Amendments to South African anti-money laundering legislation
Amendments in May 2017 to South African anti-money laundering (AML) laws bring South Africa’s AML legislation in line with the global standards determined by the Financial Action Task Force (FATF). To the extent that international banks already comply with the global AML standards, the amendments should not significantly impact their AML processes. Local banks and local branches of foreign banks which have been complying with previous South African AML standards will need to amend their procedures and policies.
On 2 May 2017, the Financial Intelligence Centre Act, 2001 (FICA) was amended by the Financial Intelligence Centre Amendment Act, 2017 (the FICA Amendment). The amendments provide for more extensive customer due diligence procedures and the on-going monitoring by banks and other regulated institutions of the business relationships, sources of wealth and sources of funds of “domestic prominent influential persons” and family members and close associates of such persons in South Africa.
The FATF developed a series of Recommendations (the Recommendations) that are recognised as the international standard and norms for combating money laundering and the financing of terrorism and proliferation of weapons of mass destruction. As a member of the FATF, South Africa has undertaken to meet these standards.
The FICA Amendment now amends FICA in order to better comply with these standards and FATF Recommendations and ensure South Africa’s continued membership with the FATF.
Broadened scope of the FICA Amendment
Accountable institutions, including local and foreign banks conducting the business of a bank in South Africa, are now required to ensure that customer due diligence is undertaken in respect of legal entities, beneficial owners of legal entities and persons (whether local or foreign) in prominent positions. For example, the amended section 21B of FICA requires that, where a client is a legal person, the accountable institution is required to establish the identity of the beneficial owner of the client by determining the identity of (i) each natural person who, independently or together with another person, has a controlling ownership interest in the legal person; (ii) each natural person who exercises control of that legal entity through some other means; or (iii) each natural person who exercises control over the management of the legal person.
Enhanced customer due diligence
The amended section 21 of FICA introduces a number of additional customer due diligence requirements, most importantly in respect of legal persons, partnerships or trusts. Where an accountable institution is unable to:
establish and verify the identity of a client or other relevant person;
obtain the information which reasonably enables the accountable institution to determine whether future transactions that will be performed in the course of the business relationship are consistent with the institution’s knowledge of that prospective client; or
conduct on-going due diligence which includes: (i) monitoring of transactions undertaken through the course of the relationship; and (ii) keeping information obtained for the purpose of establishing and verifying the identities of clients up-to-date,
the accountable institution: (a) may not establish a business relationship or conclude a single transaction with a client; (b) may not conclude a transaction in the course of a business relationship or perform any act to give effect to a single transaction; and/or (c) must terminate, in accordance with its Risk Management and Compliance Programme (as defined below), any existing business relationship with a client.
The FICA Amendment also provides for customer due diligence requirements for specifically identified “domestic prominent influential persons” and “foreign prominent public officials”. Where an accountable institution has identified that the prospective client falls into one of these definitions, it must obtain senior management approval for establishing the business relationship, take reasonable measures to establish the source of wealth and source of funds of the client, and conduct enhanced on going monitoring of the business relationship.
An accountable institution that fails to comply with its duties in respect of the new customer due diligence provisions of the FICA Amendment is non-compliant and subject to administrative sanction.
Risk Management and Compliance Programme
Section 42 of FICA previously required that an accountable institution implements internal rules to meet its “know your customer” obligations. The FICA Amendment has wholly replaced this section and replaced it with an obligation that all accountable institutions develop, document, maintain and implement a programme for AML and counter terrorist financing risk management and compliance (the Risk Management and Compliance Programme).
The FICA Amendment further provides a number of requirements for an accountable institution’s Risk Management and Compliance Programme:
The board of directors, senior management or other person or group of persons exercising the highest level of authority in an accountable institution must approve the Risk Management and Compliance Programme of the institution and ensure its continued compliance with the prescribed requirements.
The Risk Management and Compliance Programme must be reviewed at regular intervals and, on request, make a copy of the documentation describing its Risk Management and Compliance Programme available to (a) the Financial Intelligence Centre (the FIC), or (b) a supervisory body which performs regulatory or supervisory functions in respect of that accountable institution.
An accountable institution will be subject to an administrative sanction if it fails to:
develop, document, maintain and implement a Risk Management and Compliance Programme in terms of the amended section 42 of FICA;
obtain approval for its Risk Management and Compliance Programme;
review its Risk Management and Compliance Programme at regular intervals;
make the Risk Management and Compliance Programme available to its employees; or
make a copy of its Risk Management and Compliance Programme available to the FIC or a supervisory body in terms of the amended section 42 of FICA.
Recognition of resolutions by the UN Security Council
The FICA Amendment provides for the implementation of financial sanctions and the administration of measures pursuant to resolutions adopted by the UN Security Council, including the freezing of property and transactions.
On 13 June 2017, the Minister of Finance (the Minister) announced the commencement of a number of the FICA Amendment provisions, most of which contained only minor amendments to the current FICA provisions. More importantly, the Minister determined that the majority of the amendments described in this article will take effect on 2 October 2017. The Minister also released draft amendments to the Money Laundering and Terrorist Financing Control Regulations (the Regulations) and a draft withdrawal notice of exemptions previously made under FICA (the Withdrawal Notice) for public comment. These draft documents can be found on the National Treasury website (www.treasury.gov.za) and the Financial Intelligence Centre website (www.fic.gov.za). We will provide details of the amendments to the Regulations and the Withdrawal Notice in a separate note once we have more clarity on the intended final amendments to the Regulations and the Withdrawal Notice.
This case summary is part of the Allen & Overy Legal & Regulatory Risk Note, a quarterly publication. For more information please contact Karen Birch – email@example.com, or tel +44 20 3088 3710.