Financial Intelligence Centre Amendment Bill: public hearings with Deputy Minister

Meeting report

Public hearings were held on section 45B(1C) of the Financial Intelligence Centre Amendment Bill [B32B-2015] due to the President’s concerns about constitutionality of warrantless searches by inspectors.

In his briefing on the referral process, the Senior Parliamentary Legal Advisor explained that the President could refer a Bill back to Parliament only on the basis of its constitutionality and nothing else. That constitutionality could either be a substantive matter like warrantless searches or a procedural matter. In certain instances the National Council of Provinces participates in the process of considering a referral by the President but generally the National Assembly considers referrals by itself. If the NA failed to accommodate the President’s reservations, the President could either sign the Bill or refer it to the Constitutional Court for a decision on its constitutionality. The Joint Rules deal with Bills referred back by the President:
• Rule 203(2) – “The Committee must consider, and confine itself to, the President’s reservations”, which meant the Committee could deal only with the reservations and could not change other sections.
• Rule 203(3) – lf the Committee agrees with the President’s reservations, the Committee must present with its report an amended Bill correcting any constitutional defect in the substance of the Bill to the House for consideration and adoption.
• Rule 206(1) – A Bill remitted for substantive defects must be returned to the President if the Assembly after having considered the President’s reservations decides not to accommodate the President’s reservations.

Adv Ishmael Semenya SC submitted his legal opinion which had been requested by the Speaker. He noted that the President considered the proposed section likely unconstitutional in light of the Constitutional Court's judgments in Estate Agency Affairs Board and Magajane as well as the Gaertner case. It was important that the statutes be looked at holistically so that determination could be made as to whether warrantless searches were an exception, which was the position in the proposed Bill, as opposed to the rule. Unlike the provisions that had been struck down by the Court as being overbroad and unspecific about how those searches would be conducted, the proposed Bill had mitigating elements about it. Their considered opinion was that there were sufficient safeguards to survive a section 36 of the Constitution scrutiny of the proposed section.

Adv Jeremy Gauntlett SC submitted his legal opinion which had been requested by National Treasury. He stated that an advantage of the hearing had eventuated, even though not desired, at arriving at a point where a number of legal inputs had been submitted which had to his knowledge been independently arrived at. It was important that though as independent senior counsel, though they had not interacted on the matter, there was quite a high commonality of views on the President’s referral. He said that the concern that legislating for warrantless searches was unconstitutional was in their respectful opinion not sound. There were subsidiary matters where they believed the reservations which had been tabled by the President were very minor procedural adjustments. As already alluded to in previous opinion the NA could simply amend the Bill if it so wished. They would agree with the other independent senior counsel’s opinion that the NA could explicitly amend the Bill as proposed to say:
Where an inspector enters premises without a warrant, he or she must do so
(a) at a reasonable time;
(b) on reasonable notice, where appropriate; and
(c) with strict regard to decency and good order, including to a person's right to- (i) respect for and the protection of dignity; (ii) freedom and security; and (iii) personal privacy.
On the purpose of determining compliance with this Act or any order, determination or directive made under this Act, he said that the purpose of the Act was spelt out in section 44B(1A) which was to determine compliance with the Act.

In respect of section 45B(1C), it would be about removing the oxygen for political combustion because for legal combustion it could be inquired why there needed to be set up potential challenges by third parties. The Committee would know that in the S v Makwanyane that the Constitution did not only protect the good but the wicked as well, which was the reason a United States courtroom tested a case about a neo Nazi group marching through a Jewish neighbourhood. As extremely offensive as that was, the question had been whether that had been not freedom of speech in that particular setting.

Members were concerned that some stakeholders were proposing that the entire FICA Bill be scrapped. It asked: whether the issues procedural or substantial; how the Constitution conceptualised the right to privacy and the limitations thereof; what ‘decency’ spoke to in terms of the invasion of privacy; the misconception that a warrantless search could be a witch-hunt; at what point would inspectors know they had observed all the constitutional provisions when the operation was in private residence; and what happened when one became aware that particular aspects bordered on failing the test of constitutionality. Members were amazed at how remarkably consistent the legal opinions had been. They noted senior counsel had said nothing about Chapter 11 of the Constitution on Security Services; where would the inspectors come from within the security cluster and how was the enforcement of the provision to be handled. Members stated it would help the Committee if those who did not share the view expressed by all the independent legal opinions and from Parliament’s legal advisors, would spell out why they believed that the Constitutional Court would find against its own provisions which it had read-in.
 

Mr Mzwanele Manyi, Progressive Professionals Forum (PPF) President, in his submission said that the PPF was in support of the Black Business Council (BBC) submission. The fundamental issue for them was that they were dealing with the security cluster in Chapter 11 of the Constitution.  He asked to what extent senior counsel had considered that the Constitution had no provision for the proposed investigative mechanism to be given to the “private sector” so as to speak, the banks. No inspector could use his discretion on what was reasonable or not in terms of the Constitution. He quoted section 205(3) of the Constitution on the Police Service: “the objects of the police service are to prevent combat and investigate crime, to maintain public order, to protect and secure the inhabitants of the Republic and their property, and to uphold and enforce the law”. Mr Manyi said that nowhere in the Constitution was this right given to any other body or entity. The argument by senior counsel seemed to suggest that it was allowable for a parallel situation to occur whereas the Constitution had confined that whole obligation to the police. He did not understand why senior counsel had decided what the Constitution had demarcated as the role of the police could be done by the banks as well.
 

Adv Steven Budlender emphasised that ConCourt would not find against its own provisions. When ConCourt declared a statute invalid, it re-worded a statute as an interim measure. In both the Estate Agency Affairs Board v Auction Alliance and the Gaertner cases, ConCourt had re-worded this Act in very much the same form as Parliament had ultimately adopted. Since ConCourt could not act unconstitutionally, when one observed the parallels between the FICA Bill and the reading-in orders by ConCourt; it was a very strong indication that the FICA Bill was constitutional.

Adv Budlender said what had made the legal opinions presented straightforward, which also explained the degree of similarity, had been that unusually there had been five ConCourt judgements, almost unanimous, in how they had dealt with this matter. ConCourt had already pronounced in four different contexts that urgent searches, where a warrant could be dispensed of, was a justification. On chapter 11 of the Constitution which spoke to the security cluster, this was not the basis for the President’s referral. However, it was not in any way unusual or constitutionally improper to have an organ of state be conferred with search powers in a narrow regulatory environment.

Minutes:
Referral back of Financial Intelligence Centre Amendment Bill [B32B-2015]: briefing on process
Adv Frank Jenkins, Senior Parliamentary Legal Advisor, said that in certain instance the National Council of Provinces (NCOP) participates in the process of reconsidering a referral by the President but generally the National Assembly (NA) considers referrals by itself. Of emphasis was that the President could only refer a Bill back to Parliament on the basis of its constitutionality and nothing else. That constitutionality could either be a substantive matter like warrantless searches or a procedural matter. If the NA failed to accommodate the President’s reservations, the President could either sign the Bill or refer it to the Constitutional Court for a decision on its constitutionality.

Adv Jenkins said that Joint Rules Chapter 4, Part 8 deals with Bills referred back by the President, specifically, Rule 203 and Rule 206 were particularly relevant when it came to the purpose of referrals. Rule 203(2) – The Committee must consider, and confine itself to, the President’s reservations. This meant that the Committee was supposed to deal only with the reservations and to not open and add other issues as it was considering the referral. Rule 203(3) – lf the Committee agrees with the President’s reservations, the Committee must present with its report an amended Bill correcting any constitutional defect in the substance of the Bill to the House for consideration and adoption. Rule 206(1) – A Bill remitted for substantive defects must be returned to the President if the Assembly after having considered the President’s reservations decides not to accommodate the President’s reservations.

Based on the Constitution in various court decisions, the principle of legality governed all State action. That is, the State could not exercise any power or function beyond that which is conferred in law. As a private citizen one could do anything except what would be prohibited by law but as a State official one could only do what the law allowed one to do. Specifically for Parliament in Speaker of National Assembly v De Lille MP and Another (297/98) [1999] ZASCA 50; [1999] 4 All SA 241 (A) (26 August 1999) the court had said action could not be taken against a Member of Parliament when that had not been provided for either in the Rules of the NA or in law. This brief summary is to sketch what the Committee is entitled to do.
 
He said that constitutionally Parliament had to facilitate public involvement in all the referral processes. In the case of today’s hearing the public had formally been requested to submit inputs without there being a platform to table them which was for Parliament a first – in inviting the public to present its inputs on a referral of a Bill by the President of the Republic. The process of dealing with a Presidential referral is a value chain and if the President believes his reservations were not adequately accommodated, he goes to the Constitutional Court (ConCourt). The ConCourt in Ex Parte President of the Republic of South Africa: In re constitutionality of the Liquor Bill (CCT12/99) [1999] ZACC 15; 2000 (1) SA 732; 2000 (1) BCLR 1 (11 November 1999), said that what came to it as a court was a not a certification process. It was not what the Interim Constitution had allowed which had been called an ‘abstract review’. The ConCourt had since then said that it would only deal where matters had matured into a proper dispute which meant there had to have been an Act which would have impinged on one’s rights. Only when the Bill would have become an Act could anyone then challenge it through the ConCourt; notwithstanding that the hearing would have dealt with only the Presidents reservations and no other emerging matters.

