Only areas of business where there was no risk of money laundering could be excluded from the ambit of the Financial Intelligence Centre Act (Fica), whereas even low-risk businesses should be accountable institutions, says Pieter Smit, the executive manager: legal and policy at the Financial Intelligence Centre (FIC).
Smit was speaking on Tuesday following presentations to the National Assembly’s Standing Committee on Finance (Scof) on the proposed amendments to the three schedules to Fica.
At the same meeting, the chairpersons of Parliament’s finance committees rejected a narrative that the legislature was to blame for delays in processing the Fica amendments, which are aimed at preventing the country’s potential grey-listing next year.
Outsurance Life, the South African Institute of Chartered Accountants (Saica) and the Minerals Council South Africa made presentations to Scof. Other organisations that have made submissions are the National Clothing Retail Federation, the Banking Association South Africa and the Agricultural Business Chamber.
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Many of the submissions have included arguments for excluding certain categories of business, transaction or product from the scope of Fica by narrowing their definitions in Schedule 1.
Smit said businesses could not be excluded from Fica even if there was only a low risk of money laundering and terrorism financing.
He said the FIC’s approach to the definitions was to avoid creating carve-outs or a patchwork of items that the Centre would have to weave together to establish which entities were and were not accountable institutions. One of the objectives in this regard was to create regulatory certainty for both the FIC and business entities.
Although the scope of the legislation was broad, Smit said how it had to be applied by accountable institutions depended on their risk exposure. There was not a one-size-fits-all approach to the way in which accountable institutions must comply with the Act.
High-value transactions
The draft legislation proposes inserting the following item: “A person who carries on the business of dealing in high-value goods in respect of any transaction where such a business receives payment in any form to the value of R100 000 or more, whether the payment is made in a single operation or in more than one operation that appears to be linked, where ‘high-value goods’ means any item that is valued in that business at R100 000 or more.”
There have been calls for the definition to be restricted to cover these high-value transactions only when they are concluded in cash, and/or to cover only items associated with a high risk of money laundering, and/or to exclude the occasional sale of high-value items.
Smit said the aim of making dealers in high-value goods accountable institutions was not only to bring high-value cash transactions within the scope of Fica. It was to address businesses that have customers who have the disposable income to buy high-value items. How they paid for the items was irrelevant.
The objective was not to prevent high-value transactions but to have a record of such transactions, to create an audit trail that could be followed during an investigation, he said.
Compliance burden on banks and SMEs
Smit agreed with a comment that Fica has created a compliance burden for the banks.
He said banks struggle to comply with their Fica obligations – and incur significant costs in doing so – because people are creating more and more layers of transactions to deceive the banks, “to prevent the banks from identifying who is manipulating a relationship with a bank account”.
Smit said the scope of Fica must be broadened to ensure that the compliance burden is carried by other institutions that might be interposed between a customer and a bank when money is moved through the financial system.
Saica’s project director for governance, Juanita Steenekamp, submitted that small and medium-sized enterprises should be subject to lesser compliance requirements.
Smit said a large number of small and medium enterprises already fell within the scope of Fica.
He said it was a mistake to assume that a small business has only low-risk customers. A business’s risk was not necessarily linked to its size; instead, it was a function of the type of business it conducts, the type of products and services it provides, and the type of customers with which it deals.
Who is an accountable institution?
Some commentators said there was a lack of clarity over whether a person was an accountable institution.
Smit said the wording in Schedule 1 indicated that whether a person was an accountable institution did not depend on his or her profession or job title. The wording “in the business of” indicated that a person was an accountable institution to the extent that he or she provided a particular product or service covered by the items in the schedule.
In South African law, the phrase “in the business of” is understood to exclude something that is done on an exceptional or occasional basis, he said.
‘Parliament not to blame’
After the presentations and responses by the FIC, Yunus Carrim, the chairperson of the National Council of Province’s Select Committee on Finance, said he has spoken to Ismail Momoniat, National Treasury’s acting director-general, about reports in sections of the media that Parliament was “holding back” on processing the Fica amendments.
Members of the Select Committee also attended the Scof’s public hearings.
Carrim said the amendments had been presented to the committees for the first time on the last day of Parliament’s second quarter, with a report proposing that they adopt the bill. To his knowledge, it was unprecedented, since 1994, for amendments to be presented and for a committee to vote on the amendment bill on the same day.
He said, “it should be made clear” that any failure to process the Fica amendments timeously “has nothing to do with the committees; it has to do with problems within Treasury”.
Carrim said Momoniat was aware of the media reports and agreed they were incorrect.
Joe Maswanganyi, the chairperson of Scof, echoed Carrim, saying Treasury, not Parliament, should take responsibility for any delay in processing the amendments.
“Parliament doesn’t take shortcuts in processing matters. This is matter of public interest, so we have to make sure that we go through public hearings,” Maswanganyi said.
DA MP Dennis Ryder said Treasury should explain why it brought the amendments to Parliament in June this year, while it received the Financial Action Task Force’s report on the shortcomings in South Africa’s anti-money laundering measures in October last year.
