FATF Grey Listing and Legal Tech – A South African Perspective

On the 24 February this year, South Africa along with 22 other jurisdictions were grey listed by the Financial Action Task Force (FATF). In this interview we speak to Rian Hancock, CEO at Africa NewLaw, about the impact that grey listing had on legislation and regulation and how this in turn impacts affected companies and related professionals.

Africa NewLaw is a consultancy that helps its customers modernise their legal functions with technology that delivers more value for their legal spend.

The recent grey listing of South Africa by the FATF has put more pressure on affected companies and related professionals through legislation that should strengthen measures which lead to a more effective compliance function. Can you please provide an overview of the changes in legislation that were implemented?

In response to the impending grey listing, South Africa had initiated changes to its Anti-Money Laundering (AML) legislation in late 2022. Notably, in November of the same year, accountable institutions were expanded to include entities such as co-operative banks, credit providers, money and value transfer providers, high-value goods dealers, the South African Mint Company, individuals involved in crypto asset activities, and clearing participants. These changes were made in line with Schedule 1 of the Financial Intelligence Centre Act (FICA).

Furthermore, on December 22, 2022, the President of South Africa signed the General Laws (Anti-Money Laundering and Combating Terrorism Financing) Amendment Act into law. This law went into partial effect on December 31, 2022, and the remainder on April 1, 2023. Some sections of the Trust Property Control Act are yet to be enacted.

Here’s a summary of the amendments in different legislative acts:

1. Trust Property Control Act: Amendments aim to enhance the management and disclosure of beneficial ownership information regarding trusts. These changes involve redefining the “beneficial owner” and introducing new requirements for trustees to establish, record, and maintain beneficial ownership details.
2. Non-profit Organisations Act: Amendments allow the Directorate for Non-profit Organizations to collaborate with other government bodies. The changes also impact non-profit organizations, particularly those donating or providing services outside South Africa, and introduce compliance requirements and penalties for those who fail to meet them.
3. Financial Intelligence Centre Act: Amendments include expanded objectives and powers for the Financial Intelligence Centre (FIC), with changes to Customer Due Diligence (CDD) and Politically-Exposed Persons (PEPs) provisions. They also empower the FIC to establish partnerships and access information held by government entities. The definition of “beneficial owner” is broadened, and requirements for maintaining beneficial ownership information are updated.
4. Companies Act: The Amendments involve the introduction of definitions for “affected company” and “beneficial owner.” They also disqualify individuals from serving as directors or prescribed officers if convicted of certain financial crimes. Furthermore, they mandate the maintenance of beneficial ownership records, including annual returns, securities registers, and beneficial interests registers.
5. Financial Sector Regulator Act: This Act introduces a significant change by incorporating the concept of beneficial owners through a new Chapter 11A.

These legislative amendments reflect the country’s efforts to enhance its AML framework and promote greater transparency in various sectors. It is crucial for businesses and organizations to stay informed and make necessary adjustments to ensure compliance with these regulatory changes.

This Increased anti-money laundering regulatory pressure is also making affected companies look for solutions that can assist them in managing the complexity involved.

Africa New Law brings together three very important components of the journey that affected companies must pass through in order to implement an effective compliance system – legal expertise, operations and technology. Can you explain how these three important aspects work together to strengthen any compliance system?

Without trying to sound cliched, your compliance function, even as a cost centre, should be subject to the same drive towards efficiency and effectiveness in order to unlock new opportunities and values. In order to do this, you need to focus on your key enablers, being your people (or legal expertise in these circumstances), your process and your technology. Your people and your process are supported by your technology. Your technology affords your function to leverage data to improve your process which supports your people to do more with less. Automation plays a very important role in this.

We agree that automation is a very important part of this process. Can you please explain how leveraging software and technology enables automation and how this, it turn, prepares the compliance function and the organization for the future?

In a compliance context, there are still numerous tasks that are manual and need a person to fulfil. However, there are numerous tasks that can be automated through a fit for purpose technology solution. If we can automate the mundane administrative tasks for the compliance function, this in turn unlocks capacity within the function to focus on the high complexity tasks which are pre-emptive instead of reactive. This allows for the compliance function to better prepare for future compliance related requirements but also with the ability to be flexible to deal with any uncertainties that arise.

And which other important aspects can be addressed using technology to ensure a robust compliance process?

There are a number of areas where technology can help. Workflows can be enforced to ensure consistency and audit trails help keep an eye of who is doing what to ensure consistency in the way customers are processed.

Software can also provide quality data which allows the ability to turn this data into intelligence through analytics. This results in better decision making across the function and within the organisation to better manage compliance risks.

Technology is also aimed at supporting the user to do more with their finite time. This allows a compliance function to move from reactive to proactive in their approach. Having a single source of truth also mitigates risks and allows for data accuracy and sanctity.

And automated alerts ensure that things never get out of hand. Standardised processes which includes automation around reporting, both eternally and internally, ensures that important periods and requirements are met, which ultimately reduces the overall risk for the organisation. Better management of risks through effective controls once again unlocks capacity within the compliance function to focus on other areas to ensure continuous improvement.

The right solution also provides you with the ability to audit your compliance function and provides important functional data for continuous improvement. It also unlocks the ability to rely on organisational data for decision making and the ability to demonstrate performance of both the function and the organisation.

At Africa NewLaw, we are focused on helping our customers find solutions for AML Compliance Management that are effective, efficient and fit-for-purpose to deliver more value for their legal spend. It is within this context that we have selected InScope-AML from amongst a number of AML Compliance Management tools to be able to offer our clients an anti-money laundering compliance management tool that ticks all the boxes.