Public Investment Corporation and Financial Intelligence Centre: mandate, role in economy and contribution to National Development Plan

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Finance Standing Committee

29 July 2014
Chairperson: Mr Y Carrim (ANC)
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Meeting Summary

The Public Investment Corporation (PIC) and the Financial Intelligence Centre (FIC) briefed the Committee on their mandates, role in the economy and their alignment with the National Development Plan (NDP). The PIC aimed to deliver investment returns in line with client mandates, to be in the forefront of good cooperative governance, and to contribute to the development of South Africa by aligning all investment decisions with the NDP. Its income portfolio and mandate had changed to encompass broader investment strategies, and it invested in assets that had the potential of creating jobs. It had robust investment processes, which had allowed the PIC assets to grow five times as much as the GDP, and it took the view that instead of relying on the economy, it must drive growth itself. It invested more widely than its former strategy of investing in the JSE and bonds, and broke down the economy to determine the key factors where growth, and particularly local development, was needed, to try to move away from import reliance. Its investments were also considered in terms of their social impact.

Members asked why a previous member of the PIC had left so soon, and the Chairperson noted that there had been much negative media publicity on this point, which the PIC must address. Members asked how the PIC would ensure that the companies in whom it was investing were acting correctly, and questioned the investment in Afri-Sam, and in e-tolls. They asked what the PIC meant by “radical transformation”, urged PIC to remember that it was using public money, asked why one investment was showing negative growth, and wanted further explanation on how it assessed risk and what its investment mandate actually was. Some Members expressed concerns about the strategy in relation to pension money. They urged PIC to measure returns and the developmental agenda carefully. They questioned how the contraction of the economy had affected the PIC. They asked what percentage of total GDP assets the PIC controlled, asked for clarity on its ventures in the mineral market, and an explanation on the Nigerian situation, and whether there was a correlation between the PIC approach and the Industrial Policy Action Plan, and whether the PIC invested in banks. They felt that PIC needed to pay more attention to its branding and inform the public what it did and what its strategies and mandates were. The Chairperson commented that Members needed a study group session t fully assess the work of the PIC. He asked that the PIC report to the Committee how it suggested that oversight be done.

The Financial Intelligence Centre (FIC) gave a brief summary, because of time constraints, and noted that it reported to the Minister of Finance, the Standing Committee on Finance, as well as the State Security Committee. FIC essentially strove towards achieving a safer South Africa for all. It supported economic growth and social development. Its mandate was set out in the FIC Act of 2001. FIC must promote compliance with that legislation in order to fight crime and promote national security. FIC essentially acted against money laundering and ensured that public and private institutions were not abused, by requiring reports from numerous institutions. Its combating of crime activities were in line with the NDP. It worked with SA Police Service and the National Prosecuting Authority, although it could not itself pursue prosecutions, and also played a large role in assisting the Asset Forfeiture Unit to recover money.

Members commented that the FIC Act was very onerous to ordinary citizens and wondered, particularly since no figures for prosecutions were included in the presentation, whether this was really justified, and whether FIC actually did achieve its aims, particularly given the public perception of huge corruption. They asked if FIC was evaluated by any other independent body, and wondered if, given its financial and IT constraints, it was able to achieve its task. The FIC Director stressed that FIC’s budget in the last year was R245 million but that its activities had contributed to the country being able to recover more than R1 billion illegal funding. The point was strongly made that no figures on prosecutions were given because this fell outside the FIC mandate. Members also asked if FIC was looking into making transfer pricing illegal, commenting that it was a major problem, but were told that this would involve global agreements and that it was being considered. They asked what the FIC could do to combat syndicated fraud, counterfeiting and piracy, and heard that many such activities did not involve exchanges of money, but goods, making them very difficult to track. Further engagement would be held with Members and the Minister of Finance to assess the most appropriate Committee to whom the FIC should report.
 

