SHOULD INDEPENDENT CONTRACTORS BE SCREENED UNDER DIRECTIVE 8 OF THE FINANCIAL INTELLIGENCE CENTRE ACT 38 OF 2001

written by Kirschlynn Viljoen

Many businesses rely on independent contractors and consultants. But when it comes to anti-money laundering compliance under the Financial Intelligence Centre Act 38 of 2001 (“FIC Act”), an important question arises:

Do independent contractors also need to be screened under Directive 8?

This article unpacks the issue in plain terms and explains what accountable institutions should consider.

•            The screening obligation arises from:

•            The Financial Intelligence Centre Act 38 of 2001 (“FIC Act”)

•            Directive 8 of 2023

•            Public Compliance Communication 55

•            The Code of Good Practice: Who is an Employee

•            Section 200A of the Labour Relations Act 66 of 1995

Together, these instruments guide accountable institutions on who must be screened and how.

What Does Directive 8 Require?

Directive 8 requires accountable institutions to:

·       Screen prospective and current employees for competence and integrity

·       Check employee information against targeted financial sanctions lists

·       Conduct screening periodically, using a risk-based approach

The purpose is to help institutions identify and manage the risks of:

·       Money laundering

·       Terrorist financing

·       Proliferation financing

Importantly, screening is not a once-off exercise. As confirmed in Public Compliance Communication 55, it forms part of an institution’s broader risk management and compliance programme.

The problem that arises is who counts as an “employee”?

Directive 8 refers to “employees”,  but it does not define the term in detail. Under labour law, an employee is generally someone who:

·       Works for another person or organisation

·       Receives (or is entitled to receive) remuneration

·       Is not an independent contractor

At first glance, this seems to exclude independent contractors and consultants.

However, South African courts do not rely only on labels. Instead, they look at the true nature of the relationship. This is known as the dominant impression test.

The Dominant Impression Test: Substance Over Form

The courts ask, what does the relationship look like in reality?

There is no single decisive factor. Instead, the overall picture is considered.

Indicators of an Employment Relationship

·       The person renders personal services

·       They must perform the work themselves

·       They are subject to supervision or control

·       They follow the organisation’s lawful instructions

·       They form part of the organisation

·       The contract ends if the person dies

·       They are economically dependent on the organisation

Indicators of an Independent Contractor Relationship

·       The contract is to deliver a specific result or project

·       The person may use others to perform the work

·       They are not supervised or controlled in how they work

·       They are bound by the contract itself, not day-to-day management

·       The contract ends when the project is completed

The key question is: What is the dominant impression? Employment or independent contracting?

Section 200A: When the Law Presumes Employment

Section 200A of the Labour Relations Act strengthens this approach.

Where a person earns below the prescribed earnings threshold, they are presumed to be an employee if one or more of the following applies:

·       Their work or hours are controlled by another

·       They form part of the organisation

·       They work at least 40 hours per month (over the past three months)

·       They are economically dependent on the organisation

·       They are provided with tools or equipment

·       They work mainly for one client

If any of these factors are present, the law presumes employment, unless proven otherwise. This prevents organisations from avoiding statutory obligations simply by calling someone a “consultant” or “contractor”.

Why This Matters for Directive 8

Directive 8 is aimed at managing financial crime risk. If an independent contractor:

·       Has access to sensitive financial systems,

·       Interacts with clients, or

·       Performs functions that expose the institution to money laundering risk,

then excluding them from screening purely because of their contractual label could undermine the purpose of the FIC Act.

A risk-based and functional interpretation is therefore critical.

The Virgin Active Example:

The widely reported personal trainer incident involving Virgin Active illustrates the reputational and compliance risks that can arise where contractors are insufficiently screened or monitored. While each case must be assessed on its own facts, the example highlights an important compliance lesson:

If the substance of the relationship resembles employment,  and the individual poses financial crime risk, screening should be seriously considered.

Conclusion

In determining whether independent contractors and consultants must be screened under Directive 8, accountable institutions should:

·       Look beyond contractual labels.

·       Apply the dominant impression test.

·       Consider the statutory presumption in section 200A of the Labour Relations Act.

·       Adopt a risk-based approach aligned with the objectives of the FIC Act.

Where the reality of the relationship reflects characteristics of employment, screening in terms of Directive 8 may well be required. Ultimately, compliance under the FIC Act is about managing risk,  not technical classifications.