As is the custom, in the October 2021, the Paris-based Financial Action Task Force (“FATF”) released its Mutual Evaluation Report[1] identifying the deficiencies in South Africa’s regulations as pertaining to Anti-Money Laundering and Combating Terrorism Financing. In efforts to address these shortcomings and in bid to implement the FATF’s recommendations, in October 2022 the Ministry of Finance tabled the General Laws (Anti-Money Laundering and Combating Terrorism Financing) Amendment Bill.[2] The Bill was set to come into force on the 14th of November 2022. These efforts come amidst looming speculations of South Africa being grey-listed at the next plenary of the FATF in February 2023.
In true reflection of the Bill’s name;, the piece of legislation is general as it includes in its purview numerous statutes. Among the alterations that can expect to be noted are definitions of key terms, new requirements imposed, extended obligations as well as new functions to government offices. In practice, the effect of the new law would be much more stringent due diligence practices. More invasive assessments for anti-money laundering and combatting of terrorism financing risks are likely to be the order of the day. Although prima-facie this seems to present a major disadvantage and imminent delays to doing business in South Africa, it in actual fact is a welcome development. This is because it means South Africa potentially avoids a grey listing which according to a report[3] by Business Leadership South Africa comes with potentially grave economic impact, such as increase in transaction costs for cross-border payments, as well as the general reputational impact on all South African clients attempting to trade on the international arena whether as natural or juristic persons.
A common thread running the through the fibres of the Amendment Bill is the concept of the beneficial owner. It is reiterated in 4 of the 5 pieces of legislation[4] revised by this Bill namely;
- the Trust Property Control Act, 1988 in which there is an insertion of the definitions of accountable institutions and a beneficial owner
- the Financial Intelligence Centre Act, 2001, in which the definition of a beneficial owner is amended as well as the distinction between domestic and foreign politically exposed persons and politically influential persons is made
- the Companies Act, 2008 in which the definition of a beneficial owner is now inserted and it is now a requirement for companies to keep a register of natural persons who are beneficial owners in line with the new definition
- the Financial Sector Regulation Act, 2017 in which a new chapter is inserted dealing with beneficial owners providing a definition of beneficial owner, and empowering standards and regulator’s directives to be made in relation to beneficial owners
As defined by the Organisation for Economic Co-operation and Development (“OECD”), a beneficial owner is a natural person (individual or individuals) who effectively owns or controls a legal entity[5]. In essence by placing emphasis on beneficial owners, the General Amendment Bill seeks to introduce to the South Africa legal structure, a higher level of transparency. It is no secret that anonymity is the fuel on which illicit flows of funds and fraudulent activity thrive, therefore, making transparency the key focus builds the integrity of the financial sector and paves the way for more efficient law enforcement efforts.
It is anticipated that the efforts made by South Africa will remedy the strategic deficiencies in the regulation of the Financial Sector. As such, investors can feel more confident in the security and integrity of their investments in South Africa. Moreover, South African investors conducting business on international platforms will enjoy the positive reputational benefits. The General Laws Amendment Bill is a reassuring development that shows South Africa’s commitment to subscribe to international standards.
Author: Gil Sinjoki Intern Associate