Meeting report

Public Investment Corporation (PIC) briefing on mandate, role in the economy, contribution to National Development Plan
The Public Investment Corporation (PIC) delegates introduced themselves. The Deputy Minister of Finance, Mr Mcebisi Jonas, was also the Chairperson of the PIC, and was accompanied by Dr Daniel Matjila, Chief Investment Officer and Ms Matshepo More, Acting Chief Executive Officer and Chief Financial Officer.

Ms Matshepo More presented the PIC mandate. The PIC aimed to meet or exceed its clients’ investment objectives and commitments to stakeholders. Its key strategic objectives included delivering investment returns in line with client mandates, creating a working environment where the best skills were attracted and retained, being in the forefront of good cooperative governance as well as contributing positively to South Africa’s development by aligning all investment decisions with the National Development Plan (NDP).

Dr Matjila noted that the PIC now managed a larger income portfolio and that its mandate had changed since 1992. He said that the PIC now had broader investment strategies, including unlisted strategies. PIC’s main objective was to invest in assets that had the potential of creating jobs. This was in line with the National Development Plan, which the PIC prioritised.

Dr Matjila noted that when PIC was first set up, it had none of its own staff, but instead seconded from National Treasury, but since the PIC Act of 2004, it had been reorganized and now was a corporate body, comprising of a board of directors, that had a modernized way to handle assets. PIC now had a new IT platform and used robust investment processes which translated into growth in the PIC. This was attested to since PIC, judged on assets under its management, had grown by almost five times as much as the GDP. South Africa required assets for the economy to grow, and the growth meant that pensioners would enjoy an increase in their pensions. PIC took the view that it should not rely on the economy for growth, but itself take steps to grow the economy, so that all could benefit. The investment strategy followed a “virtuous cycle” which encompassed identifying catalyst assets for the growth of the economy, as well as reinvesting in the economy.

He added that in the past the PIC had only embarked on “benchmark investing”, which was only investing in the Johannesburg Stock Exchange (JSE) as well as bonds, but that it now followed an active investment approach. Under the new approach, PIC would use the JSE to stimulate economic growth and all elements exposed to the National Development Plan. PIC broke down the South African GDP in order to determine what it actually comprised. Five matters had been identified at the top of the South African GDP. Crude oil took a huge portion of the economy, and it was part of the PIC initiative to move away from imports, and rather focus on local assets that could minimise the need for imports. It was important to note the extent to which South Africa was exporting its own raw materials. PIC was looking for investment partnerships to deal with growth. GDP targets would be achieved through many stakeholders, that included JSE, listed banks, and the Department of Energy.

PIC was looking at forging relationships across all sectors in order to build “national champions”. The PIC had a developmental investment approach, which encompassed getting returns that also had a social impact. This too was in line with the NDP, which spoke, amongst others, to the development of Tourism, Small, Medium and Micro Enterprises (SMMEs), socio-economic transformation, Broad Based Black Economic Empowerment (BBBEE) as well as BEE, and real estate. NDP was not regarded only as a policy, but an investment strategy. Private equity was almost fully invested, and through that the PIC was able to invest more in job creation as well as other social impact activities.

Some of the specific PIC activities that he wanted to emphasise included the building of a hospital at Shoshanguve, which was almost finished. The PIC had allocated bursaries. PIC was prepared to work tirelessly and double its efforts in order to achieve its goals, in both the listed and unlisted space.

Discussion
Dr D George (DA) said that Mr Elias Masilela had left the PIC very quickly, and asked why, and where he had gone.

Ms More responded that Mr Masilela made a decision to leave the entity of his own accord.

Dr George enquired again what had happened to Mr Masilela, saying that the answer given was not clear.

The Chairperson said that the norm in Parliament was that if someone resigned, it was regarded as a personal issue. If the resignation was surrounded by media controversy, then it became Parliament’s business, given that the PIC was accountable to Parliament. Members were within their rights to ask if someone had left because s/he disagreed with policy, and the fact the person ‘moved to greener pastures’ was not an appropriate answer, especially  given the controversy in the media around the resignation.

Mr Jonas stated that there was always a lot of dissatisfaction when someone resigned and that people moved to greener pastures as they saw fit. He added that much of what appeared in newspapers was wrong, but some parts were also factual.