The Committee has to first determine whether it agrees with the President or not. In that regard the referral deals with clause 32 of the Bill, specifically section 45B(1C) on warrantless searches. Thereafter the Committee has to submit a report to the NA which then has to either send the Bill back to the Committee or send it to the President who can take it further in terms of section 79. On the principle of legality his view is if a Committee reports a Bill that goes further than the President’s reservations that would be challengeable.

Discussion
Mr F Shivambu (EFF) asked whether Adv Jenkins was saying the hearing would specifically focus on warrantless searches only. His concern was that he had heard some stakeholders who were proposing that the entire FIC Amendment Bill be scrapped. He asked Adv Jenkins for clarity.

Dr M Khoza (ANC) asked Adv Jenkins for specifics of the President’s reservations on warrantless searches. Were the issues procedural or substantial?

Ms T Tobias (ANC) requested Adv Jenkins to expand on how the SA Constitution conceptualised the right to privacy and the limitations thereof. For instance, the Constitution explained at what point one’s right to privacy could be tempered with based on the rule of law.

The Chairperson remarked that Members are dealing with the substance and he suggested that Adv Semenya, as the independent senior counsel, and other counsel will be dealing with that. Also there is a view that Parliament is converting the hearing process into a court of law and the Committee is not allowing the public to speak its mind. To be fair can we focus on process issues for now?

Adv Jenkins replied that the Committee was indeed tasked to look only at the reservations of the President. If that reservation could only be accommodated through scrapping the Bill then that could be considered although he would not consider that as that was not what the President had reservations about. When the Bill was introduced in Parliament, the Committee made no changes to the specific provision in clause 32 amending section 45B(1C) and the State Law Advisors (SLAs) had certified the Bill as constitutional. As Parliament’s Legal Service they also looked at whether the legislation would impact on the right to privacy. That right to privacy could be limited in terms of section 36 which set out how that could be achieved. There were five requirements: (a) the nature of the right; (b) the importance of the purpose of the limitation; (c) the nature and extent of the limitation; (d) the relation between the limitation and its purpose; and (e) less restrictive means to achieve the purpose.

In 2016 he had compared the FIC Amendment Bill with what the ConCourt judgment in Estate Agency Affairs Board v Auction Alliance said about making the unconstitutional section about the right to privacy in the Financial Intelligence Centre Act constitutional. Additionally a judgement came out in the Labour Court on the 24 January 2017 which concerned the dismissal of an employee by his employer for not wanting to show images which were contained in the employee’s mobile. The Labour Court had found the action legitimate since the concern centred on whether the employee had taken images of his former workplace supply chain. The hearing concerned how far the Financial Intelligence Centre could go in determining whether there had been transgression of a specific law which was normally just inspection as the FIC did not prosecute.

The gist of the President’s constitutional reservation was that the proposed new section 45B(1C) had a provision which said that FIC inspectors could without a warrant search an individual’s premises in certain conditions, if there was reasonable suspicion that there was a transgression of the law which FIC oversaw. The provision had been a result of the Estate Agency Affairs Board v Auction Alliance court case which had found that the FIC Act had a provision on warrantless searches which was unconstitutional as it stood. What the court said about section 45b was that it had to be modulated to give adherence to “less restrictive means”. There had to be a way where first a warrant had to be sourced and if there would be warrantless searches there had to be reasonable belief that a warrant would be issued but that applying for one would frustrate the purpose of an inspector’s search. The ConCourt then said that if an inspector was to do a warrantless search it had to be in exceptional cases under strict conditions. The ConCourt had also read-in a provisional clause that said up until a certain time FIC inspectors could use it for warrantless searches. That had expired though where FIC then used the standard Criminal Procedure regulations to get the South African Police Service (SAPS) to do the searches. The President was concerned that there was scope for FIC inspectors to search private property which was an inner sanctum according to the ConCourt; moreover the restriction placed on that power to do warrantless searches was not compliant with what the ConCourt had said in the Estate Agency Affairs Board v Auction Alliance case. The Committee had to the answer whether it was compliant in passing that legislation.

The Chairperson asked whether members of the public needed clarity on what the Committee could do and not do constitutionally in terms of the requirements and Joint Rules whilst processing the referral.

Mr Sello Rasethaba, Black Business Council (BBC) chairman, said he thought they would be given an opportunity to make oral submissions on the President’s referral.

The Chairperson replied that he was simply allowing anyone an opportunity for clarity on the issue of whether Parliament was doing nothing untoward by holding the hearing.

Mr Shivambu raised a point of order saying it was not appropriate for the Chairperson to allow visitors to Parliament to just speak during a Committee hearing without making submissions and formally introducing themselves.

The Chairperson replied that Mr Rasethaba was representing the BBC and as a stakeholder had a right to speak. Mr Rasethaba was in the public gallery because there had been no space in the benches opposite the Committee Members.

Opinion on Constitutionality of Warrantless Searches in FICA Bill as requested by Speaker
Adv Ishmael Semenya, independent Senior Counsel, read through Semenya and Budlender legal opinion which concluded that the proposed section 45B(1C) is consistent with the Constitution. The requirement of a search warrant involves the party conducting the search to first approach a judicial officer for authorisation to conduct the search. He said it was important that the statutes be looked at holistically so that determination could be made as to whether warrantless searches were an exception as opposed to the rule whereas that was the position in the proposed Bill. He said unlike the provisions that had been struck down by the ConCourt as being overbroad and unspecific about how those searches would be conducted; the proposed Bill had mitigating elements about it. In summary Adv Semenya’s considered opinion was that there were sufficient safeguards to survive a section 36 of the Constitution scrutiny of the proposed section.

Opinion on Constitutionality of Warrantless Searches in FICA Bill as requested by National Treasury
Adv Jeremy Gauntlett, independent Senior Counsel, said that an advantage of the hearing process had eventuated in the Committee, even though not desired, arriving at a point where a number of legal inputs had been submitted which had to his knowledge been independently arrived at. It was important that as independent senior counsel, though they had not interacted on the matter, there was quite a high commonality of views on the President’s referral. A great deal of the advice which had been given to National Treasury by Gauntlett and partners had a similar conclusion to that independently given to the Speaker by senior counsel Semenya and Budlender. He said the issue that legislating for warrantless searches was unconstitutional was in their respectful opinion not sound. There were subsidiary matters where they believed the reservations which had been tabled by the President were very minor procedural adjustments. As already alluded to the NA could simply amend the Bill if it so wished. He said that they would agree with senior counsel Semenya’s opinion that the NA could explicitly amend the Bill as proposed to say:
Where an inspector enters premises without a warrant, he or she must do so
(a) at a reasonable time;
(b) on reasonable notice, where appropriate; and
(c) with strict regard to decency and good order,
Including to a person's right to-
(i) Respect for and the protection of dignity;
(ii) Freedom and security; and
(iii) Personal privacy.
Only for the purpose of determining compliance with this Act or any order, determination or directive made under this Act.

Adv Gauntlett said that the purpose of the Act was spelt out in section 44B(1A) which was to determine compliance. Therefore it would not be necessary to spell that out. Parliament should determine when aspects are raised which required small adjustments, and which could be tabled as a concern. At which point the Committee would remove the oxygen from an attempt to attack a particular provision; by saying let us not wrangle about the words if the ultimate point is to say it has not been explicitly spelt out, because that can be simply remedied. Already the Act said the powers are for compliance.

In respect of section 45B(1C), it would be about removing the oxygen for political combustion because for legal combustion it could be inquired why there needed to be set up potential challenges by third parties. The Committee would know that in the S v Makwanyane that the Constitution did not only protect the good but the wicked as well, which was the reason a United States courtroom tested a case about a neo Nazi group marching through a Jewish neighbourhood. As extremely offensive as that was, the question had been whether that had been not freedom of speech in that particular setting.

They agree with Adv Jenkins’ analysis of section 79 that the current Constitution took away the power to conduct an abstract review. In place of that, the Constitution makers had given a lead role to the President which straddles the division of powers which, though not without problems, its functionality was that the President would otherwise be required to sign-off on things. There was the ability to send back to Parliament matters that concerned him as the President, followed by a hearing which would then determine whether the concerns were warranted or not.

In their interpretation, the ConCourt and the Constitution have never in the judgements as quoted in the President’s referral, been spoken to as outlined in his reservations. In exceptional instances such as the Tax Affairs Administration Act, where it could not be reasonably contemplated that one could get to a court to get a warrant; Adv Gauntlett and partners in their opinion had proposed for the Committee’s consideration, as very much outlined in section 36 of the Constitution, if there would have been an infringement which everyone could agree with in principle in the circumstances contemplated; it had to be justified and the least restrictive means through which to achieve it. They were proposing the Committee consider building-in an intermediate stage between getting a warrant and going in without any warrant, as long as it would be reasonably capable of achieving the purpose of the search warrant.

