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South Africa’s fifty shades of greylisting

South Africa’s fifty shades of greylisting
Tim Cohen
By Tim Cohen
13 Oct 2022
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Is it really absurd to hope that Parliament can pass urgent legislation in a month with the admirable aim of lessening the perception that South Africa is a basket case?

To really understand the “greylisting” issue, we have to go back into deep history. The year is 2012 and SA politics is about to be shaken up because the popular leader of the ANC Youth League, Julius Malema, had been kicked out of the party late the previous year.

Malema decided to fight on and create his own party, the Economic Freedom Fighters, which the ANC at the time fully recognised would be a thorn in the party’s side for years to come. By an odd coincidence, the following year it was revealed that Malema was in trouble with the SA Revenue Service (SARS).

Press reports in late 2012 suggested that Malema owed some R16-million in tax earnings he had pocketed after winning a road improvement tender in Limpopo.

Now, one can be a little cynical here. As an ANC member, Malema seemed to have no problems with the taxman. But the moment he was booted, suddenly he got slapped with a huge tax bill. In any event, Malema reached a compromise with SARS and agreed to pay some tax. As it turns out, his payments were a little irregular, and in 2016 SARS said he owed R18-million. So that’s the tax issue: what about the original tender? Good question, to which there is (typically) no answer.

Trust issues


The details of what exactly happened are obscure, but it is clear SARS had done some serious work on the case because it turned out that the actual winner of the contract was not Julius Malema Esq, but something called the Ratanang Family Trust. Trusts, in SA, are functions of the Department of Justice rather than one of the economic departments. And the reason for this is that they are set up by the courts and registered by the Master of the Court.

They have some rather spectacular advantages, mainly related to their legal persona and protection from creditors. The point is that it is possible to find out who the trustees of a trust are, but to do that you have to scratch around in court files; it’s nothing like looking up the directors of a company, which is possible to do on the internet in minutes.

The way they obscure the beneficiaries is one of the reasons trusts are a favourite vehicle for tenderpreneurs, clearly something Malema was aware of, since he took care to ensure the Limpopo road tender was registered to a trust. I don’t recall the numbers exactly, but SARS was at one point rather alarmed to discover that there were far more trusts registered in Limpopo and Mpumalanga than in SA’s financial heartland, Gauteng, or even in Durban or Cape Town. In my experience, trusts are by definition dodgy until proven otherwise.

The ‘greylisting’ bill


Fast-forward a decade and SA has a problem on its hands: corruption is so rife that it is starting to worry international financial organisations, and the country was informed in 2018 that it needs to shape up. And so begins what has become the “greylisting” problem, which came up in Parliament this past week.

Attentive news junkies probably know the facts, but just to recap quickly, the global anti-money laundering entity, the Financial Action Task Force, has issued SA with a deadline for it to come up with rules to prevent money laundering. If the deadline is missed, which now seems very likely, SA will be “greylisted”. That will, according to some research, increase the costs of financial transactions and doing business, and as a result, shave perhaps a percentage point off economic growth. Pretty dramatic stuff.

So the government sprang into action, a little late as always, and has now presented an omnibus bill called the General Laws (Anti-Money Laundering and Combating Terrorism Financing) Amendment Bill to Parliament just before the cut-off. The bill seeks to do a number of different things: it will force the registration of nonprofit organisations with something called the Nonprofit Organisations Directorate so that we know who is who in that zoo.

It also makes changes to the Financial Intelligence Centre Act to make sure we always know who the ‘‘beneficial owners’’ are, addressing the issue of beneficiaries being obscured through establishing a trust. There are also new definitions of a ‘‘domestic prominent influential person’’ and a ‘‘foreign prominent public official’’ and the creation of a new category of a ‘‘prominent influential person”. And there are lots of other measures, including changes to the Companies Act and the Financial Sector Regulation Act.

Backlash


So now a backlash against the legislation has emerged, ostensibly because the NGO sector is worried about the registration requirement. The legislation is framed extremely widely, based on my reading of it. Daily Maverick has reported that knitting clubs, church choirs and community sports clubs would have to register. I think that is probably overstated; nobody is going to care if a genuine knitting club is registered or not. But if the knitting club starts trading bitcoin on the international markets (I mean, have you seen the price of wool lately?), they probably should care.

There is also associated anti-terrorism funding legislation, which is equally widely framed, and generally gives us old-timers the creeps because it reminds us of draconian State of Emergency legislation.

But there is a problem here because obviously the entire tenderpreneur community is desperate for this legislation to get dumped. In fact, Finance Committee chairperson Joe Maswanganyi, who was a Cabinet minister during Jacob Zuma’s presidency, is widely considered to be a member of the RET faction himself. He has said rather crisply to the Treasury that it shouldn’t present bills to Parliament that need to be processed in one month.

“Parliament is a legislative body, not a department,” he sternly intoned.  

Money laundering, a new financial frontier


Of course, he is right that the Treasury is to blame and the time for public consultation is absurdly short. But the country now faces a deadline, and we actually don’t have much of a choice. Is it really absurd to hope that Parliament can pass urgent legislation in a month with the admirable aim of lessening the perception that South Africa is a basket case?

The larger point is that we are now facing a new reality: money now washes around the world at a furious rate. Money laundering has gone global and it has become a new financial frontier. If SA wants to be part of the international financial system — which we obviously do — then making sure we know who the beneficial owners are of everything from farms, to trusts to companies is just part of the package. We have to shape up or ship out. DM/BM

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