The Chairperson said that the controversy in the media needed to be managed by the National Treasury as well as the PIC but that fundamentally, the responsibility lay with the PIC to fix such things. He reiterated that all Committee Members had a right to ask any questions irrespective of political affiliation. He understood that there might be legal issues preventing the PIC from engaging fully on the issue of Mr Masilela, but urged the PIC to manage its image in the public domain.

Dr George asked how the PIC ensured that companies in whom investments were made were “keeping themselves tidy”, and whether shareholder activism was working. He wanted to emphasise that there was some difficulty in the corporate governance space, in ensuring that corruption was kept at minimal levels.

Dr George wanted to know more about Afri-Sam, which appeared to be a troublesome investment. He asked what investment philosophy guided the PIC, in terms of where it would and would not invest. He asked if returns mattered to the PIC.

Dr Matjila noted, in response to questions on Afri-Sam, that Afri-Sam was an important player in the economy and more specifically in the infrastructure space. He said that in its efforts to save Afri-Sam, PIC had been able to save thousands of jobs. It was a key player in its respective industry. He was happy to report that Afri-Sam was now back on its feet.

Dr George further noted a reference to “radical transformation” but was not sure what that meant. He asked for clarity and added that the PIC should always remember that it was using other peoples’ money, and that it was investing on behalf of the government. He asked if its investment philosophy was shifting, and, if so, whether it had considered the risks associated with this.

Mr D Ross (DA) said that the PIC had indicated that its own growth was five times higher than the growth of GDP, but wanted more explanation on how the PIC had reached this conclusion. He added that investors were looking for returns and PIC should always bear that in mind. He congratulated the PIC on its efforts but wanted more information whether it was able to assess the impact of its investments on matters such as property, and property owners. He added that PIC should investigate what was inhibiting the growth of the economy in the country. The benchmark performance of -11% should be explained, particularly in relation to work on the clients’ mandate. He wondered also if this figure included the Isibaya Investment.

Dr Matjila explained that the negative return indicated by Mr Ross could have been a result of an asset being in the unlisted space. In such instances, an asset may not yet be getting returns but it would be using cash to sustain itself. As soon as it started operating, its cash flow would then be seen.

Ms P Kekana (ANC) welcomed the presentation and added that it was a step in the right direction. She was more encouraged by the new approach of investment taken by the PIC, but said that the South African reality was that if a person depended on the economy, there would be a negative knock-on effect. She wondered how the PIC balanced member-expectations, seeing that returns were wanted on its clients’ investments. She wanted to know how there was a balance of risk exposure as a result of the active investment strategy. She enquired whether there was a risk assessment done on the new investment strategy, and if so, how the PIC ended up investing in e-tolls. Due diligence was supposed to be done before making any investment, and she said that this would include public participation processes. Whilst the legislation on e-tolling was not incorrect in itself, there were questions asked about the processes of corporate governance.

Ms Kekana also asked how the contraction of the economy had affected the PIC ,because she had seen the extent to which it was impacting on other public entities. The Committee could provide assistance and guidance in this regard.

Dr Matjila said that when the economy was not growing, assets suffered, but made the point that there were other global forces at play. He told members that the JSE was resilient under these contractions, and this impacted in a positive way as growth was almost 45% in its assets under management.

Ms T Tobias (ANC) said that, for the purpose of putting her remarks in context, it should be assumed that she was, for the moment, an investor. Investors took risks, and therefore the clients of the PIC would want the PIC to take some risks against maximizing returns. PIC should move in line with the belief that its strategy was correct, but it must also make sure that no risk was taken that was outside global constraints. She added that the fact that the PIC operated in a corporate environment meant that it needed to have both a developmental and an economic approach. PIC said it had decided on good principles of diversification, but she had an issue in the PIC investing in 10% of global bonds. This made it seem that PIC was “scared of” the risk. It seemed to do little benchmarking in active risk taking. She suggested that the PIC needed to measure returns and development, and find some way, in the “radical transformation” agenda, to achieve a balance between returns and a developmental approach. She added that it seemed as though the PIC would be investing heavily in exploration. She questioned the feasibility of this, given the huge amount of risk being taken. However, she did understand the challenge the PIC had as an investor, in that it had to make bold decisions in order to satisfy the client’s desire for returns.

