Illicit outflows: As pressure mounts from the local and international financial community for the gazetting of the FIC Amendment Act
All eyes are on Finance Minister Malusi Gigaba’s next telling move: Will he delay implementing new legislation that makes it harder for crooked politicians and businesspeople to move their ill-gotten gains, or will he roll out this corruption-fighting weapon with the urgency it requires?
A series of extraordinary delays in signing the Financial Intelligence Centre Amendment Act into law has been a source of anxiety for treasury officials. Under the leadership of Pravin Gordhan, the treasury had managed to secure an extension from the Financial Action Task Force – an international body tasked with combating money laundering – to comply with its requirements, which are addressed in the amended Act.
The task force is due to meet in two weeks’ time, and it appears highly unlikely that South Africa will be able to show any progress in implementing the amendments that will strengthen the country’s ability to fight financial crime.
The treasury has been curiously quiet about when and how it will implement the Fica Act, amid calls from civil society, opposition parties and the Banking Association for it to get a move on.
Treasury deputy director general Ismail Momoniat saidthis week the department was working to implement the amended Act urgently. Being labelled as noncompliant by the task force would have severe repercussions for South Africa’s banking sector, making it much harder and costlier to clear transactions with banks in other countries.
President Jacob Zuma delayed the passing of the Bill for more than a year. On April 29, after being threatened with legal action by civil society, he finally signed it into law. Now Gigaba must determine a date on which the legislation commences and gazette it.
There is growing concern that the delays have been intentional to buy time for politically connected rent seekers to move money around, unencumbered by the firmer provisions of the amendment Act.
A recent report by the Public Affairs Research Institute noted more than R10‑billion in known outflows from Gupta-linked accounts since 2012. Between April and September last year alone, R3.37‑billion reportedly flowed to a group of Hong Kong companies.
The Reserve Bank’s registrar of banks, Kuben Naidoo, has been vocal about the importance of the Fica Act because it requires enhanced due diligence when entering into a business relationship with a politically exposed individual, dubbed a “prominent influential person” or “pip”.
If an accountable institution regards a customer as a pip, it must decide whether the customer brings higher risk. If so, then it must determine, among other things, the source of the customer’s wealth and funds, and monitor the account for transactions that seem anomalous.
The amendments also apply to immediate family members of such individuals, as well as their known close associates.
Last April major banks began shutting down Gupta-linked accounts even though the amendment Act had not yet been passed. The Guptas lobbied then finance minister Gordhan to intervene; he approached the courts for a declaratory order to say he could not intervene in matters relating to banks and their clients. Gordhan’s founding affidavit revealed the Financial Intelligence Centre had flagged 72 transactions relating to the Gupta accounts as being suspicious – implying this may be why the banks cut them off.
Amid growing calls for Gigaba to implement the amended Act urgently, he has remained silent.
This week Corruption Watch sent a letter to Gigaba to ask when the FIC amendment Act would come into force, and requested a response by June 9.
“Gigaba’s been there for a while and this is incredibly urgent; if we are deemed noncompliant, it’s tantamount to a sort of a downgrade. It puts correspondent banking arrangements into jeopardy,” said Corruption Watch director David Lewis. “It’s really serious. I would have thought Gigaba would have given much of his attention to getting this done … The timeline reflects the urgency of the issue. If we don’t get a satisfactory response, we will investigate the possibility of further action.”
Lewis said he feared that simply signing the Act into law would not impress the Financial Action Task Force.
The Democratic Alliance’s spokesperson on finance, David Maynier, said: “I suspect that the minister of finance, Malusi Gigaba, is up to something when it comes to the Financial Intelligence Centre.
“Several weeks ago, he promised to announce a road map for the implementation of the Financial Intelligence Centre Amendment Act. However, since then absolutely nothing has happened and there has been complete radio silence.”
Gigaba’s appointment to head up the country’s treasury at the end of March was met with criticism and concern. On the day he took over, former Cosatu general secretary Zwelinzima Vavi claimed that “the thieves have now seized national treasury”.
Gigaba has admitted to attending private events hosted by the Guptas and the Public Affairs Research Institute report noted that, throughout his tenure as minister of public enterprises, “Gigaba was engaged in the restructuring of SOE [state-owned enterprise] boards, which became broadly representative of ‘Gupta-Zuma’ interests”.
Gigaba, through his trusted spokesperson, Mayihlome Tshwete, has publicly refuted this, claiming he was not directly responsible for all the board appointments.
Anthony Smith, a partner for risk advisory and financial crime services at Deloitte, said: “It’s one thing signing it [the Fica Act] into law; it’s another making it operational. Realistically, it needs to be done by now. We have until the end of June – we don’t really have much more time.”
Smith also said that, even though the Act had not yet been gazetted, the fact that it had been signed into law meant that banks and other institutions could already begin to make some changes.
Cas Coovadia, managing director of the Banking Association South Africa (Basa), said there had been no indication of progress from the treasury. “As Basa, we think the regulation must be drafted and circulated as soon as possible for public comment and to enable banks to have clarity on a range of issues – especially the pips,” he said.
“There is an urgency that has not gone away. We need to move expeditiously.”
Another potential difficulty has been presented by Justice Minister Michael Masutha who, in a recent budget vote, noted that the original version of the Act made provision for an anti-money laundering advisory council to be made up of the heads of entities and directors general from the justice and financial clusters.
The council was never established and the amendment Act no longer makes provision for it.
Masutha said it was “crucial” for any regulations accompanying the Fica Act to include such an advisory council that “would serve as an oversight accountability structure in relation to the functioning of the Financial Intelligence Centre and would advise government on its endeavours in the fight against money laundering, illicit financial flows and terror financing”.
Lawson Naidoo, executive director at the Council for the Advancement of the South African Constitution, described Masutha’s view as “absolutely bizarre”. “The matter has been through Cabinet, and has been through Parliament twice. There are absolutely no grounds for the Act not to be implemented.”
If a provision for an advisory council were included in the regulations, Coovadia said the Banking Association would not make a big deal about it. “It must not be an excuse for any further delays,” he said.
Maynier accused Masutha of being the mastermind behind a “power grab” of the Financial Intelligence Centre and alleged that the security cluster wanted control of the centre.
He doubted this could be done by resuscitating the council by way of regulation. “It could hardly be considered expedient, and could only be able to be done in our view by amending the Financial Intelligence Centre Amendment Act,” he said.
The chair of the parliamentary standing committee on finance, Yunus Carrim, said some parts of the Act require regulations that need to be consulted on, but other parts can come into effect sooner. “The committee has decided that we will monitor progress on the implementation of the Act as part of our quarterly review of progress on national treasury’s programmes. The next such briefing will take place on June 20,” he said.