The FIC Amendment Bill was introduced by Treasury to bring South Africa into line with international standards for countering money laundering, illicit cross-border financial transactions and the financing of terrorism. These standards are set by the Financial Action Task Force (FATF), of which South Africa has been a member since 2003.
The bill differs from the current Financial Intelligence Centre Act (FICA) in that the amendments introduce a risk-based approach in terms of which clients of accountable institutions – including banks, wealth managers, life insurers, and to some extent the practices of financial advisers – are risk-rated and due diligence stepped up considerably in the case of clients deemed to be higher risk. This means clients won’t just be verified once in terms of FICA, but their financial affairs may be subject to ongoing due diligence and greater scrutiny by financial institutions.
Enhanced due diligence won’t just apply to politically exposed persons – the amendment bill also includes both foreign and local prominent and influential persons, which applies to those in the private sector, as well as individuals doing business with the state. The process is likely to be fairly intrusive – clients will not only need to disclose to their financial institutions their source of income and wealth, but also provide evidence of this.
Needless to say, the FIC Amendment Bill has been the subject of much controversy and heated debate. It was meant to have been ratified by Zuma before 30 July last year, but he cited concerns that it was ‘unconstitutional’ and sent it back to the legislature in November. He’s had strong support for his views, not least of which came from the security cluster, which feared the bill would usurp its powers. Mzwanele Manyi of the Progressive Professionals Forum went so far as to state that it would ‘bankrupt’ the ANC, a remark from which Deputy President Cyril Ramaphosa has since distanced his party.
To what extent the opposition to a bill that is intended to expose financial irregularities and shady transactions was an attempt at protecting vested interests, is open to debate. Those at odds with the new legislation did not win the day, however – political parties across the spectrum banded together and it was passed unanimously with minor tweaks by the National Assembly at the end of last month.
If Zuma now stalls on signing the bill, as he has in the past – the Protection of State Information Bill, for example, has been languishing on the president’s desk for years – it could have disastrous consequences for South Africa. The country will not comply with the international best practice standards set by the FATF, which will not only call into question our continued membership of this organisation but will almost certainly result in a negative review by the FATF in June this year.
This could lead to capital outflow from South Africa as both foreign and local investors will be reluctant to invest in a country without appropriate and globally accepted anti-money laundering procedures in place, where the source of wealth is not a consideration, and where individuals can essentially acquire funds illicitly.
It should also be remembered that two new exchanges have been licensed by the Financial Services Board (FSB) to begin trading this year alongside the JSE. These are ZAR X and 4AX, with other applicants currently in talks with the FSB to secure licencing. If there is reduced appetite to invest in South Africa, the chances of success for any new players in this market will be greatly diminished.
Zuma needs to ratify this important piece of legislation without delay. The bottom line is that South Africa needs to meet international best practice standards, and the current FICA Act is not up to par in this regard.
It is a matter of some urgency – the longer we tally in getting the FIC Amendment Bill signed and fast-tracking its implementation, the more the good standing of our financial institutions in the international community will be affected, casting South Africa into financial isolation and costing the country much-needed foreign investment. The million-dollar question is what priority this will now enjoy in the light of increased political infighting and jockeying for position following Zuma’s recent Cabinet reshuffle.