Ms More said that the extent of risk the PIC was allowed to take was guided by its mandate and it would consult with the National Treasury.

The Chairperson said that although the input from Members was excellent, he must ask that they keep their comments short, in view of the limited time available. The Committee was getting a feel for what entities reporting to this Committee were doing, and Members must bear that in mind when responding to their presentations. It would not be possible for Members to engage vigorously with every single entity because of time constraints, and he reminded them of the “looming” tax legislation.

Mr F Shivambu (EFF) referred to slide 12, and asked if the figure here represented what the PIC controlled, out of total GDP of South Africa.

Ms More said that the PIC controlled 32.7% of the GDP.

Mr Shivambu referred to slide 20 and asked what the PIC was doing with regards to minerals, wanted clarity on the Nigerian CEO who was involved in crude oil, and questioned his relationship with President Jacob Zuma. He also enquired about any correlation between the PIC and the Industrial Policy Action Plan, and how the PIC’s approach found expression in the Department of Trade and Industry (dti).

Mr Matjila directed members to slides 15 and 16, which set out where enterprises such as PetroSA fell.
PIC had noted that crude oil was a problem in the country because it was outsourced elsewhere. He added that South Africa needed its own oil producing wells. PIC, as an entity, was looking at how to produce assets locally, rather than importing. This was the reason for investing in KMG, and the PIC was also looking for other companies in the oil and gas space in whom to invest. South Africa had not been  astute enough to own oil wells in other African countries, such as in Nigeria. Mr Kays Lawell was no different from other investors out there in the market. If someone brought a proposal that fitted in with the PIC mandate, within acceptable parameters, it would be happy to invest in such. That was its basic principle.

Dr George asked what the impact would be of a social contract investment style.

The Chairperson said that once an issue emerged in the public domain, especially it if was controversial, then the PIC must respond. The PIC unfortunately did not have a very clear profile in the public domain, and he suggested that the PIC should run an advertisement or arrange interviews to educate the nation about its mandate, and criteria for investment.

Dr Matjila noted the sentiments on the PIC’s branding and agreed that educating the nation about the PIC was a top priority, which the PIC was already attending to.

The Chairperson wanted to know how often the PIC had appeared in front of the Committee in the past, and how it would like to appear in the Fifth Parliament. The Committee had drafted an overall strategy, and Members wanted to shape the programme up to December. Ideally, the Members would like to fit another engagement with the PIC into its programme, and determine what they wished to discuss with PIC and how often. Again, however, he stressed that it was impossible to engage with every entity. He suggested that PIC should appear at least once a year, so that the Committee could be aware of and exercise oversight over the work it was doing.

Ms More said that the last time PIC appeared before the Portfolio Committee was two years ago.

Dr Matjila thanked the Committee for its questions and added that these would re-shape the PIC’s strategy, as it was constantly learning and refining as and when issues were raised. He alerted Members to the fact that sometimes existing policy was not strong enough to deal with the new things that came up, and it then needed to be refined. Policy was being tightened so that things such as corrupt behavior would not recur.

Dr Matjila commented in general on the principle of social impact and returns, directing Members’ attention to slide 17. PIC’s mandate was to drive social impact, as well as get returns, and it had seen good returns on the risks taken so far. When a proposal came to the PIC, it would map out all the risks before entering into any deals.  PIC pushed social impact alongside returns. He highlighted that there were many companies in the infrastructure space, but very few in agriculture. PIC was also looking for smaller agricultural companies that were not necessarily listed on the JSE, and wanted to get funding and money to kick-start projects that would develop the agricultural sector. This was also a way in which PIC minimised risk.