In Adv Gauntlett and partners’ opinion they had provided a tiered approach. If privacy was to be invaded, the departure had to be the question as to whose privacy would be invaded. The first exception accordingly permits the violation of for example a tenant's privacy in respect of private residence. lf either the landlord or another person (such as a neighbour or domestic employee physically present at the property in the tenant's absence during office hours) grants consent. The consent of the person in control of the premises is not even required to be granted in consultation with or after consultation with the resident. It is clear that a less restrictive means to achieve the same purpose is available. It is to require the consent of the right-bearer him- or herself, as section 63(4) of the Tax Administration Act (TAA) does. Section 63(4) of the TAA requires the consent of the occupant of residential property. It also imposes a proportionate restriction on the part of the residential premises which may be entered.

As Adv Semenya had earlier indicated that occasionally there would be instances where reasonable grounds could exist for an inspector to believe that a court would issue a warrant on application where such an application to be made, but where the delay in obtaining a warrant would likely defeat the purpose of obtaining it. This had been acknowledged by the ConCourt where that power would need to be exercised. The safeguard then lay in the fact that the exercise of that power could itself be attacked which often happened in SA law. In determining the constitutionality of a provision one did not presume slackness of dissipated, intoxicated carrying out of that power as that was where it would be attacked, if that ever occurred. A constitutional mechanism would then have to be in place which would determine what an inspector could carry out in the best possible way with constitutional compliance. This is why the Committee would have seen in Adv Gauntlett and partners’ opinion, they had provided that what had been implied by the ConCourt in the case law, should then be explicitly be written into the Act.

Discussion on legal opinions
Ms B Topham (DA) said that what was remarkable was the issue of the consistency of the legal opinions. Though the Committee had considered the limitation to the right to privacy which was important in 2016 in terms of whether section 45B(1C) would pass constitutional muster; the opinions had covered how section 36 of the SA Constitution was not infringed by the provision in the FIC Amendment Bill. It could help the Committee if those who did not share the view expressed by all the legal opinions, independent and from Parliament’s legal advisors, were to spell out why they believed that the ConCourt would find against its own provisions.

Ms Tobias said when listening to legal counsel giving opinions in Parliament they always had different opinions on matters. Amazingly, for the first time, they had had two separate senior counsel agreeing on a particular matter. But she wanted the Committee to deal with what ‘decency’ spoke to in terms of the invasion of privacy. There was a misconception that a warrantless search could be a witch-hunt. At what point would an inspector know they had observed all the constitutional provisions when the operation was in private residence. This was the point she needed clarified, so that when she acknowledged that section 45B(1C) would pass constitutional muster, she was assured. She also needed clarity on the different contexts where warrantless searches could be undertaken.

Dr Khoza was concerned that both senior counsel had said nothing about chapter 11 of the Constitution which spoke to the security cluster of Government. Where would the inspectors come from within the security cluster and how was the enforcement of the provision to be handled?

Mr S Buthelezi (ANC) said it had to be acknowledged that the FIC Amendment Bill was being processed because the ANC had called for that. What happened when one became aware that particular aspects bordered on failing the test of constitutionality?

Mr Shivambu said the designers of the SA state had said there were the judiciary, parliament and then the executive. That meant the executive was expected to act as one as established by appointments of ministers by the President to exercise certain functions on behalf of the Executive. However, the Executive seemed to be sometimes working in a self-contradicting manner which ultimately berates the legislative process in Parliament. For example, the Minerals and Petroleum Resources Development Amendment (MPRDA) Bill was passed by the Fourth Parliament and 12 months into the Fifth Parliament the President returns the Bill to Parliament on the basis that it may be unconstitutional. The Department on Mineral Resources (DMR) then says the MPRDA was drsfted by it and there was nothing unconstitutional in its provisions. The MPRDA Bill goes through the parliamentary process again and only 24 months later it gets to the Executive.

A similar situation had now arisen: Treasury which was a component of the Executive drafted and satisfied itself that the FICA Bill was constitutionally sound and Parliament processed the Bill and reached the same conclusion as Treasury, and that it also was in line with international standards on financial intelligence and crimes. The President after applying his mind sent back the FICA Bill with reservations about constitutionality, with Treasury maintaining that there still was nothing unconstitutional about the FICA Bill.

Mr Shivambu said that Government had to normalise that relationship where the Executive would have a clearer mandate that prior to the President returning legislation to Parliament – which unnecessarily protracted the process – thorough work had been done within the Executive. Though it was known there were politics behind some of these issues.  There had to be some sophistication when one wanted to object to legislation because the legislation the Committee was faced with related to a criminal syndicate which was objecting to the passing of legislation that would deal decisively with financial crime. The gravity of financial crimes in SA could never be underestimated as it deprived South Africans of access to resources that would otherwise better their living situations. He said the Committee would later hear from people who wanted the entire FICA Bill to be rejected in defence of a criminal syndicate.

Mr Shivambu pleaded with the Chairperson that visitors to the Committee that were to still present be reprimanded from responding as they would be granted an opportunity to make submissions later on.

The Chairperson replied that Parliament by virtue of being a public space, afforded all South Africans an opportunity to speak during hearings. He reiterated that anyone apart from the Committee who was visiting could make an input on the opinions of the senior counsel.

Mr Mzwanele Manyi, Progressive Professionals Forum (PPF) president, said he objected very strongly on behalf of the PPF and the Black Business Council (BBC) that they were being insulted in Parliament and the Chairperson was letting that go on unrestrained. He said they could not be called supporters of a criminal syndicate when they had legitimate objections to the FICA Bill and the Constitution allowed such objections. As the BBC and the PPF they were requesting the Chairperson to ask the Committee member to withdraw said insulting remarks. The programme stated that the PPF and the BBC would have different submissions but the PPF submission was embedded in the BBC submission. 

As the PPF, in support of the BBC submission, the fundamental issue for them was that they were dealing with the security cluster. The Committee was making a fundamental error…
 

The Chairperson interjected that Mr Manyi was no different than any South African. Indeed Mr Shivambu had alluded to the criminal syndicate but the Chairperson never heard him explicitly mention the BBC nor the PPF. To the extent that Mr Manyi would have felt the reference was to the PPF and the BBC, the Chairperson asked if Mr Shivambu would consider withdrawing his statement.

Mr Shivambu replied that it was a shoe that fitted people.

The Chairperson said since similar instances had been discussed in the National Assembly, the Committee would return to this matter and he maintained that he would plead with Mr Shivambu to withdraw his statement. He said the submissions of the BBC and the PPF could be combined and that posed no challenge. He repeated that he was allowing questions only on the legal opinions tabled to the Committee.

Mr Manyi asked to what extent had the two senior counsel considered that the Constitution had no provision for the investigative mechanism proposed to be given “to the private sector so as to speak”. No inspector could use his discretion to what was reasonable or not in terms of the Constitution. He quoted section 205(3) of the Constitution on the Police Service: “the objects of the police service are to prevent combat and investigate crime, to maintain public order, to protect and secure the inhabitants of the Republic and their property, and to uphold and enforce the law”. Mr Manyi said that nowhere in the Constitution was this right given to any other body or entity. The argument by senior counsel seemed to suggest that it was allowable for a parallel situation to occur whereas the Constitution had confined that whole obligation to the police. He did not understand why senior counsel had decided what the Constitution had demarcated as the role of the police could be done by the banks as well.

Dr Khoza recommended that the Committee allow the public submissions to be tabled so that clarity seeking questions could be allowed and that those that present could even engage earlier submissions.

The Chairperson reminded the Committee that Parliament had committed to encouraging dialogue. His concern was that the senior counsel could leave without having responded to all the questions put to them. He remarked that indeed it was the first he had had legal opinions that were so similar on a matter before Parliament.

Adv Steven Budlender replied that it needed to be emphasised as part of why ConCourt would not find against its own provisions. When ConCourt declared a statute invalid; it re-worded a statute as an interim measure. In both the Estate Agency Affairs Board v Auction Alliance and the Gaertner cases, ConCourt had re-worded the statute in very much the same form as Parliament had ultimately adopted. Since ConCourt could not act unconstitutionally, when one observed the parallels between the FICA Bill and the reading-in orders by the ConCourt; that was in his and Adv Semenya’s opinion, a very strong indication that the FICA Bill was constitutional.

In measuring ‘decency’ in relation to warrantless searches, he said the question was not one that could be resolved at this hearing as it was complex. What had to be done was as Parliament had said: all searches had to be conducted in a manner that respected decency; that would then allow the courts to interpret that rule. Therefore if there had been a search which someone would contend had not been conducted in a manner respectful of decency; then such persons would no doubt sue whoever had conducted the search or would seek to set aside whatever would have been seized. The court would then have to pronounce on what decency meant. As legitimate a concern as that was, one had to leave room for the courts to interpret decency.

