Business has a significant role to play in stemming the abuse of public funds. Due to their prominent positions, politically exposed persons could abuse their standing to launder ill-gotten gains. For this reason, business must take extra care when a client is a politically exposed person.

A politically exposed person is an individual who holds or has held a prominent public function. Within this position, the person has a level of influence and control over public funds, benefits, and decision-making. The abuse of such a position in office could result in corruption and bribery that may serve as a predicate offence to money laundering.

It is important to note that business relationships with domestic prominent influential persons (DPIPs) are not automatically high‑risk, and taking extra precautions does not imply these individuals are linked to and engage in illicit activities. However, foreign prominent public officials (FPPOs) are treated as inherently high‑risk under FIC guidance and therefore always require enhanced measures.

South Africa has taken steps to address shortcomings identified in its 2021 Financial Action Task Force mutual evaluation, as it relates to politically exposed persons and customer due diligence.  

The General Laws (Anti-Money Laundering and Combating Terrorism Financing) Amendment Act of 2022 introduced changes to the FIC Act. Among these was the amendment of the definition of domestic prominent influential persons and foreign prominent public officials, replacing the categorisations with the terms ‘domestic’ and ‘foreign prominent influential persons’, respectively. The update was adopted to assist accountable institutions in identifying and appropriately risk rate politically exposed persons, their family members and close associates.

The amendments are geared to further protect the financial system and the broader economy from illicit threats emanating from predicate crimes such as bribery and corruption. These predicate crimes weaken a country’s governance.

Accountable institutions listed in Schedule 1 of the FIC Act are required to apply enhanced measures when onboarding and reviewing politically exposed persons who are clients, to mitigate the heightened level of risk posed by clients with political and governance influence.

Financial institutions and designated non-financial businesses and professions (DNFBPs) can be entry points to the financial system and financial abuse. They provide financing as well as goods and services that can be exploited to conceal dirty money that has its origins in illegal activities, including but not limited to, bribery, extortion, corruption and other crimes. For this reason, accountable institutions must exercise caution when in a business relationship with politically exposed persons, their family members and close known associates.

Effective anti-money laundering and counter-terrorist financing controls and measures must be applied by financial institutions and ‘gatekeeper sectors’ such as lawyers, accountants, trust and corporate service providers, and real estate agents to prevent themselves from wittingly or unwittingly, facilitating corruption. These measures include the identification of beneficial owners in legal persons and legal arrangements. According to FATF it has also been found that corporate vehicles are an attractive instrument for laundering illicit funds and financing terrorism by beneficial owners who want to conceal their identities and interest in ill-gotten gains.

To help protect the South African economy from financial crime such as bribery and corruption, accountable institutions must identify domestic and foreign political exposed persons, their family members and known associates. When dealing with a politically exposed person, accountable institutions must establish their source of wealth and source of funds, conduct enhanced due diligence and obtain senior management approval when establishing or reviewing a business relationship.

Given the high-risk factors that are associated with politically exposed persons, the mandatory application of a risk-based approach and enhanced measures on customer risk assessments protects accountable institutions from being exploited by corrupt actors.

Accountable institutions are also required by section 28A of the FIC Act to screen their clients against the targeted financial sanction list on the FIC website. In addition, section 28 of the FIC Act requires cash transactions above the R49 999.99 threshold be reported to the FIC.

In instances where an accountable institution identifies suspicious and unusual transactions and/or activity from a client, it is required, in terms of section 29 that they file a suspicious and unusual transaction or activity report with the FIC.

To protect the South African financial system, it is imperative for accountable institutions to work in collaboration with the FIC to provide information where suspicion arises and to continuously apply effective risk-based measures to deter corrupt actors from abusing the financial system.

For compliance information and guidance, visit www.fic.gov.za. The FIC’s compliance contact centre can be reached on +27 12 641 6000 or log an online compliance query by clicking on: https://www.fic.gov.za/compliance-queries/