Fica bill delay exposes SA to exclusion from global financial system – expert

Failure by President Zuma to sign Fica bill into law exposes the country to intense scrutiny and monitoring from Financial Action Task Force. This may have damaging repercussion on the country’s economy.

This is a warning given by Tony Canny, head of forensics and white collar crime at Hogan Lovells.

Canny says that failure by countries to implement the agreed international standards for anti-money laundering and combatting of terrorist financing exposes them negative global perception relating the stability of the financial systems in place in South Africa, and the amount of risk associated with those financial systems. This is view is also support by Financial Intelligence Centre Report.

“In extreme cases, countries have been subjected to forms of exclusion from the global financial system. Local accountable institutions may face penalties and reputational damage as a result,” Canny says.

According to the Global Fraud Report, an annual publication by Kroll, which ranks regions according to their exposure to incidents of cyber fraud, sub-Saharan Africa has the third highest exposure to incidents of cyber fraud in the world.

Canny says South Africa is a target for cybercrime on the African continent due to comparatively high internet connectivity in relation to other African countries. This, he says, will make the country vulnerable to cyber financial crime.

Zuma referred the bill back to Parliament after he raised concerns that the bill may be unconstitutional. Zuma raised the concerns regarding constitutionality of warrantless searches contained in the Fica Amendement bill, in particular, whether warantless searches could amount to unjustifiable infringement of the right to privacy as contained in section 14 of the Bill of Rights.

The amendments proposed by the National Treasury, earlier this year, aimed to alleviate those concerns by restricting the circumstances, under which warrantless searches can be conducted. In terms of the Fica Amendment Bill, an inspector conducting an inspection without a warrant must do so at a reasonable time and within ordinary business hours or as closely within ordinary business hours as possible. Suspects must be given reasonable notice, and the inspection must be conducted discreetly with due decorum and causing as little disturbance as possible.

When contacted, Yunus Carrim, the chairperson of parliamentary finance committee, was agitated. “Listen this thing is out of my hands now. We made all the changes the Presidency requested, and there is very little I can offer by way of comment and what else can be done to make him sign it.”

South Africans joined the Financial Action Task Force in 2003. It is an international watchdog that monitors the progress of its member countries in implementing money laundering and terrorist financing countermeasures, and promotes the implementation of appropriate measures globally with the aim of protecting the international financial system from misuse. “A key effect of the Fica Amendment Bill, is to bring South Africa in line with international best practice, as contained in those standards, regarding the implementation of measures to counter and eradicate money laundering, terrorist financing and the illicit flow of money in general,” Canny explains.

The delay in assenting the bill into law is also costing the country millions of rands. According to the Financial Intelligence Centre Report for 2016, the value of funds blocked by proceeds of crime was R184.6 million, the majority of which went to the Criminal Asset Recovery Fund.

Earlier in the year, opposition parties speculated that one of the other reasons the president is hesitating in promulgating this piece of legislation is the section on prominent influential persons. They argued that signing it into law will empower authorities to target politically connected Gupta business empire. Canny says “these [are] individuals, both domestic and foreign, who occupy prominent positions in the public and private sector. Such persons are likely to be exposed to corruption, on a larger monetary scale, in their day to day business dealing”.

And the banks are also worried about the impact of this delay on their business operations. The bill envisages a regulatory framework where accountable institutions will be required to conduct ongoing due diligence. Institutions are also required to scrutinise transactions throughout the business relationship with their customers to ensure consistency with that accountable institutions’ knowledge of their customer.

Canny belives that “the most obvious effect, is to enhance the accountable institution’s ability to detect an unusual transaction concerning their customer”. South Africa’s four major banks are currently embroiled in a drama with the Gupta-owned businesses after closing their accounts due to suspicious business transactions. The matter is currently before the courts with with former finance minister having asked, before he was reshuffled, the court issues a declaratory order that he cannot interfere in the row between the banks and the Gupta businesses due to closes accounts.

Oakbay Investments, owners of ANN7 and New Age newspaper, agreed in court papers that they wanted Gordhan to lobby the banks on their behalf.

Cas Coovadia, managing director of the Banking Association of South Africa (BASA), is equally baffled. He told the Citizen: “There were no constitutional issues with the section, and 5 Senior Counsels agreed on that. Minor amendments were made to make emphasis what was already implicit in the Bill, particularly regarding processes to effect warrantless searches.”

He reiterated that the concerns raised by the president were deemed to be invalid from a constitutional point of view.

Council for the Advancement of South African Constitution (CASAC)  has previously indicated they might ask Constitutional Court to force the president to sign the bill into law without any more delays.

Financial Intelligence Centre (FIC), a statutory body established in terms of Financial Intelligence Centre Act (2001, amended in 2008), tasked with, among other core duties, identifying proceeds of unlawful activities and combatting money-laundering activities, is satisfied that the law will pass constitutional muster.

“The amendments relate to the confirmation of the fact that supervisory inspections cannot be undertaken with a view to gather evidence for use in criminal prosecutions and to describe in more detail how such inspection are to carried out, in particular in exceptional cases where a warrant may not be required,” Panna Kassan, a spokesperson for FIC, confirmed to the Citizen.

Presidential spokesperson Dr Bongani Ngqulunga failed to respond to emailed questions.