The other concern had been about the justification for the constitutionality of provision 45B(1C) which was left to a court of law to determine. Adv Budlender said what had made the legal opinions presented straightforward, which also explained the degree of similarity, had been that unusually there had been five ConCourt judgements, almost unanimous, in how they had dealt with this matter. The Committee could be satisfied on justification as the ConCourt had already pronounced in four different contexts that urgent searches, where a warrant could be dispensed of, was a justification.
 
On chapter 11 of the Constitution which spoke to the security cluster and whether it was permissible constitutionally to have the inspectors conferred with the powers as drafted. The first response was that they would argue that was a not the basis for the President’s referral which was why their legal opinion had not addressed chapter 11. As senior counsel, they understood and endorsed Adv Jenkins explanation that the Committee was constitutionally and in terms of the Rules bound to consider only the constitutional objections raised by the President, which was the privacy issue. Secondly, in their respectful submission, it was not in any way unusual or constitutionally improper to have an organ of state be conferred with search powers in a narrow regulatory environment. For example, the Independent Communications Authority of South Africa (ICASA) had the power to conduct searches to regulate the telecommunications environment. The Films and Publication Board (FPB) had the power to conduct searches to regulate the films and publication environment. The Estate Agents Affairs Board (EAAB) had the power to conduct searches on estate agents, with many more others. The EAAB was especially important. None of them were in security services but they were all conferred with this power. The power was not a general power to conduct searches or a general power to enforce criminal law but a narrow power to conduct regulatory searches in their respective areas.

The EAAB was important as amongst the five cases they had referred to and the President had referred to the EAAB court case. In that very case what had been argued had been whether officers of the EAAB could have powers of search and seizure and the ConCourt had had no issue with them having those powers. The only debate there had been whether those powers would be sufficiently constrained to meet the section 14 privacy issue. Their opinion was therefore that there was no constitutional objection to conferring those powers which were conferred only for purposes of assessing compliance in a narrow industry, on a body like the FIC, FPB or ICASA.

As already alluded to, in response to what would occur if the Committee came across other issues of constitutional challenge, the Committee could only focus on the reservation referred to it by the President and nothing else.

On the privacy issue, Adv Gauntlett said one could not in the context of what had been examined which were warrantless searches speak about simply accepting that the infringement of a right was a violation of the Constitution. As earlier explained by independent counsel, there were two parts to that equation. There needed to be an infringement of a constitutional right and then there needed to be a failure by the infringer to justify the infringement. For example, he had been required as a stranger to the parliamentary precinct to disclose his reasons for being there and to give over his bag for inspection: undoubtedly that had been an infringement of his right to privacy. The question would stand therefore as to whether there was justification for that. If there was, the answer would be that although his right had been infringed, the ancillary was that there were important social and constitutional reasons why his right was infringed and a democratic and healthy society accepts that people will be stopped at the entry to Parliament for the search.

He said that in their opinion what they were asking was for the Committee to leave the debate of what was implicit and explicit. Their opinion had included very explicit provisions about decency on the subject of a warrantless search. He quoted again: (1D) Where an inspector enters premises without a warrant, he or she must do so (a) at a reasonable time; (b) on reasonable notice, where appropriate; and (c) with strict regard to decency and good order, including to a person's right to- (i) respect for and the protection of dignity; (ii) freedom and security; and (iii) personal privacy." He said that the provisions did not mean an inspector could go into one’s sock drawer as that had nothing to do with section 45B(1D).

Adv Gauntlett affirmed that section 79 was not intended to set out an endless ping pong but to build the capacity and dignity of the President’s Office to be not viewed as a rubber stamp.

He reiterated that the statute was intended to be a regulatory statute serving an important financial regulatory purpose. It was important to note that the FIC inspectors were not primarily employees of the FIC but employees of the supervisory bodies such as the Registrar of Banks and Financial Services Board (FSB) and therefore the inspectors were officials with knowledge of the financial industry. Their purpose was not crime fighting but analogous to the Competition Commission (CC). It did not follow that because they had those powers, and particularly because of the constraints included, that their function became a security or a policing function. That function did not fall under the Police Act or chapter 11 of the SA Constitution. The chapter 11 consideration was not correct especially as it was also not included in the President’s reservations.

Ms Tobias asked for clarity as to what type of wording could the Committee consider to ensure that the President’s reservations were accommodated.

The Chairperson said that the matter could be discussed by the Committee after consultation as both senior counsel had proposed concrete amendments. He said to all the stakeholders that would still want to make submissions, they would be considered up until the day the Committee was to vote on the Bill. However, the Committee would at least require those to be submitted 48 hours before voting on the FIC Amendment Bill. The Committee would need to apply its mind the following week when it continues with the Bill. He reiterated that he was pleading with Mr Shivambu to consider withdrawing his statement as it could be construed that he was referring to the PPF and the BBC, even though he had not explicitly called out their names.

Mr Rasethaba said that when one read the preamble of the FIC Amendment Bill it was being passed to comply with South Africa’s international commitments; to deal with terrorism, money laundering and corruption. How could the senior counsel come to compare the FICA Bill with health inspectors of a municipality and EAAB officials? He needed clarity on that. He said that the BBC agreed with 90 percent of such an important Bill. The difference was that the BBC felt that the FIC would be taking on the role of law enforcement and the crimes in the preamble were quite serious to be given to people who were not trained in crime fighting.

Mr Manyi said he did not accept the responses by the two senior counsel. Secondly, he was content with Adv Gauntlett’s characterisation that EAAB inspectors were not trained in crime fighting but were specialists in their areas. As alluded to by Mr Rasethaba, the FIC Amendment Bill was meant to ensure SA complied with international commitments in dealing with the crimes or terrorism, money laundering and corruption. To then take civilians and charge them with functions that they had not been trained for and ascribed to by the Constitution, was indeed unconstitutional.

Dr Danisa Baloyi, BBC President, said that unwarranted searches were beyond banks coming to her house but going though her bank statements and all information about her; what were the limitations therein. Banks were already too powerful as they ran citizens lives.

The Chairperson said he recalled that in December 2016 the Committee had dealt with most of the issues as raised in the legal opinions. It had deliberated on where a citizen’s right to privacy started and where the State could intervene. If an inspector’s power to conduct warrantless search was unconstitutional, in the first place ConCourt would have said in the EAAB case that it was not about circumscribing the power, but that it was wrong to even give that power. If the power the inspectors have in terms of the FIC Amendment Bill was itself deemed unconstitutional, then the Presidency was wrong to have raised that – as ConCourt had already pronounced on that.
 

The Chairperson suggested questions related to the Rules: Was the opinion also that if the Committee found another clause to be unconstitutional, then the Committee could do nothing about it or could it be included in the Committee’s response if that issue was found within section 45? What if the Presidency having read the legal opinions and being advised further were to say, there were other provisions in the FIC Amendment Bill that were unconstitutional? Could the Presidency send another letter to the Committee in terms of the Joint Rules and the Constitution? Treasury also had to reply and differentiate between the roles of the banks and that of the FIC, as his understanding was that banks had neither control nor influence on the FIC employees. The FIC inspectors could only refer matters to SAPS when they found issues of criminality during warrantless searches though they did not have the power to compel SAPS to do anything about the referral. Could the Committee include in its amended provision that the inspectors had to work cooperatively with SAPS and the security cluster in a way that would achieve criminal prosecution?

Mr Shivambu said the process the Committee was engaged in had been explained by senior counsel together with the limitations around it. If the President were to get a new instruction wherever he received such, then the Committee could deal with that then.

The Chairperson said his questions related to what was possible within the Rules.

Ms P Mabe (ANC) said that when things were referred back to Parliament for reconsideration in consultation with stakeholders the Committee could not bar inputs from stakeholders though the process had to be confined to Parliament’s Rules. It was mischievous to suggest that the President of the country was receiving instruction from unknown places as that undermined the integrity of the person of the President.

Dr Khoza appealed that notwithstanding the constraints of the Rules; she was in support of Mr Mabe’s sentiments.

Ms Tobias reiterated that Parliament belonged to the people and therefore the Committee had to receive the submissions from stakeholders that had not presented.

Mr Shivambu said that despite there being no organisational coherence in the ruling party, the ANC National Executive Committee (NEC) had resolved that FIC Amendment Bill had to be passed as a matter of urgency and a public statement had been released to that effect. The fact was that ANC Members of Parliament had passed the Bill as agreed with the NEC. The President of the country then sent his reservations having received an instruction from somewhere. He said that the integrity of the President had to be questioned as he seemed to lack that.

The Chairperson said Mr Shivambu’s sentiments were publicly known as he had already said them in the National Assembly.

Adv Budlender repeated the ambit of the proceedings: section 79 of the Constitution made it clear that the reconsideration had to take place in accordance with the Joint Rules of Parliament:
Rule 203(2) - The Committee must consider, and confine itself to, the President’s reservations.
similarly:
Rule 204(2) - The debate in the Assembly must be confined to —
(a) the President’s reservations;
Even after the Committee had decided, Adv Budlender would submit that it was matter a law that the NA confine itself to the President’s reservations.

