framework. This will enable the beneficial ownership registries to provide access to law enforcement and other competent authorities via an integrated and harmonised two-tiered National Beneficial Ownership Framework comprising core beneficial ownership registries and key government beneficial ownership information users and replicators. The first tier comprises mainly a corporate and legal persons beneficial ownership register. This would be held by the Companies and Intellectual Property Commission (CIPC) and supported by a beneficial ownership Trust Register under the various Masters of the High Court offices. The second tier consists of several government data and asset repositories that will be prime users of the tier one beneficial ownership information. They will then replicate that information in their own registries. This will enable a link of assets to beneficial ownership natural person data.

Ms Gednar-Giyose said that the comments about the practical implications for publicly listed companies to comply with reporting on beneficial ownership as proposed are certainly noted, and appropriate refinements are being developed. These proposals will seek to provide some flexibility concerning the particular reporting requirements, and the manner of reporting, that may be applicable to different categories of companies, so requirements relating to listed companies could be appropriately formulated.

(See presentation attached for the details)

Congress of South African Trade Unions (COSATU)
Mr Matthew Parks, Parliamentary Coordinator, said that COSATU noted the responses and the commitment provided from NT to revise the wording. COSATU, as organised labour, supports the Bill. It is sensitive to tight time frames and all want to show compliance without undermining the progressive objectives. COSATU still has some concerns about significant tightening of beneficial ownership and some other concerns. COSATU agreed that some things need to be regulated. It is critical to avoid unnecessary litigation. Some people might be opposed to the progressive transparency requirements of the Bill. Everything needs to be covered in the Bill to avoid trouble down the line. COSATU welcomed the issue of sharing information between government organs instead of a single online portal for the government. There have been difficulties where government does not consider the issue of resources for facilitation and then it collapses. The registry is barely functioning because of issues like this. He said natural persons details had to be disclosed to know who the actual real owners of a company are; it is important to know who the warm bodies are that are associated with all the companies and entities. This will allow no one to hide behind issues. There should be a list of these warm bodies. He said having a registry or a single online portal is fundamental. The Bill needs to be significantly tightened to require access being made available to the public without qualification. It is critical that this is being provided so that the media, civil society, or whoever wants it can access information 24/7 without having to go through all sorts of red tape. There seems to be a bit of backtracking by the government side about including this. It is quite alarming, because the Bill will not be sufficient. It needs to be better itself instead of the FATF saying it is up to countries to decide if they are focused on money laundering and terrorism financing. In the context of South Africa, billions of state funds revenue have been lost due to corruption, to state capture, to tax evasion, and to fraud. It is the cost of quality public services to an economy that is already on its knees. There must be guaranteed access by the public to the information on an easy-to-use platform. Businesses are quick to demand that government be transparent, but when it comes to businesses likewise, they simply run away and create all sorts of non-sensical bureaucratic excuses to transparency. It goes both ways and government must involve the private sector. He said that private sector companies are funded by workers’ pension funds, by the workers’ monies. There is an issue with the listed companies’ exemption provisions. It is a very dangerous precedent and might collapse the progressive aims and objectives of the Bill. The Bill might create giant gaps. He suggested that there be no exemptions for any companies, that all natural persons must include the real owners, the warm bodies, and the registration information must be available to the public at all times.

AmaBhungane and Corruption Watch
Ms Caroline James, Independent Consultant and Researcher, Corruption Watch, said it echoed the same sentiments of COSATU. They were pleased to see some of the comments and submissions considered. However, it was disappointed in the sort of continued reliance on nearly unfettered minimum requirements. It is very important that the requirements of the FATF are recognised. The laws that are passed in Parliament must still be applicable in the South African context. There cannot be mechanical adherence to simply the minimum standards from the FATF. There must be recognition of South Africa’s constitutional obligations to transparency, openness, and accountability, but also to ensure that the legislation responds to the reality of state capture and incredible financial crimes, as well as the inability to monitor and ensure accountability. AmaBhungane and Corruption Watch were disappointed that there was not a greater recognition of the need for public access to the information. There needs to be a focus on transparency and accountability. Simply saying that the FATF does not require minimum mandatory public access is insufficient in the South African context with those constitutional imperatives and history. It is also disappointing that the Bill removes an existing right to access share registers without ensuring continued protection of that right. Without explicit protection of the right of public access to this information in the Bill, it is likely that these pieces of legislation will be litigated, which may just continually draw out the inability of government to respond to effective considerations. Nominee arrangements are particularly relevant to South Africa, the history of corruption, and the structures of corruption within the country. Parliament and NT should really engage with the best way in which South Africa can respond to the nominees and implement a regulating framework that is far stronger and will remove that loophole for corruption in the country.