Mr Matjila added, in respect of risk questions, that slide 14 indicated that the client set the level of risk tolerance, which was defined in the mandate. The mandate guided PIC in how much risk to take, that was not regarded as “unnecessary risk”. The Financial Services Board regulated and signed off on these risks. Risk management gave clients surety that their money would be used properly.

Mr Matjila noted the question of e-tolls and said that the Committee should have an adequate understanding of the PIC activities. He wanted to give an example of the Transnet bonds. PIC had invested in these, and this investment allowed Transnet to use the money for its capital expenditure, to deliver on its projects that assisted the economy. He elaborated further by saying that e-tolls were only one part of South African National Roads Agency Limited (SANRAL) activities. PIC had other bonds with this entity which encompassed matters such as the development of roads. He also gave an example of Eskom and Development Bank of South Africa (DBSA), who had also received assistance from PIC to then be able to assist municipalities with service delivery. The PIC had a fair amount of interaction with all its clients, and not just those who were investing the most money.

Ms More said that PIC, in regard to pensioners, took the approach that pensioners would not only enjoy their pension after they retired, but while they were still members, so that benefits were brought more closely.

Ms Kekana added that there was only so much that could be done with pension fund money and that a certain amount could not be used in risk taking. She enquired how PIC reached a balance in this regard.

Ms More alerted Members to the fact that most issues in the media related to PIC being questioned on why it had invested in something. She reiterated that the PIC aimed to get returns and that its investment philosophy was guided by its mandate. It was important for Members to note that there was a delegation of authority, and sub committees who approved investments, so as to put checks and balances in place.

Mr Jonas also stressed that PIC had a certain investment strategy and that it was faced with a huge task of balancing risks, as well as having the prerogative to drive development in a directive way. He added that linking growth was the most challenging thing, and that there was a huge amount of work to be done in the public domain in that regard. The PIC understood that it had to be transparent about its operations but also had to bear in mind the confidentiality associated with other investments. There was a need to make this clear to the public.

The Chairperson noted that the Deputy Minister was the Chairperson of the PIC Board as specified in the PIC Act.

Mr Shivambu asked again if the PIC was in any way linked with the Industrial Policy Action Plan. If there were no links, then he would accept that; he merely needed to know.

Mr Mcebisi Jonas responded by saying that the PIC investments articulated effectively the extent of involvement in the industrial space. The PIC was in the process of engaging with the Department of Trade and Industry and increasing its involvement and participation in certain areas of the IPAP.

Mr Shivambu again wanted to know if there was a clearly defined relationship that existed between the PIC and the Industrial Policy Action Plan. He added that he was not asking what investments the PIC had in the sector, but rather its relationship with that policy.

The Deputy Minister conceded that PIC needed to improve its relationships on the Industrial Policy Action Plan, and that it was a work in progress.

Mr Ross asked what the role of the PIC in financing banks was, as was done in DBSA. He asked if it had considered investing in the BRICS bank.

Mr Ross also enquired about PIC’s progress at local government level.

Dr Matjila referred members to slide 6, which spoke about asset allocation, and indicated that BRICS fell under the ‘non domestic’ category. PIC had not yet been approached to invest in it but that that investment was very attractive to PIC. He said that it would be looked at, as part of its global mandate. He added that the agricultural sector was still at its growing stages and PIC was not yet in a position to say whether it was bankable, and that it was not economically viable to make some investments in this sector as yet. If the situation was managed correctly, PIC could make huge returns and it was a big investor in AfriAgri, and that they would use assets to drive agriculture and agro growth.

The Chairperson said that the Members needed a study group session to fully assess the PIC and its work, as well as the work of other entities, so as to manage the work required of the Committee by Parliament. The PIC seemed to be doing a good job, but it needed to be more effective, more rigorous and more efficient with its mandate. He added that the job of Parliament was not purely to hold entities to account, but also to support them. He asked that the PIC should write a one page report on how it would like the oversight by the Committee to be exercised, and how often it would like to meet with the Committee. This report should be submitted during August.