Adv Budlender said that it would not be open for the President to send a second letter with other reservations after having the Committee’s response for two reasons. He referred to section 79(1) and (4):
“79(1) The President must either assent to and sign a Bill passed in terms of this Chapter or, if the President has reservations about the constitutionality of the Bill, refer it back to the National Assembly for reconsideration.” - which had been what the President had done.
“79(4) If, after reconsideration, a Bill fully accommodates the President’s reservations, the President must assent to and sign the Bill; if not, the President must either—(a) assent to and sign the Bill; or (b) refer it to the Constitutional Court for a decision on its constitutionality.”
That therefore clarified the matter of how many chances the President had to refer back a Bill.

The Chairperson interjected, “What then would happen if the President were to refer the Bill back the following day?”

Adv Budlender replied that section 79 of the Constitution did not contemplate that. His understanding about the concerns regarding chapter 11 of the SA Constitution had been raised with the President and he had decided not to refer those, though he was speaking under correction.

Adv Budlender said that there is an important provision in the FIC Amendment Bill which needed to be observed. He reminded the Committee that entry into premises under section 45B(1C) was for purposes of determining compliance with the Act. Clause 1(m) introduced a new definition of ‘non-compliance’ which read: ‘non-compliance’ means any act or omission that constitutes a failure to comply with a provision of this Act or any order, determination or directive made in terms of this Act and which does not constitute an offence in terms of this Act. Therefore there would be no danger either at policy level or chapter 11 of the Constitution that FICA inspectors would be usurping the power to investigate or prosecute offences, because at least in terms of the section inspectors’ power was limited. There were many things that were an offence and a regulatory problem as the EAAB case exhibited. It was an offence to do certain things as an estate agent without a licence and that also violated the Estate Agents Act which at times introduced civil liability. The point was that often inspectors were there to deal with regulatory non-compliance and if an offence emerges, then the security services would deal with it. The FIC Amendment Bill respected that divide.

The EAAB case contained two provisions. The provision of the Estate Agents Act which gave EAAB the power to inspect and the FICA provision which gave FICA inspectors the power to inspect. If the ConCourt had indeed thought those provisions unconstitutional it would not have tinkered, read-in and balanced but would have simply said the provisions were inherently unconstitutional.

Adv Gauntlett said that Adv Budlender’s statement was entirely accurate as a legal statement. Essentially the thrust of the questions from the Committee was to probe how could sensibly be the scheme under the Constitution; that the President in his important role of raising a flag on the legislation he has to sign. He cannot also take a pen and check afterwards; safe to say he has concerns which he refers back. Parliament then has to decide and then the President having read the response can decide on whether to push that nuclear boundary of going to court on the issue; or whether to accept that his reservations would have been addressed substantially. There is no contemplation of a form of ping-pong therein; because that is a functionary, sensibly in the Constitution. That also does not mean that Parliament would wish to be receptive to a wide variety of opinions that would be permitted by the scheme to lose its focus on the fact that it was the President in his constitutional role as linesman or flagman to raise an issue. There had been a process that could not be expunged by recourse to unwinding what already had been done. What remained then was one linesman with the capacity to ask Parliament to reconsider.

If another letter were to come the following day to the Committee from the President, Adv Gauntlett said the Committee could take advice but of course that advice would have been foreshadowed by: “Mr President, you have done your job, thank you, when you referred your earlier letter. It was carefully considered and our response given to you and as per section 79. We understand you to have one of two ways: which are to indicate satisfaction or to go elsewhere”.

The FIC has nothing to do with the registrars of commercial banks. The FIC was set up by section 2 of the Act as an institution which established itself outside the public service but within the public administration as envisaged in section 195 of the Constitution. It was a juristic person with important aspects of autonomy even against Treasury. It had that interesting status.

As per section 45A, it was the director that appointed inspectors:
45A.Appointment of inspectors
(1) The Director or the head of a supervisory body, as the case may be, may appoint any person in the service of the Centre or supervisory body or any other suitable person as an inspector.
That inspector would have blinkers on. He said the FIC Amendment Bill would not vest any individual responsible for investigations, with powers under the Criminal Procedures Act (CPA).

For the reasons set out above, we conclude that section 45B(1C) addresses the crucial constitutional defect identified by the Constitutional Court in Auction Alliance. Now the departure point is that a warrant is in principle required. The inquiry narrows to whether provision made for warrantless searches - flagged by the Constitutional Court as capable of being justified only by exceptional circumstances, but for which provision nonetheless may legitimately be made by the lawmaker - is made in the Bill in terms which are constitutionally-compliant. Residual concerns identified in the President's letter and other ancillary issues identified above are capable of being put beyond legitimate debate by more explicit drafting. To address these we recommend some minimal amendments to section 45B.
 
Ms Ismail Momoniat, Tax and Financial Sector Policy, Treasury, said that Treasury maintained that the financial sector had to be regulated intensively, intrusively and effectively. Regarding the inspectors, the FIC would get one of the regulators to be inspectors. The inspectors were people that sat at the SA Reserve Bank (SARB) and the FSB.

The Chairperson said to the senior counsel that the Committee would follow up on the legal opinions and any other clarity seeking question in writing.

Afternoon session
The Chairperson appealed to Mr Shivambu to withdraw the statement he had made earlier. He had addressed the matter with the Chairperson of the Rules Sub-Committee and it will be considered in its next meeting. The Chairperson stated that he does not have the authority to chase Mr Shivambu out of the meeting.

Mr Shivambu replied that the statement he made was not referring to anyone present at the meeting specifically, but he will point out his disdain for people who form organisations to defend the Guptas rather than fight corruption in the country.

The Chairperson interrupted Mr Shivambu and stated to those, including Mr Manyi, who were offended by Mr Shivambu’s statements, that he as chairperson cannot force Mr Shivambu to withdraw the statement that offended him, and the National Assembly Rules dictate as such. He noted that he had written to the Speaker and Mr Richard Mdakane (Revision of Rules Subcommittee Chair) as well as Mr Shivambu last year on this subject, and he could provide the letter.

Mr S Buthelezi (ANC) stated that the matter seems to be dragging on for too long, and the Committee cannot invite members of the public and not listen to them. Members of Parliament cannot expect to address each other respectfully and not extend the same courtesy to members of the public.

Black Business Council (BBC) submission
Ms Danisa Baloyi, BBC President, stated that suffice to say that history speaks for her when she says that no one can ever tell her to do what she thinks is not correct. BBC is an organisation that has a membership of about 50 organisations and stalwarts. Emphatically, BBC is not a puppet of anybody. The members of the BBC are ordinary, hard-working business people. The Black Business Council represents the interests of black businesses and its members. Its presence here in the Committee is to address the Financial Intelligence Centre Amendment Bill which it believes will affect BBC and its members directly. It came as a surprise that a BBC member’s bank accounts were closed without any prior notice and reasons for closure. Two of the members were expected to appear in court which was very unreasonable because how could one appear in court without any legal representation due to their bank accounts having been closed without any notice.

Ms Baloyi highlighted that the first task is to determine whether and to what extent the controversial Financial Intelligence Centre Amendment Bill (“FICA Bill”) complies with the legal standards contained in the Constitution of South Africa and the fundamental rules of interpretation of statutes. The FICA Bill, to me, appears not to have complied with the interpretation standards established in our law for the simple reason that the core substance of the legislative text had made an unprecedented departure from the defined purpose of the same Bill. This thus creates an impression that the primary drafters might have had an ulterior motive by seeking to conceal cleverly the actual purpose of the Bill, thereby misleading Members of Parliament, who may not necessarily be fully literate about the technical depth of the interpretation rules established by the law. The FICA Bill legislative text presents no justifiable or exculpatory grounds why the content largely deviated from the defined purpose and why and how no explanatory notes were provided to justify such a detour. The drafters have the burden of explaining their bona fides why they had apparently constructed a potentially destructive Bill by cleverly introducing clauses which have no direct link with the constructed purpose of the Bill.

Moreover the FICA Bill is not in conformance with the requirements of the Section 36 Limitation Clause of the Constitution, as this should have been expressed forthright in the introductory provisions of the Bill. The FICA Bill did not make an attempt at advancing, promoting and protecting the rights contain in the Bill of Rights as prescribed by the Constitution. Instead the Bill is, by substantive design, a brutal and capricious attack on the existing order of rights protected by the Constitution.

Furthermore the Bill has, by design, created an apparent conflict with other laws as it ousts the existing legislative framework empowering those state institutions empowered to investigate crime, enforcement of the law, as well as public prosecutions. The Bill has, in her opinion, effectively ousted the Police, the Hawks and the National Prosecution Authority from their core mandate of investigating and prosecuting all acts of so-called white collar crime defined in the same Bill. By ousting those institutions, the Bill is effectively vesting those powers in the banks and other financial services entities, creating a dangerous and highly untenable regime in which banks assume powers which oust not only common law rights to a fair procedure, but also the rights contained in the Constitution. It is against this background that she confidently said that the text of the FICA Bill as it stands will not pass a constitutional test. It remains to be seen as to whether laws of other countries would take on resembling features of the draconian spirit of the FICA Bill, in which the rights conferred on each citizen are constructively infringed with no right to due process called the audi alteram partem principle, which is afforded to a prejudiced citizen.

