Document: Financial Intelligence Centre Amendment Bill 2016 as Amended by standing Committee on Finance (awaited)
National Treasury provided a wrap-up on the Financial Intelligence Centre Amendment Bill, stating that financial crime remains on the global and local agenda with international standards on combating financial crime evolving and the SA regulatory framework must be updated. There were significant gaps in South Africa’s regulatory system as identified by 2009 Financial Action Task Force Mutual Evaluation on South Africa. The Bill also seeks to implement United Nations Security Council (UNSC) on the freezing of assets as well as to comply with the Constitutional Court decision on non-routine inspections. The concerns had been that the Bill was too prescriptive and rules-based in certain provisions and that the absence of private sector prominent influential persons will make the implementation difficult. Compliance costs will be continually assessed and monitored with industry. Parliament can request progress reports on its implementation. Being deemed a prominent influential person does not mean one is guilty of financial crime and cannot transact with accountable institutions. The principles behind the amendments remain sound and in line with international standards, but National Treasury acknowledged a reasonable way to implement must be found.
As the Members went through the Bill, they asked questions that included conditions under which the Centre ‘may’ or ‘must’ share information. Members lobbied for a more specific definition of an investigative division within an organ of state. Members also asked what was used to define a client with apparent false or fictitious information. Members asked if a partnership was a legal person, if the sanctions list was only determined by UNSC, what the reference to trust was for and why a particular subsection in the Bill noted that it does not apply to exchange rules.
Bills objectives and motivation for amendments
Mr Orlano Makhubela, Chief Director: Financial Investments and Savings, National Treasury, said financial crime remains on the global and local agenda. International standards on combating financial crime have evolved. There were significant gaps in South Africa’s regulatory system as identified by the 2009 Financial Action Task Force Mutual Evaluation on South Africa. This is what the Bill seeks to do. It also aims to implement the United Nations Security Council resolution relating to the freezing of assets as well as to comply with the Constitutional Court decision on non-routine inspections. The concern had been that the Bill was too prescriptive and rules-based in certain provisions and that the absence of private sector prominent influential persons will make the implementation difficult. Compliance costs will be continually assessed and monitored with industry. Parliament can request report back on progress with implementation. The SA regulatory framework must be updated to be up to date. Being deemed a prominent influential person does not mean one was guilty of financial crime and cannot transact with accountable institutions. The principles behind the amendments remain sound and in line with international standards, but National Treasury acknowledged a reasonable way to implement must be found.
Members then did a page by page reading of the Bill; rather than following the chronological order of the Bill their questions were often in random order and sometimes cyclical.
Discussion during the page by page reading of the Bill
The Chairperson said the Department had done a good job on this difficult Bill. He complimented the quality and clarity of the Bill.
Mr D Maynier (DA) supported the Bill. He asked if there was any section that refers to the state as national, provincial and local government.
The Chairperson replied that this was covered in the Constitution
Mr Maynier asked what an investigative division in an organ of state was as it constantly appeared in the Bill.
Mr Pieter Smit, Executive Manager: Financial Intelligence Centre, replied it was a division in an organ of state that investigate criminal activities
Mr A Lees (DA) said that such a definition means the Joburg zoo must have an investigative division because it is an organ of state.
Mr Maynier said the Department must give flavor as to what it regards as the investigative division in an organ of state.
Ms T Tobias (ANC) said it was not possible to legislate with preconceived targets. In this Bill, room was being given to every organ of state that had to deal with investigation. Mr Maynier was doing politics.
Mr Ismail Momomiat, Deputy Director General, Tax and Financial Sector Policy, National Treasury, replied that it was not compelling FIC to give information to everyone. If the FIC gets information on procurement, the Chief Procurement Officer or the Accounting Officer in the relevant department must be made aware of such information.
Mr Smit replied that the FIC was not an investigative body, but shares information. An investigative authority was an institution established by national law which has the mandate to investigate criminal activities such as the military police, the police and the intelligence services. An investigative division within an organ of state was an investigative body within organs of state that investigates, for example, corruption. The Department of Public Service and Administration requests information on public officials accused of crime. The DPSA aspect was not yet legislated, but the FIC was being readied for future developments.
Ms Tobias said the Protection of Personal Information (POPI) Act covers the privacy of an individual or Chapter Two of the Constitution.
Mr Maynier thought the responses given were in conflict. State departments were starting investigative units but some of them will move from being investigative to intelligence divisions. He suggested that National Treasury define an investigative division as a unit within an organ of state sanctioned in law to investigate criminal activities.
Ms Tobias said this was not an intellectual engagement. Mr Maynier had not made any reference to a court case and his suggestion must be considered as a normative political statement.
The Chairperson said Members who came to meetings on the Bill must not be disadvantaged. It must be acknowledged that organs of state may abuse intelligence information as in the case of Edward Snowden and Julian Assange. He was aware that some organs of state were politicised. Mr Maynier may draft a few lines of about what he was saying. Members must express their reservations that these provisions will not be abused.
Mr Maynier replied that the definition of an investigative body within an organ of state should read: a division within an organ of state sanctioned by national legislation to investigate criminal activities within that organ of state.
The Chairperson replied Members ought to be cautious of what Mr Maynier was suggesting as it was something that should have been raised in previous meetings.