Financial Intelligence Centre (FIC) Presentation
The Chairperson remarked that the Financial Intelligence Centre (FIC) was an intelligence entity and with this in mind it may not necessarily be able to answer intricate questions on its work. He also noted that the Committee now faced time constraints and asked that the FIC try to summarise its presentation, so as to allow more time for engagement.

Mr Murray Michell, Director, Financial Intelligence Centre, noted that the FIC reported to the Minister of Finance, the Standing Committee on Finance, as well as the State Security Committee. He said that it strove towards achieving a safer South Africa for all. It supported economic growth and social development.

The legislative mandate was encompassed in the FIC ACT of 2001. The mission of the FIC was to promote compliance with the FIC Act, in an efficient and cost effective manner, in order to fight against crime and protect national security. FIC used the data derived from compliance with the FIC Act to fight crime. FIC essentially acted against money laundering, which he defined as the movement and hiding of funds illegally. It was necessary to ensure that public and private institutions were not abused. He said that the Act allowed FIC to produce information that made the criminal justice system more efficient. Many entities were required to comply with the FIC Act, including banks, casinos and lawyers. He said that all categories were required to register with FIC, and report to the FIC. Where there was no other supervisory board for a particular sector - such as in the motor vehicle industry – FIC was required to intervene.

FIC’s activities were in line with the National Development Plan, as its operating model encompassed the combating of crime through prevention and deterrence. It worked together with SARS and the National Prosecuting Authority (NPA), as prosecuting was not part of its mandate. All suspicious activity or incidents would be referred to the relevant bodies.

Discussion
Dr George said that the FIC Act was very onerous, particularly when a person had to prove where s/he lived every time they wanted to bank. He understood that this was done in order to ensure that crime did not occur. However, he was very surprised that no mention was made in the presentation of the number of prosecutions that resulted from the FIC investigations, which had made him wonder if the inconvenience to law-abiding citizens was warranted if there were no results from the FIC Act. In particular, he referred to the section of the presentation indicating that state funds were stolen, and wanted to know if there were any prosecutions.

Dr George also commented that the FIC outcomes were not stated in a very robust manner.  

Ms Kekana agreed with the sentiments expressed by Dr George. She could see that the FIC had human resource and ICT constraints, particularly looking at what it had been able to recover in the last five years, but said that the results did not appear to justify the costs. There was a public perception that there was a huge amount of corruption. She wondered if FIC had omitted to show the actual data, for reasons of confidentiality. Furthermore, this presentation did not speak to the enormous challenge that South Africa faced with illegal movement of money, and she needed to know the reason for that.

Ms Kekana noted that part of the mission was that the public should, with FIC’s existence, feel safe. She referred to a ‘FICA frenzy’ at the banks, but, like Dr George, asked whether this was really justifiable, and what FIC, as an entity, had been able to develop.

Mr Shivambu enquired whether the FIC was looking into questions of transfer pricing. He said that the reality was that it undermined the fact that South Africa had natural resources that it could benefit from. A particular company, Glencore, was notorious for the fact that it did business everywhere in Africa, and it was involved in fraud as it had been able to change tax laws. He wanted to know if there were actual concrete programmes to combat such instances

The Chairperson shared the sentiments of Ms Kekana and echoed then. He further enquired if the FIC had had any independent body to evaluate its work. He also asked about its staff component. The Chairperson made the point that the figures suggested that there was rampant crime and corruption. The role of FIC seemed quite marginal compared to the challenge, alternatively, he wondered if it was playing a narrow role itself but, collectively together with other institutions, was doing better.

Mr Michell commented in general on the questions about the role and status of the FIC. FICA had did have some onerous dimensions. However, it must also be remembered that international requirements were also imposed on South Africa. It was necessary for banks to create an automated requirement system, so as to have a robust identification system. In relation to FIC’s outcomes, he reiterated that FIC had a relationship with SARS, the National Prosecuting Authority (NPA), as well as other intelligence agencies. In the last year, it had received 74 million referrals. However, the FIC had no statistics on prosecutions, because that fell in the domain of the NPA. The bodies worked together to strategise how to process matters, once the investigative phase had started, but FIC was not ultimately responsible for prosecuting. The FIC Act allowed FIC to do things such as the blocking and freezing of funds, but everything over and above that was essentially in the hands of other bodies.

