Financial bill does not shame politicians
SA is following global trend of scrutinising business affairs, write FRANCISCO KHOZA and THULANI DYASI
POLITICALLY exposed persons have been receiving a lot of attention recently. Unfortunately, lost in the debate is an accurate record of what is being proposed to supervise their business affairs. Unlike SA, the international financial regulatory community has long recognised that people in positions of power are at high risk of involvement in corruption.
A politically exposed person is someone who is or has been entrusted with a prominent public function. They occupy positions that can be abused to commit money-laundering offences and activities related to terrorist financing.
The risk posed by them has given rise to the need to apply more intrusive antimoney laundering and counterterrorist financing preventative measures with respect to their business relationships.
In June 2003, the Financial Action Task Force (FATF), an international body of which SA is a member, issued mandatory requirements covering foreign politically exposed persons, their family members and close associates. These were expanded in 2012 to include mandatory requirements for domestic politically exposed persons and politically exposed persons of international organisations.
FATF members are required to implement measures obliging financial institutions to develop risk management systems to more closely monitor domestic and foreign politically exposed persons. SA is following a global trend in implementing the stringent monitoring of the business affairs of these people.
The Financial Intelligence Centre Act of 2001 (Fica) provides several mechanisms for the detection and investigation of money-laundering. These include requirements for accountable institutions (such as banks, insurers and credit providers) to establish and verify the identities of their clients.
However, Fica does not prescribe mechanisms for monitoring politically exposed persons.
To fulfil the country’s obligations as a member of FATF, the Treasury introduced the Financial Intelligence Centre Bill of 2005 that proposed amendments to Fica, tackling the position of politically exposed persons. THE
bill seeks to introduce the concepts of “domestic prominent influential person” and “foreign prominent public official” into Fica. It defines a “domestic prominent influential person” as an individual who holds, or has held, a prominent public function — which includes senior government officials and leaders of political parties.
However, it goes further in its definition of politically exposed persons than similar international instruments, and includes people who hold prominent positions in the private sector. Captains of industry whose firms do business with the state will also be closely monitored, so any suggestion that it is selectively focused on state officials is inaccurate.
If the bill becomes law and an accountable institution (such as a bank) regards a client as being a domestic prominent influential person or foreign prominent public official, it will need (among other things) to make a determination in accordance with its internal compliance programme whether that client presents a higher risk to the institution from an anti-money laundering and counterterrorist financing perspective.
In the event of a positive determination, the institution will have to take “reasonable measures” to determine the source of the client’s wealth and the origin of their funds in respect of a particular transaction. It will also have to conduct enhanced, ongoing monitoring of the client’s account to identify transactions that seem anomalous or out of the ordinary.
The steps set out in the bill in relation to politically exposed persons are also required to be taken in respect of their immediate family members and known close associates.
Politically exposed persons, their associates and relatives will be subject to greater scrutiny from accountable institutions. But the potential risks associated with them justifies the application of more intrusive and stringent anti-money laundering and counterterrorist financing preventative measures.
The proposed regulations are preventative in nature and should not be interpreted as stigmatising politically exposed persons by suggesting that they are involved in criminal activities. An accountable institution cannot refuse or discontinue a business relationship with clients merely because they are politically exposed persons — that would be contrary to the objects of the bill. THE
bill does not clarify the manner in which accountable institutions are expected to take “reasonable measures” and to conduct “enhanced” ongoing monitoring of politically exposed persons, and further guidance from the Financial Intelligence Centre should be expected.
Treasury has acknowledged that the initial identification of politically exposed persons will pose something of a challenge to accountable institutions looking to comply with the bill’s prescripts, in the absence of a register setting out the names of such persons.
This acknowledgement could see the implementation of the provisions of the bill being delayed until such a list is available.
The parliamentary process for the bill is complete and it has been submitted to President Jacob Zuma for assent.
However, it has been reported that the president has expressed reservations about the bill’s constitutionality.
The objections are based on a concern that the bill potentially infringes on the rights of politically exposed persons. But it is important to remember that some constitutional rights are not absolute, they can be limited.
The only question is whether the measures proposed in the bill for monitoring money laundering and terrorism financing activities that may be perpetrated by politically exposed persons, are reasonable and justifiable.
We do not know whether the president will assent to the bill, or return it to Parliament for further deliberation and possible amendment. We will all have to wait and see.
Captains of industry whose companies do business with the state will also be closely monitored, so any suggestion that the bill is selectively focused on state officials is inaccurate
Khoza is a partner and head of banking and finance, and Dyasi is an associate at Bowmans.
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