General Laws Amendment Bill (Anti-Money Laundering and Combating Terrorism Financing) Bill: National Treasury briefing

Meeting report

The Chairperson welcomed National Treasury (NT) to a meeting with the Select Committee on Finance (SeCoF)  to present the General Laws Anti-Money Laundering (AML) and Combatting of Terrorism Financing (CTF) Amendment Bill.

General Laws AML and CTF Amendment Bill

Mr Vukile Davidson, Chief Director: Financial Sector Policy, NT, said South Africa faced grey-listing in the 2023 plenary based on their poor rating in the 2021 Mutual Evaluation Report (MER). The main areas of concern involved issues of technical compliance and immediate outcomes.

NT aimed to make significant progress on technical compliance by February 2023. The three core Financial Action Task Force (FATF) recommendations had been prioritised, and it planned to still deal with the remaining 17 recommendations. The Bill at hand addressed 14 of the technical compliance deficiencies.

The NT was working with the FATF on the October report, which would be updated in November. It also planned to meet face-to-face with the Joint Group for Africa and the Middle East in January to demonstrate the substantial progress on the recommended actions. After that, they planned to provide a report to the FATF at the February plenary regarding the final decision on grey-listing.

General Laws Bill: Clause-by-Clause

Amendments to Trust Property Control Act (TPCA)

Ms Jeannine Bednar-Giyose, Director: Fiscal and Intergovernmental Legislation, NT, said that the amendments addressed deficiencies regarding trustees being required to obtain full information on beneficial ownership when creating trusts. This was set out in clauses 1-7 of the Bill.

[Please see slides 15 – 16 on specific TPCA amendments]

Amendments to Non-Profit Organisation (NPO) Act

The FATF recommendation required countries to review the regulatory framework so that it did not allow for non-profit organisations (NPOs) to be misused for terrorist financing activities. Countries were required to review laws and regulations to strengthen NPOs against vulnerability to terrorist financing abuse.

Clauses 8 – 14 of the Bill concerned amendments to NPOs.

MER findings requiring amendments to FICA

A substantial portion of the Bill related to amendments to the Financial Intelligence Centre Act (FICA). These amendments addressed many of the identified recommendations regarding strengthening the FICA. These were recommendations 7, 10, 22, 23, 12, 17, 18, 20, 27 and 28, relating to the FICA.

The immediate outcomes three and four were related to regulation and supervision, as well as immediate outcome six, which addressed the use of financial intelligence.

Ms Bednar-Giyose said that the amendments to FICA were technical in nature, and would not substantially change the principles on which the customer due diligence provisions were based. However, the proposed amendments would result in a stronger AML/CFT regulatory framework.

Clause 16 of the Bill proposed amendments to the objectives of FICA. Clause 18 involved affording new powers to the FIC. This included the power to enter into private partnerships to achieve FIC objectives. The FIC also requested information or access to any database held by an organ of state, and access to information contained in a register kept by an organ of state.

Proposed amendments were made to:

• Customer due diligence (CDD) in Clauses 20, 21 and 37 – 42.
• Beneficial ownership, which largely related to its definition, in Clauses 15 and 19.
• Politically exposed persons (PEP) in Clauses 44, 45, 46, 48, 49 and 50.
• Risk management and compliance programme in Clause 36.
• Targeted financial sanctions in Clauses 15, 25, 26 and 27.
• Schedule 2 of FICA in Clauses 17, 43 and 47 of the Bill.
• The Companies Act in Clauses 52 – 57, specifically related to beneficial ownership information not being timeously available to authorities.
• Financial Sector Regulation Act in Clauses 58 – 61.

[Please see slides 23 – 31 for details on specific amendments in the Bill]

Timeline for FATF processes

Mr Davidson said that the observation period for South Africa ended at the Financial Action Task Force (FATF) plenary, after which the FATF would inform South Africa of the detailed steps and timelines in the Post-Observation Period Reports (POPR) process. It was planned that in December, the Joint Group would send a draft POPR to South Africa, to which the country would have to formulate a written response. By February, it was planned that an action plan would be adopted by the International Country Risk Guide (ICRG) and the FATF.

Mr Davidson said that NT expressed confidence that grey-listing could be avoided if South Africa made significant progress in taking remedial steps for technical compliance, and if effectiveness of the immediate outcomes could be displayed. It believed that having a financial system that was able to adequately address risks of money laundering and terrorist financing was in the public interest.

Discussion

Mr D Ryder (DA, Gauteng) said it was important to note that the FATF still needed to submit their October report. He asked for feedback from the FATF regarding whether the requirements had been met.

On beneficial ownership, he said that indications had been problematic, specifically regarding trusts. There had been a change to bring this into the Companies and Intellectual Property Commission (CIPC). He asked what the level of cooperation was between the Department of Justice and Constitutional Development and NT regarding arranging this transfer, and what the timeline for plans would be. He also asked if this had already been explained in the material contents of the Bill.

Mr Ryder agreed that the amendments to meet FATF requirements and protect our economy and law-abiding citizens from financial transgressions, were a good idea. He stressed that implementation would be the key consideration.