The Chairperson asked what criteria was used to define a client with apparent false or fictitious information.
Mr Smit replied when a customer gives false information.
The Chairperson asked if a partnership was a legal person.
Mr Smit replied it was a group of people doing business together.
An Old Mutual official asked if people on sanctions list will only be determined by the United Nations Security Council (UNSC) as noted in section 28(a).
Mr Smit replied it was the only formal list available.
The Chairperson asked why reference was made to the director without the Minister’s involvement in section 28(iii)(b).
Mr Smit replied that the director was delegated; the UNSC may apply for lifting of certain provisions.
The Chairperson asked what happens to the property of a terrorist and if it can be inherited.
Mr Smit replied that even after Osama’s death, he remained on the UNSC list.
Mr Lees said the Bill does not only deal with criminal activities or terrorism. He asked what happens if the assets of a terrorist were acquired legally.
Ms Tobias said the courts do not make rulings based on a subjective decision. If the assets were assets of a terrorist, they will also be evaluated based on the good self of a person.
Mr S Buthelezi (ANC) said the legislation should not only be made for lawyers.
Mr Momomiat replied that guide books will be provided.
The Chairperson said he saw somewhere while reading the Bill that the subsection does not apply to exchange rules.
Mr Smit replied that on the stock exchange, the trading of shares was irreversible.
Clause 25 substituting Section 40 Access to information held by Centre
Mr Lees said section 40(1) must not be discretionary but relevant to the investigation.
Mr Smit replied the word ‘may’ was used because a condition must be established before a decision can be made to share information.
Ms Tobias said the law was not prescriptive when written and asked under which conditions it should be a ‘must’.
Mr Smit replied the FIC prefers ‘may’ to ‘must’ as the decision is conditional on the satisfaction of the FIC.
Mr Lees asked if the FIC will it still exercise discretion, even if the conditions are met.
Ms Tobias said ‘may’ and ‘must’ have a legal bearing. The discretionary powers that the Centre holds must not be removed without a basis.
Mr Smit replied that if the conditions are met, the FIC will share information as the Centre was made accountable for sharing information. If the word ‘must’ is used, the Centre is forced to share information. The word ‘may’ allows the FIC not to be challenged in court for refusing to share information.
Mr B Topham (DA) was of the opinion that the word ‘must’ strengthens the Centre’s position in court.
Mr Buthelezi said if a conditional precedent was met, the Centre must share information.
Mr Frank Jenkins, Legal Advisor: Parliament, replied that if the word ‘must’ was used, the conditions under which information cannot be shared will have to be stated in the Bill as well.
Mr Smit replied from a drafting point of view, a redrafting can be made but ‘may’ must be retained.
Mr Momomiat replied an in house discussion will be done on the use of ‘may’ or ‘must’ share information.
The Chairperson replied he expects the response on this by next Tuesday or late Friday in his inbox.
The Chairperson asked what a self-regulating association or organisation was in 40(7).
Mr Smit replied that such an example was the Law Society
Ms Tobias said the conception of ‘must’ does not set conditions on which information can be shared as section 40(8) referred to national security.
Mr Momomiat replied on 40(8) saying that departments must work together as they operate in a silo. If there was a threat to the country, the public official who refuses to share information must resign.
Mr Buthelezi said, putting on his patriotic hat, that it was treason.
Mr Maynier said in the national security environment, it was a must. The 9/11 event happened because security institutions were not sharing information.
Mr Smit replied that the assumption was that intelligence organisations will not be compromised. The discretionary powers of the FIC were also subject to accountability.
Clause 31 amending Section 45B
Mr Lees said notification must be given prior to inspection.
Mr Smit replied that it will defeat the purpose of inspection if pre notification was made.
Ms Tobias asked if one can write to “MMM” and say she is coming for inspection.
Mr Lees suggested adding ‘given circumstances where appropriate’ would be good as there was no conflict.
Mr Smit replied that the inspector may refuse the ‘given circumstances’.
The Chairperson asked if a Member can amend the actual Act and not the provisions in the Amendment Bill.
Mr Jenkins replied for that to happen, approval must be first sought from the House.
Mr Lees said documents relevant to the inspection must be requested during inspection.
Mr Smit replied that putting that suggestion in makes the work of the inspector difficult as he has to prove that the document was relevant to the inspection to get information.
The Chairperson said Mr Lees was right to be wary to abuse, but let the section remain as it is.
Clause 43 substituting Section 56 Failure to report electronic transfers
The Chairperson said 56(1) and (2) were repetitive
Mr Smit explained that such a failure can be a regulatory failure or criminal activity. The first one creates a liability on the supervisor while the later creates a liability on the institution who may be complicit in money laundering.
Mr Maynier said factors detrimental to national stability must be taken from National Intelligence Amendment Act 2014 and not the Strategic Intelligence Act of 1994 in section 40(8)
Mr Smit said that the provision refers to structures that fall under the National Intelligence Co-ordinating Committee (NICOC).
Mr Topham asked what the reference to ‘trust’ was.
Mr Smit replied the provision was for institutions for people who create trusts to distance themselves from their property.
The Chairperson announced that next Tuesday, 26 April, the Bill will be voted on together with the Committee Report on the National Treasury budget.
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