Financial Intelligence Centre Amendment Bill [B ]

Transcription

1 Financial Intelligence Centre Amendment Bill [B ] Briefing of the Select Committee on Finance 20 May 2016 Presentation by National Treasury and Financial Intelligence Centre financial intelligence centre al intelligence REPUBLIC OF SOUTH AFRICA OF AFRICA 1

2 Discussion points 1. Combating financial crime a priority 2. Motivation for the review of the FIC Act 3. Financial Action Task Force (FATF) 4. Risks and costs of South Africa s non-compliance 5. Objects of the Bill 6. Prominent Influential Persons 7. Beneficial ownership 8. Other related measures 9. Consultations 10. Contested policy issues and their resolution after tabling 11. Measures to smooth-in implementation 2

3 1. Combating financial crime a priority Combating financial crime is a key policy priority in South Africa and internationally Priority was endorsed by Cabinet in 2011, with the publication of the NT policy document, A safer Financial Sector to serve South Africa better Anti-Money Laundering (AML), Combating the Financing of Terrorism (CFT) and Anti-corruption measures give effect to this priority Legislation and regulatory framework must be robust to give effect to the above priority i.e. legislation must require financial institutions to identify proceeds of unlawful activities (e.g. drug and human trafficking, terror finance) and to assist in combatting such financial crimes South African courts take financial crimes seriously (J Arthur Brown), but also need strong robust legislation to enforce and give effect to the priority crimes 3

4 2. Motivation for the review of the FIC Act International standards on combating financial crime (FATF/UN) have evolved Measures on AML and CFT have changed substantially since the enactment of the FIC Act in 2001 Current measures in South Africa have fallen behind! Significant gaps in SA s regulatory system Financial Action Task Force (FATF) Mutual Evaluation on South Africa in 2009 identified significant gaps in SA s system SA under constant FATF follow ups to monitor compliance improvements and must report on progress at every FATF Plenary Urgent improvements required Local experience with implementing current FIC Act has indicated improvements that need to be made to enhance quality of information and and investigation of financial crimes 4

5 3. Financial Action Task Force (FATF) FATF is an intergovernmental body established in 1989 by Ministers of its member countries Sets global standards and promotes effective implementation of legal, regulatory and operational measures for combating money laundering, terrorist financing and other related threats to the integrity of the international financial system South Africa has been a member of FATF since 2003 and has also held the Presidency of the 17 th Plenary, in , under the leadership of the late Professor Kader Asmal FATF global standards are based on best practice and collective experience of its members in combating financial crimes such as money laundering and terror financing 5

6 4. Risks and costs of South Africa s non-compliance AML/CFT standards have received international priority of lately Regulators now impose heavy fines on financial institutions failure to comply Governments, financial institutions and businesses in many countries are reluctant to do business with countries considered to have weak AML/CFT regimes resulting in international trade and investment links cut-offs, and low growth Non-compliance could result in South Africa being on a global blacklist resulting in international trade and investment links cut-offs, and low growth South African financial institutions may face heavy fines by overseas regulators eg Standard Bank fine by the UK regulator, FCA Such fines damage the reputation of the country and financial system South Africa is one of the early members of FATF Difficult for SA to remain an active member if it cannot adhere to FATF standards and best practice 6

7 5. Objects of the Bill Align to good global practice and international CFT/AML standards To ensure compliance with FATF Recommendations in relation to South Africa s 2009 Mutual Evaluation and the revised FATF standards Enhance Customer Due Diligence requirements (ie Know-Your-Customer) So that institutions understand the nature and purpose of the business relationship they enter into with their clients Provide for enhanced customer due diligence measures relating to foreign (and domestic) Prominent Persons and beneficial owners Provide for the implementation of the UN Security Council Resolutions In relation to freezing of assets of persons suspected of financial crimes Introduce risk based approach in the identification and assessment of AML/CFT risks (as per FSAP Recommendations also) This will assist in managing compliance burden and costs Support financial inclusion 7

