Banks’ behaviour threat to our work, FIC says

THE Financial Intelligence Centre (FIC) says the closing of bank accounts should be a last resort, but the banks, instead, rush to close accounts, which makes it difficult for the FIC to do its work.

During a presentation to the National Assembly committee on finance (SCoF), earlier this year, the FIC laid out how rushing to close clients’ bank accounts was a premature step. The agency said it did not accept a bank’s explanation that closure was done as a last resort.

The FIC said it informed the banks that it did not appreciate the process of closing a customer’s account because it would not then be able to freeze funds once an account was closed and the money removed.

The FIC, whose mandate is to watch for signs of money laundering, terror financing, and identifying the proceeds of crime, states in its 2016/17 annual report that the FIC Act does not effectively give banks unlimited power.

The FIC Act, not banks and other businesses, is the authority on defining what is a domestic or foreign prominent influential person.

The FIC Act does not, however, assume that prominent influential people are involved in financial crime or associated with illicit financial flows – the risk-based approach serves to protect customers.

It also does not empower the FIC or banks to investigate financial crimes or participate in criminal prosecutions.

Further, the FIC Act does not invade the privacy and dignity of customers, or require financial and other institutions to avoid doing business with any category of customers, or to end their relationships with customers.

On the contrary, the FIC Act advocates for a lower administrative burden for most customers when conducting business with banks, and enhanced due diligence for prominent influential people who might be targets of financial crimes or in a higher risk category than most customers.

At the SCoF presentation, MPs raised their concern regarding several regulations and processes in place, stating that both the Treasury Department and the FIC thought banks needed to adopt a risk-based approach, as opposed to the current rules-based approach, which created several hurdles for citizens.

Effectively the banks’ obstinate reliance on contractual law is frustrating the FIC’s efforts and the citizenry at large.

Advocate Xolisile Khanyile, the executive manager of legal and policy at the FIC, said large institutions in the country, which were usually listed, tended to comply with the legislation on financial transactions due to their reputational concerns.

Smaller companies sometimes failed to do so, mainly because compliance was burdensome for them.

Khanyile mentioned that the verification of a client’s identity was critical to ensuring that a bank knew where his/her source of income was coming from, and it could also monitor suspicious transactions, which it could then report to the FIC.

However, if the bank did not know its client, it could not do any of this.

Finance Minister Enoch Godongwana stated that it was not factually correct that “by law … banks have the right to unilaterally close customers’ bank accounts without providing reasons to those customers”.

“The contractual relationship between a bank and its customer is governed by the general prescripts of the law of contract.

“These prescripts only allow for the termination of a contract by agreement between the parties, or where one party has breached the terms of the contract in a manner that gives the other party the right to terminate that contract.

“In either of these circumstances, there will, of necessity, be an exchange between the parties before the termination of the contract.

“Unilateral termination of a contract by one of the contracting parties, without cause, based on the conduct of the other party, would be contrary to these prescripts and would amount to a breach of contract.”

Notably, Sekunjalo Investments’ chairman, Dr Iqbal Survé, and related entities are challenging the banks’ unilateral decisions to close bank accounts.

More than 6 000 South Africans, who claim to have been racially or otherwise discriminated against by the banks have also united in a class-action suit against the banks.

Section 29 of the FIC Act obliges accountable institutions to report suspicious transactions to the FIC.

However, the banks have so far allegedly acted largely on gossip and a plethora of inaccurate media reports on which they have made their far-reaching decisions.

The banks’ current actions effectively remove the power from the FIC, a body empowered to take action in the country’s interest, as opposed to the banks’ interests.

investigations@falcons.org.za https://falcons.org.za/