Council for the Advancement of the South African Constitution (CASAC) submission
Mr Lawson Naidoo explained that CASAC had launched an application in the Constitutional Court on 4 November 2016, seeking a declaratory order that the President had failed to perform a constitutional obligation in terms of section 79(1) of the Constitution, in that he failed to either assent to and sign the Financial Intelligence Centre Amendment Bill or refer it back to the National Assembly for reconsideration of specified constitutional reservations without delay. CASAC further sought an order directing the President to assent to and sign the Bill, alternatively, ordering the President to refer the FICA Bill back to the National Assembly for reconsideration if he had reservations about the constitutionality of the Bill. This application followed a letter from CASAC to the President on 19 September 2016, which received no response. On 28 November 2016 the President addressed a letter to the Speaker of the National Assembly in which he set out his reservations about the constitutionality of a provision of the FICA Bill and referred the Bill back to the National Assembly for reconsideration.

The President’s reservations are limited to the constitutionality of the proposed new section 45B(1C), which amends section 45B of the Financial Intelligence Centre Act, 2001. This section deals with warrantless searches. It is obvious that any further delay in the promulgation of the FICA Bill leaves South Africa with a deficient statutory and regulatory framework for anti-money laundering measures and the combating of terrorism financing, and continues to undermine its compliance with its international obligations. CASAC therefore urges the Committee to deal expeditiously with the President’s reservations and to progress the FICA Bill’s enactment as a matter of urgency.

CASAC recommends that if Section 45B(1C) is found to be unconstitutional, the National Assembly expeditiously address the President’s reservations by pursuing one of two possible options – it can either (i) amend section 45B(1C) to bring it in line with the Constitution; or (ii) excise section 45B(1C) from the Bill, in which case the President may promulgate the Bill without the potentially offending provision. If choosing the option to amend the section to bring it in line with the Constitution, regard must be had to the limitations clause in the Constitution. The only factor that could, in our view, potentially result in a finding that the limitation to the right to privacy is not justifiable, is whether there are any less restrictive means available to achieve the purpose of the provision. Specifically, the President raises a concern that there is no express limitation in respect to the object of the search and states that an absence of an appropriate qualification in this regard leaves the discretion of the inspector in conducting the search unbounded. The second option to deal with the potential unconstitutionality of section 45B(1C) would be to excise the entire sub-section from section 45B and to promulgate the FICA Bill without this section. The deletion of section 45B(1C) would impact sections 45B(1D) and 45B(1E) as these make reference to searches without a warrant. CASAC provided proposed amendments in its submission to address this.

The FICA Bill is of great significance and importance in the fight against corruption, specifically money laundering, trafficking and the financing of terrorism. The President’s reservations specified in his letter must, therefore, be considered by this Committee as a matter of urgency. To delay the promulgation of this Bill due to concerns around one particular section would be a grave injustice to the objectives sought to be achieved by its enactment. For this reason we implore the Committee to deal with this matter expeditiously.

Association of Black Securities and Investment Professionals (ABSIP) submission
The ABSIP speaker stated that ABSIP has had two opportunities to review this Bill, first in September 2016 and subsequently in January 2017. As a lead custodian of black professionals’ interest and black business in the financial services sector and a key constituent member of the Financial Services Sector Charter Council, ABSIP supports the Bill.

ABSIP understood President Zuma’s concerns in returning the Bill to Parliament, to be as follows:
- The constitutionality of the Bill as it contravenes a certain degree of privacy.
- The Bill requires senior bank officials to approve the accounts of prominent influential persons and obliges banks to establish the source of funds as well as monitor these accounts on a regular basis.
- The President’s main concerns are the provisions relating to warrantless searches, as this interferes with the constitutional right to privacy.
- This legislation would require banks to approve and monitor the accounts of prominent people including Government officials from the President to municipal managers.
- Concern expressed that this draft legislation would transfer the judicial authority from law enforcement agencies into the hands of banking and financial institutions.

Views expressed by ABSIP members, which constitute part of our position, include the following:
- It is important for South Africa to grow the economy, create jobs, reduce poverty and encourage good corporate governance.
- It is also important that policy certainty is significantly enhanced. The Bill and other legislation that help in enhancing policy certainty will assist in growing our economy, create jobs and reduce poverty on a sustainable basis.
- Individuals in positions of influence either in the public or private sector, who act with honesty and integrity, should not fear the Bill.
- The Bill seeks to strengthen the regulatory framework to combat money laundering and the financing of terrorism, by bringing our laws into line with international standards.
- The Bill’s proposed changes will make transacting and trading with the rest of the world easier and less costly.
- Failure to sign and implement the Bill will not only hamper the State’s capacity to fight corruption, but would also negatively impact the relationship between the South African financial services system and the rest of the world.
- South Africa would be included in a list of non-compliant and risky countries – most other key developing economies, including China and India, are compliant with similar legislation in their own countries.

Our concern is however with the potential abuse by private sector entities or individuals and state entities or individuals within them, who may abuse elements of the Bill. It is therefore important to put mechanisms in place to prevent such abuse and unfounded allegations destroying reputations of individuals, and selective reporting by relevant entities to the Financial Intelligence Centre who may be influenced by the prejudice and bias by individuals. South Africa should strive to implement the highest standards of accountability and governance on a global scale.

ABSIP obtained a legal opinion which was attached to the submission.  Based on this, our decision is to support the Bill.

Banking Association of South Africa (BASA) submission
BASA Managing Director Cas Coovadia noted BASA is an organisation that exists to contribute to the enablement of a conducive banking environment. The Financial Action Task Force (“FATF”), an independent intergovernmental policy-making body established in 1989 by the G-7 Ministers of its member jurisdictions, has expressed its frustration and concern at the lack of urgency in attending to the deficiencies in the SA regime in a number of its plenary meetings over the preceding 18 to 24 months. A failure to assent to the Bill presents a danger that South Africa will fail to meet a FATF deadline of February 2017. This will have serious implications for the banking sector.

The legal opinion that BASA had sought and included in the submission stated that “section 45B(1C) is a proportionate and constitutionally valid provision”. BASA therefore respectfully disagrees with the view expressed by the President. The legal opinion addressed the concern of overbreadth and set out an understanding of the true ambit and import of the impugned provision; and explained why the constitutionality concerns have no basis (see document for detail).

Corruption Watch submission on section 45B(1C) which deals warrantless searches
Ms Leanne Govindsamy, Head: Legal & Investigations at Corruption Watch, noted the reservations which the President has about the Bill's constitutionality which prompted him to refer it back to the National Assembly for reconsideration. Corruption Watch is concerned about the delay which the referral has brought about especially in light of the impending FATF review in February 2017, which review will have regard for South Africa’s failure to finalise the Bill and view this as being detrimental to South Africa’s ability to effectively and efficiently deal with money laundering, terrorist financing and illicit financial flows more generally. This delay seriously impacts on compliance with our own constitutional obligations and the realisation of FATF recommendations and has immense implications on the ability of South Africa to address financial crime and corruption. In addition to being on the targeted watch list by FATF and being required to report to FATF in February on the implementation of the FIC Amendment Act and its regulations, there are already a number of negative findings on South Africa’s non-compliance with the FATF recommendations and failures to deal appropriately with financial crime. These need to be carefully considered in determining and following time frames for the finalisation of the Bill.

In the most recent Mutual Evaluation Report on South Africa on Anti-Money Laundering and Combatting the Financing of Terrorism in February 2009, South Africa was found to be partially compliant with 14 of the 40 FATF recommendations and 5 of the 9 FATF special recommendations. We were found to be non-compliant with 7 of the 40 FATF recommendations. In recommending actions to be taken to address the deficiencies, the need to quickly bring into effect the FIC Amendment Act was identified, already as far back as 2009.

Secondly, although the inspector may enter private premises, he or she can only do so if the premises are reasonably believed to be used for a business to which the Act applies, if there are reasonable grounds to believe that a warrant would be issued if an application was made and that any delay would defeat the purpose for which the inspector seeks to enter the premises. It is therefore clear that the powers of inspectors are closely circumscribed and that warrantless searches can only be conducted in limited circumstances and always with an acute regard for FIC’s obligations and responsibilities towards institutions and persons who are the subjects of searches. Furthermore, the institution or person affected by the warrantless search has the right to appeal against any administrative sanction which is imposed subsequent to a warrantless search.

Thirdly and in regard to the inspectors’ ability to search private premises without a warrant, it is clear that such ability is the exception to the rule created in section 45B which has been amended to disallow an inspector from entering a private residence. The inspector is therefore generally prohibited from entering a private residence and when he or she sees the need to do so, such entry is carefully circumscribed. It is clear therefore that the amendments constitute a justifiable infringement of the privacy rights of an institution or a person whose premises may be searched without a warrant in a very limited set of circumstances. Privacy rights are not absolute and can be limited by laws which are reasonable and justifiable and the FIC amendments are both reasonable and justifiable taking into account the purpose of the legislation and the need to ensure that non-compliance is detected, deterred and sanctioned by administrative penalties.