8 6. Prominent Persons Background Concept of Politically Exposed Persons was adopted in line with Article 52 of the United Nations Convention Against Corruption ( UNCAC ) South Africa became a signatory to the UNCAC on 9 December 2003, and on 22 November 2004, became the 11 th country to ratify this convention Definitions in Bill Domestic Prominent Influential Persons - Individuals who are or have been entrusted with prominent public OR private functions (i.e. President, senior politicians, senior government, judicial or military officials, senior executives of state-owned corporations, important political party officials, chief executive officer or chief financial officer of a company which provides goods or services to an organ of State of a certain transactional value) Foreign Prominent Public Official (persons) - Individuals who are or have been entrusted with prominent public functions by a foreign country (i.e. Head of State, members of foreign royal families, senior politicians, senior government, judicial or military officials, senior executives of state-owned corporations, important political party officials) 8

9 6. Prominent Persons cont Measures are not harmful These measures are meant to enhance the (ongoing) due diligence responsibilities of financial institutions Does not mean that prominent persons are presumed to be involved in financial crime Measures are not meant to stigmatise or victimise prominent persons, or to (out-rightly) prevent them from accessing financial services Institutions will still be able to transact with prominent persons, but will have to ensure that they understand the exact nature of their client to manage potential financial crime risk 9

10 6. Prominent Persons cont. What are implications for the institution? When an institution determines that a customer is a foreign prominent public official (person) based in South Africa, it must then Obtain senior management approval for establishing the business relationship Take reasonable measures to establish the source of wealth and funds Conduct enhanced on-going monitoring of the business relationship Institutions must assess the level of risk associated with business relationships with a domestic prominent person only after they identify them as a prominent person i.e. Domestic Prominent Influential Persons are not assumed to be high risk as a default Institutions will apply similar control measures as described above for Foreign Prominent Persons only if there is higher risk with the Domestic Prominent Influential Person Domestic Prominent Influential Persons, therefore, are not assumed to be higher risk, but foreign prominent persons are 10

11 7. Beneficial ownership Institutions, in addition to verifying the identities of their customers which are not natural persons, need to Understand the nature of the entity s business Understand its ownership and control structure Know who the natural persons are who ultimately own or control their customers/entities (i.e. the customer of the bank) This is to ensure that transgressors do not hide their true identities behind legal or corporate structures like trusts or companies 11

12 8. Other related measurers Implementation of the UNSC Resolutions relating to the freezing of assets To empower the FIC to require accountable institutions to freeze property and transactions of identified natural and legal persons, pursuant to financial sanctions imposed in terms of the UNSC Resolutions Compliance with Constitutional Court Decision To comply with the Constitutional Court decision to first obtain a warrant when an inspector needs to enter premises which belong to unregistered or unlicensed institutions or which are private residences The Court has given the legislature till 27 February 2016 to amend the Act 12

13 8. Other related measurers cont. Extending the functions of the FIC in relation to sharing of information The functions of the FIC will be extended to allow the FIC to share information with more bodies dealing with investigations of criminal activities like the investigating units in the Defence Force and other organs of State, as well as the SIU and Public Protector Enhancing compliance oversight by supervisory bodies By providing supervisory bodies with controlled access to Suspicious Transactions Reports during inspections Dissolving the Counter-Money Laundering Advisory Council Other existing platforms will be utilised to discuss and coordinate matters of concern and of mutual interest on AML/CFT 13

14 9. Consultations National Treasury and the FIC issued a consultation document describing the proposals to all supervisory and key industry stakeholders in early 2014 Briefing and consultation meetings were conducted with all relevant supervisory bodies Comments were received from a wide range of participants which helped the FIC and National Treasury to formulate a proposed Amendment Bill The Bill was published for public comment in April 2015 following Cabinet approval The revised Bill was approved by Cabinet for tabling in September

15 CONTESTED POLICY ISSUES AND THEIR RESOLUTION AFTER TABLING Presentation made to SCOF: 20 April 2016 financial intelligence centre al intelligence REPUBLIC OF SOUTH AFRICA OF AFRICA 5

16 Definitions Record keeping Consultations Single transactions Beneficial ownership Additional Ongoing due diligence Risk Management and Compliance Programme Prominent Influential Persons (PIPs) versus Politically Exposed Persons (PEPs) 16