He asked the NT whether the Bill prescribed and facilitated conversations between the various affected parties mentioned, especially when reacting to information and reports. He commented that the FIC had previously received many reports, but had failed to act on them.

Mr S Du Toit (FF+, North West) referred to the legislation at hand, and asked the NT who would be responsible. Would it be a specific person or the Department.

On implementation, he appreciated the timelines and clarity provided during the presentation. He said that legislation passed in December should be implemented in January, with results expected in February. He used the backdrop of the challenges experienced when implementing regulations and amendments during the COVID period. Based on this, he asked what would happen with the amended legislation this time around. He asked how training would take place, the monitoring aspects, and who would do the monitoring. He doubted that all the relevant people in the departments could be trained within the stipulated timelines.

He asked the NT what the final cut-off date would be if South Africa did not meet the timeline requirements. He also asked when South Africa would know whether they had successfully avoided grey-listing.

The Chairperson said he doubted any other Chairperson would process the Bill by the close of term were it not for the dire state of the country. He remembered that the FICA was recently amended, which had been a controversial matter in the Houses. He expressed shock at the scope and range of changes proposed in the amendments.

He feared that the amendments may be taken to court, which would reflect poorly on South Africa to the FATF. He suggested that during the week of the study tour, after-hours meetings be held with the NT to conduct the public hearings. He would look into receiving exemptions for meetings during the day to afford the Committee some time to rest.

The Chairperson felt that the Financial Sector Regulation Act (FSRA) was a high-quality Bill which had taken many months to process. He was concerned that it needed amendment so soon. He felt it was futile to have these amendments if the proper implementation was not going to be executed by the relevant entities.

On engagements with other committees, the Chairperson admired the approach taken by the Standing Committee on Finance (SCoF), which did not engage with the relevant committees. He wondered if the SeCoF would go about things the same way, as it involved numerous committees and entities. He suggested that certain matters could be handled symbolically, with two Members representing the committees mentioned.

The Chairperson asked for reports to be done synchronously with the public hearings, to address the issues at hand. He said two people had contacted him to express dissatisfaction regarding the Bill, as well as from the media. This would be brought up after the public submissions, as he felt some of these issues would be raised in the hearings.

He acknowledged that the Bill had to be processed swiftly, but warned that the Committee could not rush its understanding of the Bill and addressing the necessary changes. He said that the practices of the NT had been delayed, which had reflected unfairly on the Committee.

NT's response

Mr Davidson appreciated the flexibility and accommodation of the Committee.

He attributed the delays to the Bill involving many pieces of legislation, and stakeholders outside the finance realm. This required the NT to work more carefully through multiple engagements with stakeholders to understand the core issues. Other delays were due to late submissions and back-and-forth deliberations on the Bill.

The NT appreciated the flexibility of the Committee when processing the schedules.

On the timelines for introducing the Bill, he said it was introduced in August, and the SCoF had its first round of consultations in September. This was then extended to accommodate stakeholders and make room for another round of interactions.

Mr Pieter Smith, Executive Manager: Legal and Policy, FIC, referred to the FATF processes, and said that communication had been received from their Secretariat in the past few days outlining the process for information to be submitted to it. They expected a report by the end of November on the work conducted throughout the year. The FATF was then expected to engage with the report, which included information on the amendment process for the General Laws Bill and the Protection of Constitutional Democracy against Terrorist Activity (POCDATARA) Amendment Bill. It would also include information on the improvement of effectiveness. This involved topics such as improving the investigative capacity for prosecutions of complex money laundering, the capacity to supervise compliance by financial institutions, and risk assessment work.

Mr Smith said a first draft of the review team's assessment of that material, engagements and further clarification, would be completed over the first two weeks of December. In the second week of January, they were expected to meet with review teams based on the material submitted by then and any further updates. The discussion would focus specifically on understanding the review team’s assessment of the NT’s information and engagement with them on their views of whether sufficient progress had been made. This would take place over four to six hours, spread over two days, with the review team. Based on that engagement with the team, the final report with the review team would be discussed at the February plenary. At this meeting, the FATF would make a final decision on South Africa’s progress over the period.

Mr Smith said that other work conducted included dealing with a wide range of authorities, government departments and agencies to complete the second round of the risk assessment process. A report ready for consideration by the Director-General (DG) was set to take place in the following few weeks.

Work on formalising a strategy to deal with money laundering and terror financing based on that risk assessment would also be considered in the coming weeks. He noted a lot of work done in engagements with the supervisory authority, especially the Prudential Authority (PA) and the Financial Services Conduct Authority (FSCA).

The NT and the FIC had been busy formulating new guidance for financial institutions and others who had to comply with the FICA. There have also been significant engagements with the investigating and prosecuting authorities to improve the priority and number of money laundering investigations underway.

Mr Smith said there had been a fair amount of success regarding prosecutions. They had established a fusion centre, where investigating prosecutors and FIC officials were gathered in one environment to address the diversion of COVID funds, and procurement and fraud issues related to COVID relief. A number of money laundering charges had been laid and successfully prosecuted.

