There has been a flurry of activity in the last two months, as parliamentary committees requested and considered submissions on amendment bills introduced in a desperate attempt to avoid greylisting from the Financial Action Task Force (FATF). 

The FATF is an international organisation tasked with developing policies to combat money laundering and terrorism financing. The FATF maintains a black list and a grey list which have led financial institutions to shift resources and services away from the listed countries, and thereby motivated governments to introduce regulations that are compliant.

South Africa faces greylisting because of its weak anti-corruption and anti-money laundering efforts – hence the rush to introduce new legislation.

The bills – the Protection of Constitutional Democracy from Terrorism and Related Activities Amendment Bill and the General Laws (Anti-money Laundering and Terrorism Financing) Amendment Bill – were sent to the legislature on 19 July and 29 August 2022, respectively.

Both the Standing Committees on Finance and Police were told that the bills should be passed by November 2022 in order to meet a deadline imposed by the FATF. For those who have worked on parliamentary bill processes in the past, this was a fantastical timeframe.

The chairperson of the Standing Committee on Finance, Joe Maswanganyi, voiced his displeasure at the short period in which his committee was given to examine the bill. He said: “Don’t bring bills to Parliament that you want processed in one month. Parliament is a legislative body, not a department.”

But what are the causes and the effects of this rushed process? 

amaBhungane prepared submissions on both bills, so we have been privy to the way the public participation portion of the process has been conducted. That experience, and the research that informed our submissions, has given us a picture of an under-resourced law-making process concerned only with meeting the bare minimum requirements for legitimacy.

SA at 85% risk of being greylisted, so determined political will needed – and learning from Mauritius: report

The first report from the FATF, which detailed South Africa’s severe failings in preventing money laundering and terrorist financing, was published in October 2021. 

The FATF describes itself as “an independent, intergovernmental body that develops and promotes policies to protect the global financial systems against money laundering, terrorist financing and the financing of proliferation of weapons of mass destruction”. 

The FATF has 40 recommendations against which it evaluates countries. It found South Africa to be compliant with three recommendations, largely compliant with 17, partially compliant with 15 and non-compliant with five. 

Should South Africa not demonstrate progress in correcting those areas of poor compliance, the FATF will place the country on its “grey list” – countries under “increased monitoring” by the FATF. 

The executive was tasked with implementing measures to resolve the weaknesses identified by the FATF and avoid greylisting. The economic and financial risks of a failure to do so were well known. 

Business Leadership South Africa (BLSA) released a report last month describing the reputational damage greylisting would cause, and explaining that the enhanced due diligence and monitoring required for South African companies may disincentivise foreign financial firms from doing business in South Africa. 

The BLSA estimated the impact of greylisting on the country’s GDP at anywhere between one and 3%. 

The timeline to demonstrate meaningful progress was short: South Africa was required to provide the FATF with a progress report at the end of October 2022; in January 2023, South Africa and other FATF countries will meet to discuss the progress made; and in February 2023, the FATF’s plenary session will determine whether South Africa will be moved to the “increased monitoring” category. 

Visit Daily Maverick’s home page for more news, analysis and investigations

The importance of drafting and adopting laws to address the country’s financial crime shortcomings is undisputed. 

The FATF has recommended that South Africa adopt laws to govern the transparency of companies’ beneficial owners – that is, requiring companies to disclose all individuals who ultimately control or benefit from the company’s operations but who are not on share registers or director lists. 

Many of the corruption scandals amaBhungane uncovered involved shell companies or prominent individuals hiding behind puppet directors, and a regime requiring beneficial ownership transparency would respond directly to the loopholes corrupt individuals have exploited. 

There are therefore significant benefits to be gained from the amendment bills, and the urgency with which National Treasury has been forced to act because of the FATF deadlines brought an issue which had been in limbo for years to the front of the legislative drafting queue. 

However, that same urgency has also led to rushed drafting processes – to the detriment of the final legislation.

The Standing Committee on Finance called for public comments on the General Laws Amendment Bill on 27 September 2022, with a closing date for submissions of 10 October.

Oral submissions were scheduled for the following day, during which each organisation present had a mere 10 minutes to present their submissions. For a bill of this magnitude, involving amendments to four different pieces of legislation, this was an unreasonable time frame for commentators as well as the parliamentary committee members. 

It was immediately apparent that the bill from National Treasury had some significant weaknesses. 

The bill’s formulation of the beneficial ownership disclosure regime did not provide for access to that information for the media and other concerned members of the public, and so the bill’s provisions were insufficient to create a truly transparent and effective monitoring framework. 

More controversially, the bill required compulsory registration of all NGOs with the Department of Social Development, which created consternation in the non-profit sector. The submissions made on those points were lengthy and complex. 

The content of the bill appeared to be an attempt to include just what was needed for FATF approval, without a recognition of the need to respond to the unique circumstances of the country. 

After a massive outcry from civil society, Finance committee refuses to rubber-stamp greylisting bill

The Zondo Commission highlighted that a lack of transparency fundamentally contributed to the corruption in the State Capture era, but there was no attempt to reform our opaque financial disclosure systems. 

A previous legislative attempt to require compulsory NGO registration was withdrawn because of resistance from the nonprofit sector, yet that was the system Treasury chose for this amendment bill. It was almost as if Treasury was drafting in a vacuum. 

It was clear that a lot of work would have to be done by the Parliamentary Committee to work with Treasury to assess and respond to the public’s concerns and revise the bill before it could be presented to the National Assembly and the National Council of Provinces. But there was so little time in which to do that work. 

The timeline raises a series of red flags for the legitimacy of our law-making process. 

The team from National Treasury that engaged with the committee and responded to the concerns raised in the public submissions was diligent and competent, but hampered by the short time they were given to address the public submissions. 

However, it is deeply concerning that Treasury took just short of a year to prepare the draft for Parliament, knowing that would give Parliament a matter of weeks to evaluate and then adopt it. 

We know that Treasury is understaffed, and it is concerning that this seems to be impacting on their ability to efficiently and effectively formulate policy and draft legislation to respond to the country’s needs. 

The two-week period given to the public to make comments meant that many individuals and NGOs were not able to provide submissions or, if they did, were not able to include comprehensive assessments of the bill’s provisions and their impacts. 

Allocating only 10 minutes for oral submissions meant the presentations were rushed and incomplete. 

The public participation phase in law-making is not merely a check-box exercise, and the input from members of the public is valuable to the legislative drafters. That Treasury reworked certain elements of the registration requirements for NGOs as a result of comments from that sector demonstrates this. 

The harried nature of the process for this bill hampered meaningful input from the public on the tangible effects of the bill being thoughtfully considered by the executive and legislature. 

The final version of the bill sent to the National Council of Provinces did not address many of the concerns raised in the public submissions on transparency and accountability. 

Comically, the committee was also delayed in sending the bill to the NCOP because load shedding interfered with a meeting in which it was to adopt the revised bill. Beyond their direct control, perhaps, but an indication of the ripple effects of government’s mismanagement. 

Law-making is a complex process, and these bills involve highly technical considerations. 

Both bills related to matters of national importance: the goal of avoiding listing and of strengthening our monitoring and accountability mechanisms for financial crime and corruption. Unfortunately, the regimes created by the bills as they stand are not strong enough to contribute materially to the fight against financial crime. 

We all deserved more from the executive and legislative arms of government in their handling of this law-making process. DM 

Caroline James is amaBhungane’s advocacy coordinator.