Fourthly and most importantly, the Constitutional Court recently considered the constitutionality of warrantless searches in relation to 45B of the FIC Act as well as section 32A of the Estate Agency Affairs Act in the matter between Estate Agency Affairs Board and Auction Alliance. The Court did not declare all warrantless searches to be unconstitutional but left it to the legislature to determine the outer limits of warrantless search provisions with due regard for constitutional rights and obligations. It is clear from the above that all the President’s concerns are adequately addressed, these include concerns about unjustifiable infringements of privacy, the nature and extent of inspectors’ powers and the potential for information collected during warrantless searches being used for criminal prosecutions.

Discussion
Mr D Maynier (DA) asked Mr Manyi why he believes that this Bill will plunge the country into a crisis. Secondly, he asked if he has any contact with a so-called ‘family’. Thirdly, why did he not take advantage to make his points earlier during the deliberation phase of the Bill. He posed the last question to BBC as well. Lastly, he asked Mr Lawson Naidoo from CASAC why in his view the President failed to take action for five months in either signing the Bill or referring it back.

Mr S Buthelezi (ANC) stated that the Bill gets approved by Cabinet before it comes to Parliament. Therefore the President was exercising his right, and a democratically elected President should listen to his people. He asked the representatives what they think the law enforcement agencies must do if the Bill is delayed, because it would not be ideal if this Bill is rushed but at the same time crime in the financial space occurs in the meantime. Black businesses and people have been subjected to a legacy of apartheid, consequently affecting their access to markets and business opportunities, so it is easy to see some of these actions as being racist. Banks need to ensure that they take this into consideration, and not look only for their best interests. As legislators it is important that these things are taken into account. He asked BASA if it is incorrect to have institutions acting as both a player and referee, and where it stands on that.

Mr Shivambu stated that BBC seems to have misunderstood the process, so it is important that it goes back to do its homework. Furthermore, it seems that BBC is not really concerned about the Bill but more about its members, and is going on about that instead of the Bill. Although they have a right to complain about all those things, we are not dealing with those things now. It seems that it has lost the narrative completely. He suggested that BBC should allow Parliament to conclude the legislative process. Then Parliament or its legal team should take it upon itself to give BBC workshops to ensure that everyone is on common ground in terms of what needs to be dealt with. It seems that people are getting agitated based on misinformation. Directing himself to Mr Buthelezi, Mr Shivambu said this is not an ANC process, and the Committee is not an ANC committee. Therefore, the political party’s proportion in Parliament does not translate to Parliament processes being ANC processes.

The Chairperson suggested that Mr Shivambu stops the political needling and speak to the issues of the Bill.

Dr M Khoza (ANC) asked the PPF what its recommendations are, given that it did not participate in the Parliament processes to present its concerns at the earlier stage. She directed these concerns to the BBC as well, because of the manner in which the organisations went about presenting their concerns. They went to the President of the Republic instead of taking part in the public participation process set up by Parliament. She believes that this compromises the President and it cannot be acceptable. They are making the job difficult by wanting to change the provisions of the Bill at this stage. At this stage there is little that the Committee can do notwithstanding that the organisations are making valuable contributions. This frustrates some of the Members as it seems people are undermining parliamentary processes up to the point when it is impossible for Parliament to consider their contributions. This paints a bad picture of Parliament. In light of the letters sent to the President by BBC and PPF, she asked CASAC about the legal status of those letters.

Lastly, back to BBC and PPF, she asked what is the recommendation concerning what Parliament should do going forward and take into account their contributions as the Rules of Parliament are very clear about what may or may not be reconsidered. She emphatically shunned the fact that BBC and PPF went straight to the President to register their contributions and concern, whereas if they had explored parliamentary processes and public participation and their concerns would have been accounted for.

Mr P Mabe (ANC) stated that it can only be a progressive government that opens up to stakeholders and its public. The ANC is driving a rigorous transformation programme to ensure that the black people have access to opportunities. All institutions, including the banks more specially, need to operate in a fair manner. He asked why are the legislators creating an environment where banks act as players and referees and decide who is bankable and who not – and who will police the banks? The matter of the BBC members whose accounts have been closed without prior notice, whatsoever, is a very important one and it requires attention. In addition, Parliament has many processes and amongst those processes, surely there is a process that makes it possible to renew legislation. The inequality gaps in the country are enormous and the value of people is determined by from where they come, from the banking sector’s perspective. Someone coming from Phalaborwa does not have the same value as someone from Sandton, so it makes it difficult to move this process forward without excluding other views that consider such imbalances. It cannot be that the historical have-nots have an issue with this Bill, whilst the historical haves do not have any issue with the Bill whatsoever. This Bill indirectly encourages these economical imbalances.

Ms T Tobias (ANC) asked for a thorough explanation of the administrative power of FIC inspectors, because this is an important aspect of the FICA Bill, and it is vitally important that everyone leaves here understanding that. The Committee is an open committee and any other matter that still needs to be considered relating to the constitutionality of the Bill, surely it can be brought forward at a later stage through the correct channels.

Mr Shivambu commented that it seems that most of the members of the ruling party do not seem to understand the parliamentary processes –, when the Committee as a whole had already agreed on certain issues and went forward with the Bill. So the ruling party needs to educate its members and the study group needs to work harder to emphasise these things. Furthermore, even if the organisations present have legitimate concerns at this stage, it is too late to consider them. The Committee cannot be put at fault for not entertaining these. There are systems that have been agreed upon. There are problems of financial crimes in the financial industry and the FICA Bill responds to that. Now there are organisations coming to the Committee when they did not even participate in the public participation process to begin with. Instead they went to the President. Even the President did not consider both concerns but focused on only one. South Africa needs to comply with the international standards, otherwise there will be dire consequences, even the ANC Secretary General has urged this.

The Chairperson stated that the Committee had made it clear that there would be two hearings that will take place. When finalising the Financial Sector Regulation Bill, the Committee made it clear that it wants a public hearing on the transformation of the entire financial sector. For now the Committee will focus on what the Rules permit in relation to the FICA Bill. The other issues raised by BBC and PFP will be looked into next time. It is important that everyone notes that all the other issues, such as those raised by the BBC, must be separated and will be heard and looked into in a public hearing in March.

Mr Mabe stated that the ANC members do not need to be lectured about what they need to do in Parliament. Commenting on the BBC’s concerns, he said that there should never be signs of impatience with civil society when issues are raised that affect people as a result of legislation. Civil society needs to be listened to, and has the right to be here.

Dr Khoza stated that the EFF’s policy direction would devastating to the economy of this country, it contradicts international standards and foreign direct investment. That illustrates its lack of understanding about the complexity of the international finance space. She cautioned South Africans.

The Chairperson stated that the March hearings are on the financial sector as a whole and its transformation. He advised that Members stick to the Financial Sector Regulation Bill provisions. Where a bank closes the account of a client, it needs to give a reason. He said to Mr Coovadia that people need to be told when the banks are closing their bank accounts. Furthermore, he advised that there is a racialised nature in society. So the banking sector needs to understand that there is an impatience and restlessness in society and if the sector does not deracialise, it will be done for it by government. He encouraged stakeholders to raise their issues on 14 March if they disagree with the matters that have been raised by the lawyers in the meeting. Lastly, he noted that it seems that Mr Manyi is suggesting that whether this Bill gets approved with or without changes, it is going to the Constitutional Court.

Mr Manyi replied that what he has expressed in the meeting is the organisation’s perspective, not his as an individual, and it must be treated as such. The PPF is a professional organisation with a number of people of stature. This proposal is a submission from the PPF, not from him as Manyi. Therefore, the PPF’s contributions are well thought through and the relevant legislation was perused by its lawyers who made contributions in line with the Constitution. Furthermore, he advised Members that he has been decolonised, so Jimmy is no longer a name he uses and asked members to refer to as Mzwanele.

Mr Manyi advised Members not to elevate FATF to a higher status or put it in a pedestal, because It is not a United Nations sanctioned body. SA’s affiliation to FATF is voluntary. However, it is a solid and sound organisation, because it asked all its member organisations to implement the regulations within their own constitutions and laws. This brings one to question what this Bill is actually about, is it money laundering and terrorism? He stated that crime alleviation and reduction is the mandate of the police and intelligence agencies, and the FIC is not on that list. It is actually imposing itself on that list. That is where the fundamental problem for PPF and other organisations who share the same concerns. The FIC seems to take it upon itself to decide which people are “politically exposed persons”. As the BBC and the PPF stand, they are unapologetically pro-ANC. But when one funds or donates to the ANC, this Bill makes one implicated, including family and friends. He believes that people will be enslaved as a result of this legislation, although the FATF says there must be a due diligence process. He strongly believes that the Bill will plunge SA into a crisis, and it is no secret that financial services is like a cartel, designed to protect the minority and the upper classes.