NPO Working Group
Ms Nicole Copley, Specialist Consultant, NGO Law, said that the Working Group were relieved and delighted with the switch to a focused risk-based approach using the functional definition of an NPO instead of mandatory sweeping registration for all. A multipronged approach with data being held by relevant institutions is supported. The submission regarding the CIPC registration was suggested as an alternative to compulsory NPO registration for risk non-profits. At this time, this option is still preferred. She suggested that this option still be tweaked, considering the systems and capacities of the CIPC. Further submission on this will be made. Other ideas include a parallel process to conduct a full scan and assess the risk. It supported the NPO registry moving out of the Department of Social Development (DSD) into an independent, public, properly funded, credible and operational structure or that the sector builds a new independent and credible institution. The NPO Working Group is more than willing to make their submissions to ensure an enforceable effective Bill that can avert great things in the short term.

Freedom of Religion (For SA)
Ms Daniela Ellerbeck, Legal Advisor, For SA, thanked the Committee for the opportunity to comment on NT’s input. While For SA welcomes some of the proposals tabled by NT (such as the change to the NPO Act to prevent DSD from getting involved in religious organisations founding documents) there is a concern about the DSD registration being the correct entity. For example, South African Revenue Service (SARS) is better equipped and skilled to catch money laundering and terrorism naturally. Is DSD the correct entity because it would affect section 36 of the Constitution, a general limitation clause test for the right affected religion and freedom of association and section 30’s right to religious communities to establish religious associations? There is a concern with the duplication of duties of NPO such as reporting to SARS and the Masters office while also now having to comply with DSD. Many religious organisations support other religious organisations or missionaries in other countries, so for example, with COVID that just ended earlier this year, many churches set up COVID relief funds for humanitarian work in other countries such as Malawi. Even with the NT proposal, many religious organisations will still have to mandatory register with DSD or risk not complying with the law. The Committee needs to think about whether government wants to make the DSD the responsible entity for catching terrorism funding. What will the test for at-risk organisations be? It cannot just be that money is sent overseas. Is it a certain amount of money? Is it money into certain countries or entities?

Cause for Justice (CFJ)
Ms Liesl Pretorius, Legal Advisor, CFJ, said that the CFJ supported the Bill and the concerns around greylisting and its detrimental consequences. CFJ also supported the more risk-based approach and that a greater number of NPO registrations will be voluntary. Amending the definitions of office bearer and reassessment of appropriate penalties was supported. From a religious freedom perspective, many churches are rendering services overseas or sending missionary teams and they will still be captured by this Act. There will be mandatory registration, so the mere fact that church organisations make a donation or renders services overseas cannot bring that NPO into the ambit of this Bill. This needs to be re-assessed. The CFJ also echoed the sentiments on whether the DSD is the correct department to assess whether money laundering is taking place. It would be better suited to a more finance-orientated institution such as SARS.

Open Ownership
Ms Karabo Rajuili, Director: Country Programmes, Open Ownership, thanked the NT and the Financial Intelligence Centre (FIC) for their very thoughtful and considerate response to the comments on the legislation. Open ownership supported the decision to review the definition of beneficial ownership in the Bill. Definitions are probably one of the hardest aspects of implementing beneficial ownership reforms. Having a harmonised approach was the correct one. It is important for discrepancy reports where different disclosure regimes are multiplied. Open ownership welcomes the move to correct or strengthen the definition, and some kind of harmonisation will be important. It welcomed the continued commitment from the Interdepartmental Committee (IDC), FIC and other entities to have a common reporting standard. This will put South Africa in a position to be one of the leading jurisdictions if implemented. The United Kingdom, Slovakia, and Nigeria, all have a common reporting standard that assists with the usability of data beyond the registries being connected. She said that the use of bio data is important for other purposes such as in public procurement, asset recovery, and everyday matters. In its initial submission, she mentioned that Open ownership, said that there were mechanisms to ensure that the administrative burden is not placed on listed companies but that it does not create an undue loophole. It is a complex area for implementation. The wording “exemption” does not quite capture what is trying to be conveyed. However, if there is an adequate alternative mechanism for a list of companies to disclose in a way that does not make them unduly restricted, it could be seen as a choice. It should be a policy option that is well considered. It would not be adequate for this information to be held only by listed companies themselves because that would mean, in the case of investigation or other accessibility uses, going from company to company to collect this information. In South Africa, there is more than one [stock] exchange. Therefore, Open ownership looked at both globally and domestically to say that listed companies are exempted from particular disclosure regimes. There should be a mechanism to ensure that where this happens, the adequate disclosure regime is monitored and assessed on a case-by-case basis across the different exchanges.

