South African lawmakers have hauled the regulators of financial transactions over the coals about the lax manner in which they were treating the unilateral and arbitrary closure of bank accounts.
This comes as the standing committee on finance yesterday received briefings from Gardee Godrich Attorneys, the National Treasury and the Financial Sector Conduct Authority (FSCA) on the banking sector’s conduct.
In April, Gardee Godrich Attorneys wrote to Parliament complaining about the lack of applicable regulatory frameworks following allegations that customer bank accounts had been arbitrarily closed.
This followed the closure by First National Bank (FNB) of the bank account of Democracy in Action, the civil society organisation which has been fund-raising to assist the suspended Public Protector, advocate Busisiwe Mkhwebane, pay for her legal fees after the courts issued a number of personal cost orders against her.
South Africa’s major banks are also respondents in a matter pending at the Western Cape Equality Court brought by the Sekunjalo Group of companies over the closure of its accounts.
Yesterday, Advocate Tiny Seboko from Gardee Godrich Attorneys said they had sought leave to intervene in that pending application for their own individual clients on behalf of about five applicants, and that application was granted without being opposed by respondents.
Seboko said the bank accounts of a government employee in the Eastern Cape, a KwaZulu-Natal businessman, and Democracy In Action – who are all their clients – were all shut down without any explanation.
“The banks have not complained or brought to the attention of our clients that they had been flagged either as prominent or influential people, or whether there have been complaints in the formal structures of law enforcement about money laundering and related offences,” Seboko said.
“We have concluded an application to the Financial Intelligence Centre to see whether or not there was reasonable suspicion for banks to act the way they did, to acknowledge that a financial product of our client was used for illegal purposes.”
Seboko said the closure of their clients’ bank accounts was racial discrimination, and the consequences of being unbanked were severe as bonds and salaries cannot go off, making living difficult as one cannot even apply for a rental lease or credit.
“The grounds for our intervention and participation in that application is that the termination of banking products was solely based on race and nothing else, they were arbitrary as they were unlawful,” she said.
“All three of our individual applicants are black individuals and their companies, and there has not been any complaint against them being accused of money laundering or illicit financial activities, so our case is that they have done nothing wrong.”
ANC MP Gijimani Skosana said allegations of bank account closures based on demographics were very worrying and should not be left like that.
“I think it would really be unfair that, after 28 years of democracy, something like that happens. It would really be serious discrimination if people are targeted based on demographics,” Skosana said.
“I have heard issues of reputational damage and suspicious transactions, but the Democracy In Action account was closed because of their proximity to a certain prominent person.”
However, the Financial Sector Conduct Authority said the regulatory frameworks obliged banks to notify customers and provide them with the opportunity to make representations before terminating their accounts.
In his final State Capture report, Chief Justice Raymond Zondo recommended that relevant existing legislation governing banks be amended to introduce a requirement of fairness or, if warranted, a new piece of legislation to be enacted to compel the banks to afford the client a proper opportunity to be heard before their accounts were closed.
Even though DA MP Dion George said it was not the government’s job to interfere in the relationship between banks and their clients, other MPs were of a different view.
ANC MP Kenneth Morolong said Parliament should strengthen its legislative oversight in the financial sector to prevent the arbitrary closure of bank accounts.
“Parliament should respond to the recommendation by Justice Zondo that existing legislation should be checked or that Parliament should introduce new laws requiring banks to afford clients an opportunity to defend themselves,” Morolong said.
“I’m also of the view that it is ordinary South Africans who bear the brunt of groundless or arbitrary bank closures because such actions lead to corporates being unable to pay their salaries or third-party obligations.”
The standing committee on finance chairperson, Joe Maswanganyi, said the committee would find time in its third term programme to take this matter forward with the Ombudsman for Banking Services South Africa, the Banking Association of South Africa, the National Treasury and the FSCA.
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