EPaper

Race to finish after being asleep at wheel

● Sithole (@coruscakhaya) is an accountant, academic and activist.

Just over 20 years ago, SA’s commitment to addressing money laundering and illicit financial flows was stamped into law through the adoption of the Proceeds of Crime Act and the Financial Intelligence Centre Act.

These two laws, which focus on preventing organised crime and establishing proactive vigilance over the country’s financial ecosystem, were regarded as progressive enough to earn SA membership of the rather exclusive Financial Action Task Force (FATF) in 2003.

FATF membership allows SA to be embraced as part of a group of nations with trusted and stable financial systems that are able to attract foreign investors with ease. The philosophical view is that countries that comply with the FATF recommendations are likely to have financial systems that are resistant to infiltration by agents of money laundering, terrorist financing and illicit financial flows.

SA’s accession to FATF membership came at a time when the memories of 9/11 were fresh in the minds of regulators and had created a sense of urgency around international financial market reforms. Since then the techniques used to finance terrorist crimes and launder money have kept evolving.

The rise of cryptocurrencies, with poor regulation and the ability to bypass traditional transaction mechanisms, has presented a new opportunity for perpetrators of financial crimes. For countries that wish to remain on the right side of the vigilance divide, the need to adapt existing laws and regulations to keep up with malicious intentions is a critical criterion for continued membership.

For SA, the evolution in the nature of financial crimes since the adoption of the Proceeds of Crime Act and the Financial Intelligence Centre Act has resulted in an oversight system that no longer meets its intended objectives. In the mutual evaluation conducted in 2019 by the FATF, SA rated poorly in various key measures of compliance with the guidelines relating to addressing money laundering and terrorism financing.

Of the 40 core technical compliance requirements, SA failed 20. For effectiveness, SA failed all 11 measures. Such a dire performance should have galvanised policy-makers to urgently address the deficiencies identified, since given the complicated regulatory landscape in the country, the process of

addressing the deficiencies required the update of multiple laws and regulations before the beginning of 2023, when the FATF will meet to consider the country’s progress.

Failure to meet expectations will result in SA being greylisted by the FATF, the consequences of which include higher transaction costs for SA financial institutions that transact with international peers, together with adverse effects on foreign investment.

In recent weeks, the National Treasury has sought to apply an emergency approach to passing the legislation aimed at addressing the deficiencies. Given the complexity, requirements for public consultation and the tight timeline, this self-imposed emergency reflects the rather poor state of governance underpinning our legislative process and parliament’s notorious sense of lethargy.

IMPLEMENTATION

An omnibus bill — an attempt to simultaneously amend five acts housed under four different ministries — is the Treasury’s attempt to win the race against time. But such is the complexity of what it is trying to achieve, even that ambitious bill actually addresses just one of the three core recommendations.

Even if such bills pass, the difficult part will be exhibiting willingness and capacity to implement the amendments effectively. This is because the FATF process looks beyond the drafting of laws and specifically assesses the effectiveness of implementation. It is difficult to imagine that SA can do anything to test the effectiveness of these amendments before February.

Perhaps more embarrassingly for the country, the Phala Phala saga — where the claim is that a foreign business person arrived on holiday with $580,000 in hard currency and then randomly stumbled on a farm on Christmas Day and decided to spend it all on buffaloes that he never collected — suggests that our sense of vigilance is extremely poor under the existing laws.

Whether anyone will take us seriously once they’re amended remains to be seen.

OPINION

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2022-12-08T08:00:00.0000000Z

2022-12-08T08:00:00.0000000Z

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