17 Definitions Client and Prospective client Concern: What constitutes a client may differ from one Accountable Institution (AI) to the other Prescription on definition of client may result in unintended consequences in some sectors such as attorney s profession and casino industry Solution: The definition of client remains, BUT prospective client is removed from the Bill and left to AI to determine in line with its Risk & Management Compliance Programme (RMCP) Domestic prominent person and foreign prominent public official Concern: A concern was raised around including a detailed list of persons under the definitions Solution: Bill amended to remove list of persons from definition and move it to Schedules 17

18 Record Keeping and Consultation Record Keeping Concern: Previous draft required that records be kept in South Africa, to enable easy and instant access by local authorities if required Solution: Bill deletes wording which requires that records be kept in South Africa. Records can be kept anywhere, on condition that access is guaranteed for authorities. Consultation Concern: Industry was concerned that it is not consulted sufficiently, generally and on specific supervisory instruments Solution: Bill now introduces provisions very similar to those in Financial Sector Regulation Bill, requiring general consultation forum and consulting on specific regulatory instruments by the FIC and Minister 18

19 Single Transaction and Beneficial ownership Single transaction Concern: Due diligence on single transactions onerous Solution: Bill amended to enable threshold for single transactions in line with FATF Standards, thereby reducing the extent of due diligence to be carried below threshold Beneficial Ownership Concern: Industry preferred a threshold to be attached to share capital similar to FATCA (10%), OECD common reporting standard and FATF (25%), as proxy for beneficial ownership Solution: Agreed that Bill should not include a threshold in the definition. Instead, the FIC and supervisory bodies will provide guidance with regard to determination of effective control, and threshold can be mentioned in the guidance note as one of the indicators 19

20 Additional due diligence measures relating to legal persons, trusts and partnerships & RMCP Additional due diligence measures Concern: Industry viewed Section 21B as very prescriptive and thus going against the proposed risk-based approach Industry read the entire section to mean they have to identify and verify both natural person owner and controller, thus not providing for the cascading effect Solution: S21B reworded to cascade i.e. first ascertain natural persons with controlling interest; if this fails, then ascertain natural persons who controls entity by other means; if this fails, then ascertain natural person who controls management of entity Risk Management and Compliance Programme (RMCP) Concern: Industry concerned that S42 is too prescriptive on what the RMCP must contain. Issue of risk-based versus rules-based approach. Solution: Bill now introduces flexibility (i.e. S42(2A)) by enabling the AI to deviate from the prescribed minimum subject to explanation; comply or explain principle 20

21 PIPs (South African) v PEPs (International) Concern: Definition or list too broad and deviates from FATF International Standards, and requirements for due diligence onerous; SA definition includes private sector PIPs Solution: Bill retains the broad definition which includes both persons in the public and private sector FATF standards/recommendations require a legal framework which requires AIs to pay special attention to business relationships with Politically Exposed Persons But note that public sector persons will also have private sector counterparts List limited to prominent private sector persons doing business with State, AND of certain value Provisions in relation to domestic and foreign PIPs apply only to business relationships and excludes single transactions References to previous spouse/civil partner/life partner maintained General comments Concern around lack of private sector list acknowledged, and there are some developments around procurement to facilitate list (e.g. e-tender portal) Still important for Accountable Institutions (AIs) to use whatever means available in their disposal to obtain the relevant information from clients 21

22 Measurers to smooth-in implementation Risk-Based Approach versus Rules Concern: Bill is too prescriptive and rules-based on certain provisions Solution: Relevant provisions will require constant interaction between supervisory bodies and AIs post-enactment (e.g. timeline programme) Prominent Influential Persons (PIPs) Concern: Absence of private sector PIPs list will make implementation difficult Solution: Minister to delay effective date of the provisions relating to private sector PIPs until availability of list However, note Risk-Based system AND shortcomings of lists Exemptions to be considered for certain specific industries where justified Guidance will be issued by FIC/Supervisory Bodies, e.g. beneficial ownership Compliance costs will be continuously assessed and monitored with industry Parliament can request report back on progress of implementation 22

23 THANK YOU 23