ANTI-MONEY LAUNDERING LAW HOLDS POTENTIALLY DEVASTATING SOCIO-ECONOMIC CONSEQUENCES

ANTI-MONEY LAUNDERING LAW HOLDS POTENTIALLY DEVASTATING SOCIO-ECONOMIC CONSEQUENCES

The nonprofit (NPO) sector serves millions of South Africans through good public benefit work. Now, legislative proposals threaten to deal a hard blow to the already over-extended and under-resourced sector.

General Laws (Anti-Money Laundering and Combating Terrorism Financing) Amendment Bill

The Minister of Finance introduced the General Laws (Anti-Money Laundering and Combating Terrorism Financing) Amendment Bill in Parliament on 29 August 2022. The Bill seeks to update and bolster South African anti-terrorism law in order to prevent the Republic from being grey-listed by the Financial Action Task Force (FATF).

Cause for Justice (CFJ) commends constructive efforts to address serious social ills and criminal activities proactively and effectively. It agrees that preventing money laundering and the financing of terrorist activities in and through South Africa, is a necessary and legitimate government purpose. 

Beware Unintended and Unforeseen Detrimental Consequences

However, the human rights organisation is concerned that the current version of the Bill is likely to have a detrimental impact on the NPO sector – and the millions of South Africans it benefits – which risks doing more harm than good. 

The Bill is set to impose compulsory registration and additional compliance burdens on vast numbers of NPOs, against the threat of fines and imprisonment. Since registration is currently completely voluntary, this is a drastic departure from the status quo. It will put extra pressure on already scare administrative capacity and valuable financial resources, and likely threatening the very continued existence of many NPOs. 

CFJ cautions that paradoxically, this will endanger the well-being of the Republic and its people and for this reason, does not support the compulsory registration of NPOs (and the concomitant additional costly compliance burdens).

Earnest Parliamentary Engagement 

Cause for Justice has been actively engaging Parliament, joining others NPOs in calling for an adequate public participation opportunity. The human rights organisation delivered preliminary and substantive written submissions on the Bill, raising critical questions and highlighting concerns. It also participated in three rounds of oral representations before Parliament’s Standing Committee on Finance. [1]

Critical Questions and Concerns

The proposed amendments will have a direct impact on the fundamental rights of NPOs (and their governors and office bearers). Cause for Justice questions whether imposing compulsory registration and additional compliance obligations to address money laundering in the NPO sector, is constitutionally justifiable. The human rights organisation points out that the only constitutionally defensible approach is employing the least restrictive means to achieve the purpose of the Bill effectively – otherwise the limitation of fundamental freedoms will not pass constitutional muster.

Likelihood of Legislative Amendments Achieving Purpose

Question: What level of assurance is there that making registration compulsory (even for a subset of NPOs) will in fact translate to preventing money laundering enterprises in the NPO sector?

It is necessary to ensure that the proposed amendments will in fact be effective at addressing money laundering and terrorism financing in practice. Otherwise, the amendments will serve no legitimate purpose and place an unconstitutional burden on NPOs.

• Read more from [16] of CFJ substantive written submissions.

An important and central aspect of a successful NPO registration and regulation system, is the support and oversight provided by the NPO Directorate, which is situated in the National Department of Social Development (DSD). CFJ has serious reservations about the Directorate’s ability to cope with the increased workload that will necessarily follow compulsory registration. Many in the NPO sector already lament the Directorate’s inability to function effectively under the current system of voluntary registration.

Least Restrictive Means to Achieve Legislative Purpose

Question: Are those measures in the NPO Act, which will become compulsory, the least restrictive means to achieve the purpose of preventing money laundering and combatting terrorism financing in the NPO sector?

Even if the proposed amendments are good solutions, in order to be constitutionally defensible, they must infringe (limit) the existing rights and freedoms of NPOs (and their governors and office-bearers) as little as is practically possible.

• Read more from [36] of CFJ substantive written submissions.

Some Concerns Headed and Slight Improvements Made

The National Treasury and Financial Intelligence Centre (who drafted the Bill) has heeded some of the NPOs sector’s concerns and now proposes that only a limited subset of “at-risk” NPOs will be compelled to register. 

NPOs still facing mandatory registration and criminal consequences for non-compliance, are those that:

• Make donations to individuals or organisations domiciled in a foreign country, including when such individuals are physically in South Africa; and/or
• Provide humanitarian, charitable, religious, educational or cultural services outside of South Africa’s borders.

While welcoming the abandonment of “blanket compulsory registration”, Cause for Justice is concerned that the criteria used to determine which NPOs are “at-risk” is still too broad – as, practically, it will include all religious associations.

Religious organisations do tremendous good public benefit work, impacting millions both locally and abroad, and often for the benefit of society’s socio-economically vulnerable and marginalised. In this way, these organisations take a lot of pressure off the state (and particularly DSD) by providing welfare/quasi-welfare services. If the proposed amendments will force these organisations to cease operations, much harm will be suffered by South African society (and even communities abroad).

The Road Ahead

The Standing Committee is set to deliberate the substance of the Bill on 10 November 2022. Its members must now decide how to balance the fundamental rights and freedoms of NPOs (and their essential and beneficial contribution to society) with the importance of avoiding grey-listing, in a constitutionally justifiable way.

Cause for Justice will continue to follow the progress of the Bill, and engage law-makers in order to the NPO sector and its beneficiaries are protected from unforeseen and unintended detrimental consequences.

This Law Will Affect You – What Can You Do About It?

If the General Laws (Anti-Money Laundering and Combating Terrorism Financing) Amendment Bill will not affect you directly, it will do so indirectly. Parliament serves all the people of South Africa – that includes you! Have your say by contacting the members of the Standing Committee on Finance or supporting Cause for Justice in protecting your fundamental rights and freedoms.

Notes:

• On 11 October 2022 ([01:18:29] to [01:29:05]), 18 October 2022 ([02:44:58] to [02:46:56]) and 28 October 2022 ([01:22:16] to [01:23:50])