Treasury has agreed to urgently meet the non-profit organisation (NPO) sector to address its concerns about a bill that aims to strengthen SA’s regime against money laundering and the financing of terrorism.
The sector and the JSE raised concerns over the General Laws (Anti-Money Laundering and Combating Terrorism Financing) Amendment Bill in a meeting of parliament’s finance committee Tuesday.
The JSE says the bill’s onerous requirements regarding the disclosure and reporting of beneficial ownership would not be feasible for publicly listed companies.
The bill aims to address some of the legislative deficiencies in SA’s regime to combat money laundering and the financing of terrorism.
SA is faced with possible greylisting by the Financial Action Task Force (FATF) when it meets in February 2023, because of general deficiencies in its regime. Greylisting would have dire consequences for the economy and in particular the financial sector, as it will heighten the perceived risk of doing business with the country.
This makes the passage of the bill urgent, but there is still a long way to go before its final adoption by parliament. Financial Intelligence Centre (FIC) executive manager Pieter Smit said FATF would only regard an outcome that is achieved by fulfilling its requirements and the mere processing of a bill by parliament would not be sufficient. Neither would it consider a request for an extension.
Far-reaching consequences
The JSE and several NPO organisations complained about the lack of adequate public participation on the bill, which is required by the constitution. The NPOs warned of far-reaching consequences of the bill proposing to make their registration compulsory (it is voluntary at the moment). They maintain the bill’s proposals, which would affect voluntary and religious organisations, were disproportionate to its objectives.
The committee decided to allow for further public participation while it continues to process the bill. This will require that it works overtime to avoid delays in the process.
Treasury chief director of financial sector policy Vukile Davidson said Treasury would engage urgently with the NPO sector to deal with its concerns. He believed a middle ground could be found.
“There may be a way forward to reconcile some of the issues in a way that does not imply huge delays. It is possible, I think, to meet each other on these issues” including constitutional concerns, which he did not believe were insurmountable, as well as proportionality issues.
Onerous burdens on listed companies disincentivises them from raising capital on an exchange or remaining listed, which has a negative outcome for the growth, viability, transparency and global attractiveness of the South African market.
— Anne Clayton, JSE head of public policy
JSE head of public policy Anne Clayton said the implementation of the proposed amendments could lead to listed companies moving their primary listing from SA to a jurisdiction with “sensible, practical and effective disclosure requirements” for beneficial ownership, as they would impose an onerous and impossible burden on publicly listed companies.
“The proposed amendments to the Companies Act are unworkable for publicly listed companies, which will not be able to comply with the proposed beneficial-owner disclosure and reporting requirements.
“We have found that increasing regulatory burdens on publicly listed companies has contributed to the number of delistings on the JSE. For example, the number of JSE-listed companies has declined from 529 in January 2002 to 311 in July 2022. Onerous burdens on listed companies disincentivises them from raising capital on an exchange or remaining listed, which consequently has a negative outcome for the growth, viability, transparency and global attractiveness of the South African market.”
The disclosure requirements for publicly listed companies in the bill were not aligned with those in developed markets. Many countries had implemented a beneficial-owner registry and reporting requirements, but they provided exemption from reporting to the beneficial-owner register for publicly listed companies where other mechanisms provided adequate transparency of beneficial-ownership information.
The Companies Act already has such mechanisms.
It was unrealistic, Clayton said, for listed companies to obtain, maintain and disclose beneficial-ownership information on their shareholders, as listed companies have significantly more shareholders than non-listed companies and changes were more frequent.
The JSE has recommended that the definition of beneficial owner in the bill be refined; that the bill provide for a correct and appropriate distinction between the concepts of legal ownership and beneficial ownership of a company; that exemption be given to publicly listed companies from the requirement to file a record of the natural persons who ultimately own or control the company and any changes to this; and to replace the requirement for a publicly listed company to record beneficial-ownership information in its securities register with a provision that requires the establishment and maintenance of a separate register of beneficial owners, as the securities register was not the appropriate place for this.
The JSE has proposed that it will amend its listing requirements to provide for more transparency and accessibility to law enforcement and competent authorities regarding the holders of significant beneficial interest in a listed company.
amaBhungane and Corruption Watch urged that there be a consolidated, single depository of beneficial owners, which should be housed in a single location, such as the Companies and Intellectual Property Commission (CIPC), to make it easily accessible. Nominee arrangements should be prohibited.
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