The Chairperson suggested that if the Committee does not perhaps pay attention to the problematic sections in the Bill, it might appear before the Constitutional Court.

Mr Maynier asked Mr Manyi if he has consulted with the Guptas on the FICA Bill.

Mr Manyi replied that he has not consulted with the Guptas or the representatives of the Guptas regarding the FICA Bill. He then referenced a particular individual at SARS who was suspended because of suspicious transactions. As a decolonised organisation, say it has similar “suspicious” transactions, this goes to show how selective these processes can be. There is no consistency. These matters need to be dealt with by the law enforcement agencies.

Mr Manyi said the President had attached the letters BBC and PPF sent to him because he wanted to highlight that the Committee is making a mistake and to note of the BBC and the PPF’s objections and concerns. It must be clear that the issues the President raised are constitutional. Mr Manyi suggested that it what would make sense at this point in the legislative process to withdraw the Bill and send it back to Cabinet.

Ms Baloyi stated that the reason BBC did not respond during the public participation process and deliberations is because the current leadership was not in charge at the time. However, BBC takes responsibility for that mishap. Although she may not understand how Parliament works, she does understand how business works. So she found it to be very disdainful to be told that she needs a workshop. She believes that the BBC and the PPF made the FICA Bill popular, and should be given credit for that. The BBC can never undermine the processes that deal with corruption, and parliamentary processes, but the BBC wants to remove the fact that corruption has been given a black face. The only people who are corrupt in this country are perceived as being black.

The BBC dealt with section 45B(1C) and BBC respects the rules that Parliament abides by. The banks do have constitutional standing, but that is also a gripe that can be used to fight these economic imbalances. So BBC would really want institutions of state to be responsible for the regulatory framework. As she said, we are the people in this country and we should be listened to. She stated that since being made to feel that the stakeholders do not belong here. BBC carries the voice of the people out there who do not have access to Parliament, so if some of the Committee members believe that what it submits is nonsense, they must bear that in mind. The concerns BBC and PPF are raising are legitimate, and true. However, she expressed gratitude for the fact that there is going to be a public hearing on transformation in the financial sector – it will beneficial for all regardless of skin colour. Furthermore, the BBC leadership has only been in office for three months. It plans to engage with Parliament. She issued an apology for seemingly creating the impression that BBC and PPF have leapfrogged into this process.

Adv Michelle le Roux for CASAC stated that the President set out the reasons and the process for the delay in his affidavit. She said that in the affidavit the legal officials in the Presidency considered all the objections and the concerns, and it surfaced that at least five legal officials perused the Bill in September. She noted that the BBC and the PPF’s objections and concerns were sent through in September, and are largely identical. External legal counsel was consulted and its opinion received, it was then decided that the single issue be referred to Parliament. Therefore, CASAC cannot speculate about the reasons for the delay; there was no further explanation other than that. However, the critical point from CASAC is that there should not be any further delays in the Bill being enacted. She highlighted that the letters were sent to the Speaker of Parliament, and CASAC is aware of this because the letters were attached to the answering affidavit that it received. They have no status before the Committee other than the recordal of the issues that have been raised. The letters have importance, except the President only responded to one issue in the answering affidavit, and this was sent to the Committee for reconsideration. With regards to what law enforcement cannot do with this Bill being passed, firstly the Constitutional Court considered this very section, s45B of the FICA Act, along with a section from the Estate Agency Affairs Board Act. In its order the Constitutional Court read in the language that forms part of the Bill, so that sections that did not have any requirements around warrantless searches, now have the requirements that appear in the Bill before the Committee. So when the Constitutional Court read in the requirements into the Bill in its order, it did what is known as a suspension of constitutional invalidity for 24 months – from February 2014 (when the decision was handed down) to February 2016. Section 45B was declared unconstitutional because it did not have the protections that are now contained in the Bill. However, it was suspended to give Parliament time to adopt the language that will make the section compliant. So this means that since February 2016 without the amendments being adopted and passed into law, section 45B is currently unconstitutional which means with or without warrants, searches cannot be lawfully conducted under that section. This is very problematic given the role of the inspections to ensure compliance with the Act.

Secondly, is to note that like the FIC the SAPS is creature of statute, section 205 of the Constitution creates no monopoly around the power and the ability and the function to conduct searches. Therefore, this means the FIC is hamstrung in doing its important regulatory work and for this to be condemned and all these other regulatory bodies who would have identical powers would similarly struggle for them to do their regulatory work. Finally unless the Bill is promulgated expeditiously it continues to undermine the FIC’s ability to fulfil its regulatory mandate, and the need for its expertise and specialisation of the inspections appointed by the relevant bodies appointed in terms of the Act to perform its regulatory work and its not for it to be delegated to the SAPS but a specialised body within the sector are able to conduct the work.

Mr Cavoodia stated that he was told to stick to the President’s reservation about the Bill’s constitutionality. BASA will participate fully in the public hearings that will take place on 14 March. There are issues that BASA is aware of and will be dealing with them at the appropriate time as stipulated by the Committee, and all those other issues will be addressed then.

The Corruption Watch representative, Ms Govindsamy, remarked that the reason the Bill needs to be finalised so speedily, is because it is important for the country and the financial sector to have this legislation. Firstly, in relation to the new definition about beneficial ownership which this Bill introduces and it is important that the definition is in. The FIC sets out clearly the guidelines for law enforcement agencies in terms of understanding who the owners of companies are, and the definition of ‘beneficial ownership’ has been debated in the Committee and that is the one that is in the Bill. She emphasised that the FIC’s ability to identify certain transactions and work with law enforcement agencies to address appropriately and efficiently will be hampered if this Bill is delayed. This exists irrespective of whether the country complies with the FATF regulations, as it is important for the country.

Mr Ismail Momoniat, Treasury Deputy Director General: Tax and Financial Sector Policy, stated that the legal situation is clear and it seems that there is consensus amongst some of the stakeholders and government. It would have been helpful if the BBC and PPF could have provided legal opinions on the matter and on the relevant provisions to which they object. Both organisations’ concerns and objections have been heard and received. It is important that everyone understands the consequences of the delay. He emphasised the misunderstanding about the underlying thinking of the BBC on the FATF recommendations. The standards are there, and Treasury implements those standards on behalf of Cabinet, and there are benefits for abiding to those recommendations. So scrapping the Bill would mean a disaster for this country. When Treasury goes to the FATF meetings, we go in a huge delegation and argue our case. He emphasised that scrapping this Bill will have serious consequences, so will the delay. The FATF standards have been taken on by the SA government due to the fact that they are essential in fighting corruption within the financial or banking sector. When Treasury goes to the FATF meetings, it is not just government who attends these meetings but Treasury attends with a large delegation. All these objections and concerns will be raised with a request for some more time until the process is completed.

South Africa joined the FATF under President Mandela’s administration, and it was the first democratic government that joined and committed to the principles of FATF because of the benefits that came with it. There are already concerns that in neighbouring countries the necessary standards are not in place due to issues of developmental impact and this matter is something that Treasury is going to take to the FATF. So the country needs to take developmental issues into account as well and the impact of the Bill in that regard. He asked those who are calling for the Bill to be scrapped to consider poor people, because there are implications in terms of cost of banking that will eventually affect the poor. He appealed to the stakeholders to look at this from a long term perspective and consider this like a credit rating. SA does not lose anything by abiding by those international standards in its financial sector. With regards to abuse by banks, government admits that there are problems and it is coming with a tough regime to make banking safer for SA. And, part of that is to treat customers fairly. Stripping the powers of inspection will make it difficult for government to regulate these things in the interest of customers. There are mechanisms to solve the problems. The fight against corruption is critical and with beneficial ownership, the state needs to know who the people behind these companies are, because there needs to be transparency so that people do not get away with things. The standards are in the country’s best interest. Once the President’s reservations have been dealt with, this Bill needs to be sorted very quickly.

The Chairperson highlighted that this a Cabinet Bill and so people should not attack National Treasury, since the Bill had been passed, SA had opted to go beyond the FATF standards. The G7 had initially prompted the whole thing but now it is making the country do more. Why did Cabinet even consider this Bill?

Mr Momoniat said Cabinet has discussed these things in detail with every cluster, and everyone especially looking at the benefit of the country in the long term. The international PEPs (politically exposed persons) came into effect in 2003, and National Treasury took too long to pass that. By 2012 the world and some other developing countries incorporated domestic PEPs, and some countries are also in process of developing the legislation. In 2019 South Africa will have to answer about its compliance. Other countries are compliant with the foreign PEPs, and SA is not. The concept of PEPs is draconian, but all countries are expected to comply with it. So anyone who claims that SA is going beyond the international standards should demonstrate how. In addition, SA opted to go beyond PEPs to PIPs (politically influential people).

The Chairperson asked Adv Jenkins what value the two letters attached to the President’s letter has.

Adv Jenkins said the Committee’s mandate was giving through the notice in the Announcements, Tablings and Committee Reports (ATC), and there was nothing attached to that ATC notice.

The Chairperson thanked the members and the stakeholders present, and declared the meeting adjourned.