Mr Michell noted that the FIC had a budget, last year, of R245 million, but through its activities it had brought back R1.17 billion, which it managed entirely by working within its scope, freezing money and following legislative processes to block funds in certain accounts.  FIC also supported other agencies, by appearing before court to present cases, and give evidence. This was particularly so in the case of the Asset Forfeiture Unit (AFU) matters. All of these efforts were fully funded from the FIC budget, without extra funding.

Mr Michell made the point that although the presentation did not, on the face of it, present a very rosy picture, there was a substantial investment made in FIC by the state. Again, he emphasised that the justice cycle was independent of the FIC’s investigative work. Intelligence work had more to do with neutralising threats, encompassing issues of terrorism and espionage, and the FIC’s work did not necessarily have to result in arrest and prosecution, as it was done to protect the Republic. He said that the job required FIC employees to “think the unthinkable and make sure it did not happen”. He referred to the Henry Oka investigation, which was an act of terrorism. This individual had orchestrated the act in Nigeria, but was from South Africa. The FIC had been able to assist in bringing him to book.

Mr Michell also emphasised that the task of addressing corruption did not fall solely to FIC. An amount of R1.1 billion had been recovered by the AFU, with the assistance of FIC, although this was not mentioned.

Mr Michell noted that transfer pricing was not currently illegal and that there was no law in regulating that. He added that legal reforms would need to be made in order to use the FIC Act to sanction such behavior.

The Chairperson asked whether the FIC had approached the National Treasury in this regard.

Mr Michell responded that the discussion had been ongoing for the past 18 months, and that all parties were aware of the problems.

The Chairperson asked if it was a complex matter to amend the legislation.

Mr Michell said that it would require a global effort, as economic forces were at play.

The Chairperson remarked that it would not be wise to change the legislation if it was going to affect the South African economy in the long run

Ms Kekana said that transfer pricing was a major issue and it needed to be a top priority.

Ms Tobias understood the difficulty the FIC experienced, as it relied on other institutions to finish off its hard work, which she had seen from her own experiences. She suggested that one way forward could be to strengthening the institution by bringing it closer to the prosecution services.

Mr Shivambu said that there seemed to be a culture of approving bilateral treaties without paying attention to what they meant. SARS did not seem to be serious about the whole issue, as there was a constant postponement and underplaying of various issues. The whole Continent, in his view, needed to pioneer legislation. He pointed out that the Arab Emirates had proper control of its own natural resources, yet South Africa did not have a clear direction.

Mr Michell remarked that nobody could fully comprehend the size of the illicit economy, piracy and counterfeiting of goods. This was complex because of international global issues. He pointed out that National Treasury, not SARS, would develop the legislation. Ms Tobias had corrected alluded to the huge amount of illicit behaviour and the nature of syndicates, which posed enormous danger by undermining state and private sector institutions. These syndicates were so advanced that they kept funds out of the financial system, so that the FIC was unable to see those funds. By way of example he said that sometimes funds emanating from rhino poaching were identified, but much of the time, rhino horns were exchanged for other goods so that no money moved. Because the syndicates used a non-financial mechanism, it impacted hugely on the economy and the work of the anti-fraud institutions.

The Chairperson also enquired how many times the FIC had appeared before Portfolio Committees in the past.

Mr Michell responded by saying that FIC usually attended once a year.

The Chairperson asked if there was anything the Committee could do to assist the work of the FIC and whoever else it accounted to.

Mr Michell said that he wanted dependencies to be met. The FIC answered to the Minister of Finance, the Standing Committee on Finance and the State Security Committee.

The Chairperson said he would engage further with Members and the Minister of Finance, in order to determine exactly which committee the FIC should account to, particularly if it needed to account to both the Standing Committee on Finance and the State Security Committee.

The meeting was adjourned.
 

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