This work conducted, in addition to the work surrounding legislation, had to be relayed to the FATF in the follow-up report. The technical amendments were intended to address findings on the standards of the FATF that related to customer due diligence (CDD), terrorist financing and beneficial ownership. He felt confident that significant effort had been made in the time afforded.

On beneficial ownership, Mr Smith said a significant point of discussion had been on accommodating a solution which helped public companies to meet the requirements to obtain and disclose information that could be registered and used to reflect the beneficial ownership of companies. The Bill introduced a big obligation on all public and private companies to obtain information about their own beneficial owners. This information had to be disclosed to the Intellectual Property Commission (IPC), where it would be filed in a register.

In comments received during processes with the SCoF, it had been highlighted that this would be a very difficult task for public companies because of the frequency of share trading on exchanges such as the Johannesburg Stock Exchange (JSC). Due to this, the FIC and NT had a detailed discussion regarding company law and the available requirements for public companies, as mentioned in the Companies Act. Based on these discussions, the NT established alternative proposals that would enable them to receive information on public companies, contributing to information on beneficial ownership. This technical area required expertise from CIPC and the Department of Trade, Industry and Competition, to formulate solutions.

Ms Bednar-Giyose addressed concerns regarding the coordination of registers to be established in terms of the Bill. She said that a beneficial ownership national registry framework was being established. A work stream was looking into establishing this framework to enable various beneficial ownership registries to provide access to law enforcement and other competent authorities.

This was planned to be done through a two-tiered national beneficial ownership framework. One tier was dedicated to central beneficial ownership registries held by CIPC and registered under the Master’s Office of the High Court. The second tier of registers fell under the first tier. This included registers of government data and asset repositories that would be prime users of the main registries. They would be responsible for producing other small registries that would enable a link of assets to beneficial ownership data. This could relate to property deeds registers, the register of NPOs, and other registries operated by the Department of Social Development (DSD) and other public benefit structures relating to tax benefits coordinated by the South African Revenue Service (SARS). 

It was envisaged that this would be a multi-pronged risk-based approach to provide for an integrated implementation of the beneficial ownership information of legal persons and the various registries of government agencies, including SARS.

Ms Bednar-Giyose said that the CIPC would be a central repository of basic legal person information. It was said to be in quite an advanced state from a digital infrastructure perspective, compared to other digital capability functions currently available. NT recognised that they would need to work to develop these systems and infrastructure. CIPC would play a key role in the establishment of the framework. Linkages would need to be made between the Master’s Offices, the CIPC and other registers. She said further details and feedback could be provided at a subsequent meeting.

During the process of coordination and regulation of subordinate legislation that would need to be developed, they had formed a very effective legal group among the departments whose legislation was being amended.

The NT continued its engagement with departments, the CIPC and the Master’s Office, to coordinate the appropriate development of the regulations required by the legislation. Those processes used to develop the Bill would be embodied in developing subordinate legislation and ensuring that it was appropriately integrated and aligned.

Mr Christopher Malan, Executive Manager: Compliance and Prevention, FIC, said he was the co-chairperson of an interdepartmental committee on beneficial ownership transparency, which was responsible for designing and implementing the regulatory framework. On the movement of the trust registry to the CIPC, he said there would be a first tier grouping of registries, with the CIPC being the largest shareholder of that beneficial ownership for legal persons. This was planned to be supplemented and complemented by the various Masters registries in all the provinces under the Chief Master.

He said that, currently, the goal was not to move the trust registries to the CIPC. It was planned to be linked to the CIPC data through an interoperable, integrated framework which would have to be built on an information technology (IT) platform. All the Masters Office information would then be available online.

He clarified that the FIC was not contemplating the movement of the trust registries to the CIPC at all at that stage. FIC and ICT personnel in the CIPC estimated that it could take up to 18 months to put into effect the registry in a form that would be sufficient to gather beneficial ownership information.

The October FATF report had been duly tabled, mainly on technical compliance. The FIC had not asked the FATF for a rating upgrade due to the further amendments that were in process. Once this was complete, the  FIC would have more information to table and would ask the FATF to consider a rating upgrade.

Mr Smith said that the first report in the FATF follow-up process had been submitted in preparation for the October meetings. The report outlined planning for the correction of technical deficiencies, the process of amending legislation of the two Bills, and the expansion of the scope of FICA through amendments to the schedules, which had been provided to the FATF.

He said that the FATF had noted the report, though there had been no comments or discussions at the time because the work was still in progress. Since then, the FIC has completed the amendment to the schedules, which provided further updates to the information that the FATF would consider in January.

He said that as the amendments to the legislation unfolded, the information would be updated when reporting to the FATF. The FATF considered legislation in force only when they considered the progress made by the country. He said that for now, the legislative process would have to run its course.

The Chairperson said they would seek an exemption during their meetings and field work to host public hearings.

Mr Du Toit suggested a hybrid attendance sitting, to allow sufficient time to deal with all the required matters during the week.

The Chairperson said that an arrangement would be made which catered to the entire Committee.

The meeting was adjourned.