Johannesburg Stock Exchange (JSE)
Ms Anne Head: Public Policy and Regulatory Affairs, thanked the Committee, the NT, FIC, and the other stakeholders. JSE appreciated the opportunity to comment on NT’s responses to the Bill. JSE reiterated their support for the Bill and the efforts by the government to avoid greylisting, recognising the negative economic and reputational impact it will have on South Africa. JSE noticed that some of its initial comments had been considered, particularly the ones that recognised the practical difficulties a listed company would have in implementation of the requirements in the current version of the Bill. Without sight of the explicit amendments proposed by the NT, JSE is unable to comment on whether the amendments would in fact alleviate undue burden on this to companies. However, JSE looked forward to the presentation on those amendments to the Committee and further engagements with the NT and the FIC.

Discussion
Dr George asked for clarity on the role of the DSD. Is it proposed that they are going to be somehow monitoring financial flows in NPOs to inhibit money laundering? He said he had serious misgivings about this because the DSD battles to pay the basic grants and he therefore has zero confidence in this if it is so.

Mr S Swart (ACDP) said he appreciated the concessions that have been made. He said it is important to look at the wording especially in the NPO sector. He said that there was a concern about the role of DSD itself. He suggested that NT look very carefully at this. He raised concerns regarding the costing of the Bill. The DSD and other departments have severe budgetary constraints and it is therefore not sufficient to say that a budget will be provided. There are financial constraints, and there should be a proper costing of the Bill. He appreciated that there is an agreement to avoid greylisting, but there will be unintended consequences. When it comes to the broader sectors, such as religious and international donations, many churches and other faith-based organisations are involved in international donations. The Bill will then result in a mandatory form of registration. This could go against the doctrine of entanglement, which is set out in South African case law. NT needs to be very mindful of that. One wants to avoid a situation of litigation when it comes to the religious sector whilst bearing in mind the need to pass this legislation. He said the Committee looks forward to the specific wording of the proposals that will come, the protection of the different sectors and organisations and section 36 of the Constitution.

Mr A Sarupen (DA) said that it is clear that the NPO sector has made its submissions, and the view is that the finance matters would better be handled by SARS and not the DSD. There are unintended consequences for this. Many NPOs fulfil functions that the DSD is incapable of doing, such as the HIV/Aids programme, counselling, old age and frail care. These entities only fulfilled their roles after donations from across the country. They did so with far more efficacy than the state has proven itself capable of doing. The Committee, DSD and its entities must be careful not to cripple the whole society. There is a lot of good work and the unintended consequences of the Bill need to be considered, including how best to solve problems such as terrorist financing. The NT is urged to reconsider bringing the DSD into the Bill.

Ms P Abraham (ANC) said she really appreciated the responses from the NT. The responses were so expansive in that it was the first time she experienced NT answering with diligence each and every question that had been raised. She asked the official of NT to speak more on time frames because she wanted to know if there has been any extensive and broad public participation beyond the Committee in terms of the public input into the Bill itself and what the views are as far as the Bill also affects others. She asked NT to speak about the various departments they have been interacting with regarding this Bill and its progress.

Responses
Mr Davidson said that the mutual evaluation report was published around the end of 2021. There were engagements with Cabinet and IDC to coordinate a response. All necessary and affected government departments and agencies, (including prosecution agencies, and investigative agencies) contributed to addressing all the identified shortcomings in the mutual evaluation report. The Director-General of the NT reports to the Minister of Finance who is at Cabinet level, a Member of the Executive. They are responsible for the overall coordination of the mutual evaluation report. There have been numerous engagements with Cabinet including providing regular feedback. NT’s coordination with other departments has been extensive. Some legislative and regulatory amendments are required to address technical deficiencies.

There is also another subset of improvements that are needed to improve overall effectiveness. NPOs are a critical sector in civil society. NPOs provide a huge amount of support to the most vulnerable. NT is incredibly mindful of ensuring that there is no unnecessary hampering. He said that there should be a focus on entities with a cross-border dimension rather than on entities doing work in support of social importance and indispensable social causes only within South Africa. This does not mean that those who have undertaken cross-border work should be unduly constrained, but there is an additional dimension of risk. Therefore, oversight is required to ensure that those who facilitate terrorist financing and other outcomes are identified. It is not about stopping activities but identifying the risks and having a proportionate and commensurate response where those risks are identified. NT has worked very closely with the DSD and cannot ignore the huge amount of excellent work the department has done. DSD will not monitor financial flows; rather, the department will maintain the register itself. The principal mandate lies with the regulatory entities responsible for monitoring financial flows. It will be the departments or entities that will analyse and take the appropriate action concerning those financial flows.

