In a bid to bolster its financial regulations and avoid potential “greylisting” by the Financial Action Task Force (FATF), South Africa has introduced a series of important amendments to its Anti-Money Laundering (AML) and Combating Terrorism Financing (CFT) framework. These reforms come as part of the country’s response to deficiencies highlighted in the FATF’s Mutual Evaluation Report, which, while acknowledging the comprehensiveness of South Africa’s laws, found a gap in the practical implementation and enforcement of these regulations.
At the heart of these changes are the amendments to the Financial Intelligence Centre Act (FICA) and the enactment of the General Laws (Anti-Money Laundering and Combating Terrorism Financing Amendment Act), commonly referred to as “the Act.” The changes rolled out between late 2022 and early 2023 mark a significant step in ensuring that South Africa aligns with international AML/CFT standards.
Important Amendments and Effective Dates
| Cash Threshold Reporting amount and reporting period | 14 November 2022 |
| New Accountable Institutions under Schedule 1 | 19 December 2022 |
| Changes to definitions of Politically Exposed Persons (PEPs) | 29 December 2022 |
| Inclusion of Proliferation Financing | 29 December 2022 |
| Discontinuation of Customer Due Diligence (CDD) in suspicious cases | 29 December 2022 |
| Administrative sanctions for structuring transactions to avoid reporting | 29 December 2022 |
The Act’s various provisions took effect on 29 December 2022, with some sections rolling out later on 1 April 2023.
Key Legislative Changes
1. Cash Threshold Reporting and New Accountable Institutions
As of 14 November 2022, the threshold for reporting cash transactions was adjusted, requiring Accountable Institutions (AIs) to report any transactions exceeding the new limits. In addition, the scope of AIs was expanded on 19 December 2022 under Schedule 1 of FICA, broadening the range of institutions required to comply with AML/CFT regulations.
2. Politically Exposed Persons (PEPs) and Proliferation Financing
On 29 December 2022, significant updates were made to the definitions of Domestic and Foreign Politically Exposed Persons (DPEPs/FPEPs), and a new category of Politically Influential Persons (PIPs) was introduced. This move enhances the due diligence required for high-risk individuals who may pose greater money laundering or terrorism financing risks.
Proliferation Financing (PF) was also formally prioritized, with a new definition introduced. PF refers to activities that provide financial support for the development or acquisition of nuclear, chemical, or biological weapons. AIs must now integrate PF risks into their Risk Management Compliance Programmes (RMCPs) to ensure they are mitigating these threats.
3. Beneficial Ownership and Trusts
One of the core themes of these amendments is an increased focus on Beneficial Ownership (BO) transparency. The legislation mandates that the Ultimate Beneficial Owners (UBOs)—those who ultimately control or benefit from a company or trust—be identified and verified. UBOs are typically individuals with over 5% shareholding or who exert control over an entity.
For trusts, trustees must disclose their positions when engaging with AIs and ensure that the institution is aware when a transaction relates to trust property. Trustees are also now required to maintain records of beneficial ownership and submit them to the Master of the High Court.
4. Nonprofit Organisations (NPOs)
Registered nonprofit organisations are now required to provide detailed information about their governance, control structures, and office-bearers. This information will be kept in a registry maintained by the Director of Nonprofit Organisations, providing greater oversight and reducing the risk of NPOs being used for illicit activities.
5. Customer Due Diligence (CDD) and Suspicious Transactions
A critical shift in AML/CFT compliance is the ability for AIs to discontinue CDD processes if continuing could alert the client to a potential suspicious report (known as “tipping-off”). In such cases, AIs are allowed to skip the usual due diligence and consider filing a report with the Financial Intelligence Centre (FIC).
6. Administrative Sanctions for Structuring Transactions
The new amendments also introduce administrative sanctions for AIs found to be structuring transactions to avoid reporting requirements. This emphasizes the need for full transparency in financial transactions and provides regulators with more enforcement tools to hold institutions accountable.
Impact on Accountable Institutions
These reforms, particularly the emphasis on Beneficial Ownership and Proliferation Financing, reflect a growing global focus on enhancing financial transparency. AIs must ensure their internal policies are up to date and comply with the updated regulations. With South Africa’s regulatory authorities expected to increase inspections throughout 2023, non-compliance could lead to severe penalties and reputational damage.
Conclusion
South Africa’s recent amendments to its AML/CFT laws are crucial in strengthening the country’s financial oversight and aligning with international standards. By expanding the scope of Accountable Institutions, enhancing the focus on Beneficial Ownership, and addressing new risks like Proliferation Financing, these changes aim to bolster the fight against money laundering and terrorism financing. As the country faces ongoing FATF scrutiny, it is essential for institutions to act swiftly and ensure full compliance with the new requirements, contributing to South Africa’s financial integrity and stability.
