ABC: Is it time to move from PEPs to PIPs?

In a bill presented before South Africa’s Parliament earlier this month, it was proposed that banks and other financial bodies should exercise greater scrutiny of “prominent influential persons”.

The term “prominent influential persons” is a broader term than the more familiar “politically exposed persons”.

In a recent interview the South African Treasury’s chief director for financial investments and savings, Olano Makhubela, stated that the broader definition reflects the fact that individuals in the private sector also hold significant influence and require greater scrutiny.

Banking Association SA Managing Director, Cas Coovadia, stated banks were willing to increase scrutiny of such individuals to ensure they avoid complicity in illegal activities. He also argued, however, that implementing the new policy would be challenging without a data source with which to identify the individuals concerned.

Coovadia stated, “The inclusion of close associates and family members presents additional challenges because this, potentially, has very wide scope”.

The bill will also require accounting institutions to identify and verify the ultimate beneficial owner of legal entities, trusts and partnerships.

The proposed measure highlights a crucial limitation of principles-based regulatory schemes – it is much easier to dream up an attractive-sounding idea than it is to enforce it. If it is enacted, it will create very considerable uncertainty for financial institutions in South Africa.

Broadening the scope of those judged to be at higher risk of committing offences of bribery and corruption from politicians to magnates is an idea whose time has come. But South Africa needs to put more effort into definitions if the new rule is to make a meaningful difference.