Banks to scrutinise exposed clients


Activity and scenes from around the Standard Bank headquarters in central Johannesburg. Standard Bank Group has been on the Global 100 Most Sustainable Corporations in the World.

CAPE TOWN - Banks and other accountable institutions will be obliged to conduct more in-depth investigations of their clients once amendments to the Financial Intelligence Centre Act become law -- which will probably be the new normal this year.

The more prominent and influential the individuals - such as the members of the Gupta family, for example - the deeper these institutions will have to dig to meet the amended act’s requirements that they know their customers.

The financial affairs of such prominent and influential individuals will be subjected to far greater and ongoing scrutiny than will be the case with other customers because they are regarded as being more “vulnerable” to bribery, corruption, tax evasion and money laundering.

Being deemed a politically exposed or prominent person does not, however, mean that one has committed a financial crime or that one cannot transact with a financial institution.

This enhanced due diligence will require a senior bank official to approve the accounts of these individuals and require the bank to take reasonable measures to establish the source of funds, as well as to monitor the accounts on an ongoing basis.

The recent decision by several major banks to sever ties with Gupta-linked enterprises has heightened the relevance of the pending changes.

On Monday, Olano Makhubela, the Treasury’s chief director for financial investments and savings, said: “Banks will have to undertake their own intelligence gathering in conducting their due diligence of their customers.”

The definition of prominent and influential individuals in the Financial Intelligence Centre Amendment Bill is broader than the “politically exposed persons” used internationally, which refers to those entrusted with prominent public functions. The broader definition has been proposed in recognition that public figures have private sector counterparts who require greater scrutiny.

Prominent influential persons would include top government officials from the president down to municipal managers, as well as company chairs, CEOs and chief financial officers, and those contracting with the state. This includes their immediate family, partners and close associates.

The banking industry has objected to the amendments, saying the definition is too broad and the proposals impractical in the absence of a database to identify such individuals.

The rules would also require accountable institutions to identify and take reasonable steps to verify the beneficial owners of legal entities, trusts and partnerships, which are not always directly apparent.

The amendment bill has been closely scrutinised by Parliament’s standing committee on finance and is expected to be finalised at its meeting on Wednesday next week.

The current act requires a host of businesses to report suspicious transactions to the Financial Intelligence Centre.

Makhubela said the new regime was likely to be phased in to allow the accountable institutions to prepare.