On 25 May 2016, the National Council of Provinces passed the Financial Intelligence and Centre Amendment Bill (the "FICA Bill") being the final approval before a section 76 bill is delivered to the President for signature. Once the Bill is signed or assented by the President it becomes legislation and law of the land.
There has been however unforeseen delay in the assenting of the FICA Bill to legislation and many parties putting pressure on the executive to assent to the Bill in order to bring South African anti-money laundering regulations in line with international standards. Some civil institutions have indicated they are contemplating court action in order to force assent.
It is clear from the above events that there a certain provisions in the FICA Bill which has required executive scrutiny, amongst others surrounding the provisions concerning Politically Exposed Persons and beneficial ownership. In this article we look at these provisions as well as briefly their origins in order to understand the possible concerns.
Politically Exposed Persons "PEP"
A "politically exposed person" (PEP), in financial regulation, is a term defining someone who has been entrusted with a prominent public function. A PEP generally presents a higher risk for potential involvement in bribery and corruption by virtue of their position and the influence that they may hold.
PEP definitions vary from country to country but generally, a PEP is a head of state, a head of government, member of the Parliament, deputy minister, ambassador and attaché, high-ranking military officer, president of government agency, judge, leader of political party in Parliament and the spouses, children, parents, in-laws and siblings of any of those persons.
Most current definitions in financial regulations for PEP is derived from the Financial Action Task Force 2012 Recommendations (the "FATF Recommendations"), which provide for three types of PEP:
- foreign PEP: individuals who are or have been entrusted with prominent public functions by a foreign country
- domestic PEP: individuals who are or have been entrusted domestically with prominent public functions
- Persons who are or have been entrusted with a prominent function by a state owned enterprise or an international organisation refers to members of senior management, i.e. directors, deputy directors and members of the board or equivalent functions
FICA Bill – Prominent Persons
The FICA Bill attempts to bring South African anti-money laundering legislation in line with in regulating amongst others PEP. The FICA Bill sets out the term prominent persons which are akin to the PEP definitions in the FATF Recommendations.
The rationale for the regulation of prominent persons in terms of FICA Bill is set out in the memorandum which provides:
The starting point for the effective implementation of measures relating to persons who are entrusted in prominent public or private sector positions, is for all accountable institutions to have effective measures in place to know who their customers are and to understand their customers' business.
Typically, this process happens when an institution takes on a new customer. The institution needs to establish who the prospective customer is, by using reliable and independent source documents.
In implementing the above rationale the FICA Bill introduces sections 21F, 21G and 21H which provide additional screening requirements for Prominent Persons than those as set out for new customers in section 21 of the Act.
The normal screening procedure for any client is that the accountable institution is required to establish and verify, the identity of the client or provide proof thereof. In respect to Prominent Persons the further additional requirements must be met:
- obtain senior management approval for establishing the business relationship;
- take reasonable measures to establish the source of wealth and source of funds of the client; and
- conduct enhanced ongoing monitoring of the business relationship
The FICA Bill - Beneficial Ownership
In the IMF March 2015 report of South Africa on the assessment of anti-money laundering provisions it specifically recommended that legislation be amended to ensure that accurate information on beneficial ownership of legal persons and legal arrangements is made available and accessible to competent authorities in a timely manner.
The FICA Bill therefore makes specific provision for this concept whereby it provides in respect of a judicial person, the natural person who, independently or together with a connected person, owns or controls the juristic person directly or indirectly, including through bearer share holding.
As stated above the FICA Bill is still to be assented and signed by the President. If the President has reservations about the constitutionality (whether the provisions of a FICA Bill are in line with the Constitution or not) of a Bill, he or she may refer it back to the National Assembly for reconsideration. If the Bill affects the provinces, the NCOP must participate in the reconsideration of the FICA Bill. If a reconsidered FICA Bill accommodates the President's reservations, the President must assent to and sign the FICA Bill. However, if a reconsidered Bill does not fully accommodate the President's reservations, the President must either assent to and sign the Bill or refer it to the Constitutional Court for a decision on its constitutionality. If the Constitutional Court decides the FICA Bill is constitutional, the President must sign it.