Financial Intelligence Centre Amendment Bill [B 33—2015] Briefing of the Standing Committee on Finance 23 February 2016 Outstanding Key Policy Issues from previous SCOF Meeting al intelligence centre REPUBLIC OF SOUTH AFRICA financial intelligence centre REPUBLIC OF SOUTH AFRICA  

Delegation Mr Olano Makhubela, Chief Director for Financial Investments and Savings, NT Ms Empie van Schoor, Chief Director for Legislation, NT Mr Raymond Masoga, Director for Financial Integrity, NT Mr Pieter Smit, Executive Manager for Legal and Policy, FIC Ms Poovindree Naidoo, Senior Legal & Policy Advisor, FIC

Key policy issues for consideration by the Committee following meeting with industry 1. Definitions 2. Beneficial ownership 3. Additional due diligence 4. On-going due diligence and single transactions 5. PIPs v PEPs

General remarks Consultative meeting held between National Treasury, FIC, FSB, SARB, BASA and ASISA to resolve definition issues and risk-based approach versus rules Important to note that new changes in the Bill will require on-going engagement even post Parliamentary process Single transaction issues resolved; Bill amended to enable threshold for single transaction in line with FATF Standards. Threshold to be determined by the Minister

1. Definitions “Client”: What constitute 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 Proposed Solution: The definition of ‘client’ and reference to ‘prospective client’ be removed from the Bill and left to AI to determine in line with its Risk Management and Compliance Program “Domestic prominent person” and “foreign prominent public official”: A concern was raised around including a detailed list of persons under the definitions Proposed Solution: The list of persons be removed from definition and moved to Schedules 5 and 6. New section 79A is proposed to empower the Minister, by notice, to amend the lists following public consultation

2. Beneficial ownership Concerns: 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 A threshold may be an important indicator for AIs to consider but does not automatically indicate who the BO is The institution must satisfy itself that it is in a position to determine who the beneficial owner is through, among other things, its Risk Management and Compliance Programme Propose Solution: Not in favour of including 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

3. Additional due diligence measures relating to legal persons, trusts and partnerships Concerns: Industry viewed Section 21B as very prescriptive and thus going against the proposed risk-based approach BASA 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’ of the section Challenge of compliance raised in the absence of a list of Beneficial Owners (BOs) for “verification” The FATF International Standard does not require a country to have a registry of BOs, but indicates preference for one Proposed Solution: It was clarified that S21B(3), (4) and (5) are meant to cascade – ie if your initial enquiry to identify person with controlling interest does not yield positive results, then you undertake further enquiries as per next provisions

4. On-going due diligence Concerns: A concern was raised around undertaking ongoing due diligence for prospective clients and given the possibility that they may decide not to continue with the business relationship Proposed Solution: It is proposed that the institution itself determine when an person becomes a prospective client or a client in accordance with its Risk Management and Compliance Programme

5. PIPs v PEPs (known close associates and immediate family members) Concerns: Definitions or list too broad and deviates from FATF International Standards, and requirements for due diligence onerous Important to appreciate that FATF standards/recommendations require a legal framework which compels financial and other institutions to pay special attention to business relationships with Politically Exposed Persons Proposed Solution: Important for Accountable Institutions (AIs) to use whatever means available in their disposal to obtain the relevant information from clients. This is an international challenge, not only for South Africa. FIC and supervisory bodies will regularly provide guidance to clarify areas of uncertainty Propose that references to previous spouse/civil partner/life partner be omitted Further propose that the provision in relation to domestic and foreign prominent person applies only to business relationships and exclude single transactions

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