Ms Bednar-Giyose said that the constitutional concerns are taken very seriously. The NT will formulate a proposal that will be submitted to a very thorough analysis of constitutional issues. It will develop proposals that would be constitutionally compliant. The NT wants to avoid enacting legislation that could be subjected to a constitutional challenge. The NT appreciated the constructive comments and noted the concerns highlighted. She agreed with what Mr Davidson said about the role of the DSD. She assured the Committee and the stakeholders that the appropriate regulatory authorities would undertake the money laundering analysis and the monitoring of financial flows. This was established mainly to ensure that there is information that is collected, accessible, and able to be used by the authorities in conducting investigations. NT has been engaging with colleagues from the Department of Justice and Social Development and other entities such as SARS, NPOs, civil society and the police. There has been ongoing engagement with these entities throughout the process of development of the Bill. NT appreciated the assistance because it has been crucial for the development and processing of the Bill. There are time frames for developing the legislation, so this particular parliamentary process is a key mechanism for receiving important and helpful submissions on the legislation. The submissions will help to produce a sound and effective piece of legislation.

Follow-up questions
Mr Swart asked why it is necessary for a NPO to register if the organisation is already registered with the Masters office or CIPC. Can that registration not be used to cover them? Will it not suffice for the current legislation?

Dr George said he could not see why such a process should exist. It seems as if DSD is registering the entity. He agreed with Mr Swart. He raised this concern because a barely functional department is involved in this process. The process should be made easier because things have not been going well. If registration is required, it should be done with a competent authority that is going to work closely with the money flow. He said he did not understand why DSD was injected into this process because it did not make sense.

Responses
Ms Bednar-Giyose said that the NT has been trying to ensure that those who pose a risk, who may not already be registered under the other registration mechanisms, would be appropriately registered under the NPO regulatory framework. Some voluntary organisations would not be registered as a trust or as companies or may not be captured under other registration mechanisms.

Mr Pieter Smit, Executive Manager: Legal and Policy, FIC, said it is key to consider the benefits of having institutions register in the CIPC or Masters office. These relate to institutions that choose to set up in the form of a not-for-profit company or in the form of a trust. There would still be a category of institutions that would perform the same activities but choose to set up in a different form that would not require incorporation at the CIPC or registering a trust with the Masters office. The NPO Act makes provisions for registration and requires the NPO to have a constitution that they should abide by, including reporting on activities and financial management. This is required to abide by its own Constitution. The requirement of a constitution and to register and be supervised by the DSD are fundamental principles towards protection mechanisms. These protection mechanisms will allow the NPO to protect itself from exploitation from abuse by people who raise funds and then divert the funds without the NPO’s knowledge or involvement. This is why a registration process has been included to protect NPOs from abuse. The amendment in the Act is not for the NPO director to become part of the investigation for security apparatus; it is the responsibility of other agencies and those agencies who do not have access to the information contained at the CIPC and Masters office. One of the specific requirements that the FATF requires of countries is to implement recommendations relating to NPOs. This includes the Constitution and supervision of the activities of the NPOs.

Closing remarks
The Chairperson thanked all the stakeholders for their written and oral submissions. He indicated that the submission date had been extended to 25 October 2022. On 28 October 2022, responses will be provided to all the submissions. He said it should not be up to the FATF to fight anti-money laundering and terrorism. It is our responsibility as South Africans to combat this. It cannot allow the country to be a hive of terrorist activities and should be resolved. Compliance with FATF is not only a matter of government but NPOs, non-government organisations and businesses. It is a societal matter. The Chairperson said there should not be public statements about South Africa being greylisted. It does not align well with the image of South Africa. If South Africa is greylisted, there will be dire consequences. The consequences include not being able to find investors and people not wanting to do business with South African companies. He raised the issue of gender-based violence in South Africa and that it is not only a matter for the police to fight but also a societal matter. As South African citizens, this cannot be allowed to happen to women and children. This matter has been in the media. The issue of gender-based violence must be tackled together. Public hearings are not being conducted as merely ticking the box but to ensure that legislation and regulations are passed to strengthen compliance.

The meeting was adjourned.