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What the #FIC is going on?

Dec 04 2016 06:16
Ferial Haffajee

Johannesburg - After he died, it turned out that former Nigerian strongman Sani Abacha had $4.5bn (R63.5 billion) in his Swiss bank account – perhaps the most jaw-dropping evidence of looting on our continent, but not the only one.

Until global rules on money laundering were crafted, the canon of secrecy that governed banks, especially European and Swiss banks, was watertight.

It changed after the 9/11 attacks on the World Trade Center in New York, when governments pushed to pierce the veil of secrecy to enable them to trace the funding of global terror.

READ: Remembering NeneGate: 4 days in December

Money laundering pacts also allow countries to crack down on Mafia activities and drug cartels.

The Financial Action Task Force was established in the 1990s to coordinate and strengthen efforts to combat money laundering.

Says Treasury’s deputy director-general, Ismail Momoniat: “As Africans, we have a big stake in this [anti-money laundering protocol]. It ensures that funds from Africa are not taken out illicitly to European and other banks.”

Where did that money come from?

The system works on the assumption that inexplicable money flows are assumed to be illegal.

To ensure South Africa’s compliance, the ANC-led government joined the task force in 2003 and passed the Financial Intelligence Centre Act (Fica) to comply with best practice in following hot money.

Now it requires a further amendment to make it compulsory for banks to scrutinise what are called “politically exposed persons”, or PEPs.

Abacha, for example, would have been marked as a PEP and his accounts put on heightened alerts. This would have saved Nigeria’s fiscus. Fifa boss Jack Warner was caught with his ill-gotten football gains when his sons tried to deposit cash, which set off suspicious activity reports.

Zuma: It’s unwarranted

This week, President Jacob Zuma sent the amendment by the Financial Intelligence Centre (FIC) back to Parliament, saying it did not pass constitutional muster as he was concerned about provisions for searches without warrants.

In November, the Council for the Advancement of the SA Constitution filed papers in the Constitutional Court to force the president to act on the financial intelligence law.

By sending the draft law back to Parliament, Zuma avoided another case being brought before the highest court.

Also last month, the ANC’s national executive committee said the bill should be passed as soon as possible to prevent our banking system falling foul of global rules.

Mzwanele Manyi, the president of the Progressive Professionals Forum, has been a vocal lobbyist against the draft law.

READ: A Mafia state in the making #4DaysinDecember

Television station ANN7, which is owned by the Gupta family, has also campaigned against it. The family’s accounts are likely to face increased scrutiny as the new draft law makes provisions to red flag the accounts of foreign exposed persons. The Guptas fit this definition because of their proximity to Zuma.

The leak of the Panama Papers was an exposé of one company’s management of private accounts in Panama, but its ripple effect was to make people around the world opposed to secrecy in banking.

“Tax crimes, money laundering and illicit flows are part of a complex set of phenomena, which are undermining good governance, ethical politics and governance, and civil society programmes,” said Finance Minister Pravin Gordhan at a conference on illicit financial flows earlier this year.

He continued: “The focus of PEP in the FIC amendment bill does not seek to unfairly exclude honest, law-abiding citizens from the financial sector. Rather, it seeks to place a greater obligation on financial institutions to ensure their due diligence is strong enough to properly understand the source of funds or the wealth of such influential persons, and in this respect seeks to reduce the scope for funds to move illicitly.”

READ: Now Nene’s into the finance of farming

Banks imperilled

It took a full year to pass the draft through both houses of Parliament, after numerous comments from industry and the public in the period open for public comment.

The banks do not like the laws as they make customers nervous and include lots of new red tape, but this is the price of doing business in a global economy.

Cas Coovadia, the CEO of the Banking Association of SA, said the industry believed the law should be passed.

South Africa is likely to miss a Financial Action Task Force deadline to make the required legal changes.

This means our FIC law is now dated and places South Africa’s banks at risk, while global authorities on anti-money laundering say that South Africa’s anti-money laundering systems are poor. South Africa risks a motion of censure from the task force and its banks, which puts it at risk of being booted from access to the global banking system.


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