Financial Intelligence Centre Bill: briefing

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Finance Standing Committee

19 March 2001
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Meeting Summary

Chairpersons: Ms Hogan (Finance) and Adv De Lange (Justice)

Documents handed out: 
Presentation by the National Treasury
Financial Intelligence Centre Bill [B1 – 2001]

Advocate De Lange (ANC) questioned the constitutionality of the enforcement mechanism of the Bill. He also wondered about the morality of idemnifying an institution from criminal prosecution because they forfeited money.

The information held by the Financial Intelligence Centre is confidential. The question arose whether this is not a breach of other people's right to information in terms of the Promotion of Access to Information Act. Advocate De Lange (ANC) said that they would have to get legal advice on this matter. It is possible that they may have to amend the Promotion of Access to Information Act.

Members raised a query regarding what type of body the Financial Intelligence Centre will be. The primary function of the Centre will be to collate and analyse information. On the one hand it was described as ''[not being] an investigative body'' and on the other hand it is given the power to hold enquiries for example.
Chairperson Hogan noted that she did not understand how one would analyse information without investigating further. The committee indicated that they would take up this issue again.

Meeting report

The Deputy Minister of Finance, Dr Mpahlwa, made the presentation. Mr Phillips and Mr Cohen from the task team responsible for drafting the Financial Intelligence Centre Bill (FIC Bill) were present to assist in answering questions.

Summary of presentation
The Bill is the product of the task team. However the task team has built on the work done by the South African Law Commission (SALC). The task team was appointed by the Minister and they have tried to ensure that the legislation is appropriate to the South African framework. The task team is in support of the SALC’s proposals. The issues on which they differed are technical. Largely the task team supports the SALC.

Money laundering is the process of trying to clean up money accrued from illegal activity. The IMF (International Monetary Fund) estimates that the aggregate size of money laundering in the world is between two and five percent of the world's gross domestic product.

The FIC Bill complements the Prevention of Organised Crime Act. The Bill introduces mechanisms to prevent and combat money-laundering. The Bill establishes an Advisory Council to advise the Minister. The Advisory Council seeks to achieve a partnership between the private and the public sector. In line with this, representatives in the Council will come from a range of private and public bodies.

The Bill also establishes a Financial Intelligence Centre. The Centre is not investigative. It is rather an epicentre of the flow of financial information which comes from organisations and institutions in South Africa. The Centre's task is not to do investigative work. The Centre will be a legal entity. It is accountable to the Minister of Finance and is funded from the National Budget.

The functions of the Centre include:
- To collect, process, analyse and interpret information;
- Conduct administrative proceedings by enquiry;
- To assist the institutions expected to comply with the provisions of the FIC Act;
- Enforcement which relies primarily on the compliance of the accountable institutions.

The head of the Centre will be a director. The director will appoint staff within the framework given by the Minister.

The information held by the Centre relates to people's private transactions. Therefore this is confidential information. There are limitations on people’s right to access this information.

Accountable institutions are subject to the Bill. These institutions are listed in Schedule 1 of the Bill. The Minister has the power to add, remove, or exempt accountable institutions or certain kinds of transactions from the Bill.

The accountable institutions listed are felt to be the main ones through which money-laundering will take place. In this regard the 80/20 principle was used. In terms of this principle the institutions where there is a 80% chance of money laundering occurring have been listed as an accountable institution. Only accountable institutions report to the FIC.

In conclusion Mr Cohen stated that the legislation is suited to the South African context. It is not simply an emulation of the legislation of other countries. However the task team did examine legislation of countries such as the UK and the USA. They wanted a flexible Act rather than a rigid situation so that it could adapt to changes taking place in the financial environment.

Discussion
Ms Chohan-Kota (ANC) asked what the reasoning was for the location of the Financial Intelligence Centre Bill and if there was a budget for its implementation.

The Deputy Minister replied that Treasury has an obligation to budget for the Bill and they have done so. Mr Cohen added that they were starting slowly (with a small budget) because they are allowing the system to evolve. It could take up to three years to have an effective system operating. In the beginning it is not going to be an expansive organisation.

On the location [responsibility] of the Bill Mr Phillips replied that there were different views. Some said that it should be outside the Treasury but still accountable to Treasury. Some said that it should be within the Justice sector. The decision to place the Bill under Treasury was made because a close liaison with the South African Revenue Services and the South African Reserve Bank would be necessary. In light of this they decided that the Bill would fit best under Finance.

Adv De Lange (ANC) commented that the enforcement mechanism in the Bill is very unusual. If an accountable institution (listed in Schedule 1 of the Bill) admits that it is guilty then there is forfeiture of the money and there is no prosecution. Thus the Financial Intelligence Centre acts as judge, jury and executioner. The prosecuting authority should be consulted on the decision whether to prosecute the accountable institution or not. He questioned the constitutionality of the law as the Constitution provides the right to a fair trial.

Mr Phillips replied that the legislation is unusual. However the Justice Department did not object to it during their consultations with them. There should not be a constitutional problem because the decision for the accountable institution is voluntary, they are not forced to make an admission. If they choose to face a prosecution they can do so. He noted that the crimes they were talking about in respect of accountable institutions were administrative in nature. For example, neglecting to keep records for a particular period of time or failing to train employees to identify a suspicious transaction. They had to exempt the institutions from prosecution as an incentive for them to report suspicious transactions. They found it a cheap, effective and a worthwhile way to go.

Advocate De Lange questioned the morality of indemnifying someone from criminal prosecution through forfeiting money.

Advocate De Lange also asked if they had considered the effects of the forfeiture provisions of this Bill on the Prevention of Organised Crime Act. In other words how does this Bill affect the law enforcement that exists?

The response was that Prevention of Organised Crime Act is not affected by this. There are no adverse effects on that Act through this Bill.

Professor Ndabandaba (IFP) asked if there was any connection between the Intelligence Services and the Financial Intelligence Centre.

The Deputy Minister said that there was no connection.

Professor Turok (ANC) noted that in the presentation the Centre was described as not being an investigating body. However one of the listed functions states that it detects money laundering and it can hold enquiries. This went beyond administrative functions.

Mr Phillips replied that the FIC is a very important body. In essence it collates information, then interprets and analyses that information. The FIC has a limited power to investigate but it can investigate (for example, if documents are withheld from it). The FIC can detect unusual patterns. The FIC cannot investigate the underlying crimes. Once the information has been collated, the FIC hands the information over to the relevant investigating officers.

Chairperson Hogan asked for an example and provided the scenario of a bank calling the FIC to report that someone had deposited R2 million into his account, what does the FIC then do?

Mr Phillips replied that they will look at this information and establish the identity of the client. They will then discern whether that person has made other unusual transactions (even at other institutions across the world). They develop a picture to see if the source of the income was criminal activity. The information that emerges points to the kind of people who must be investigated.

Chairperson Hogan asked if the FIC would simply be the passive recipient of information. She asked how one would analyse the information without investigating further.

Mr Phillips replied that the FIC has a limited investigative ability. They wanted to avoid setting up another investigative body in the country. The FIC must complement the work of the investigating authority. There will be a two-way connection with the investigating authority.

Chairperson Hogan said that the committee would like to pursue this issue further at another time. She is unclear about the relationship the FIC would have with other investigating bodies and exactly what investigating powers the FIC would have.

Mr Andrew (DP) asked about the compliance costs for the private sector.

Mr Phillips replied that there was no opposition to the establishment of the FIC. There was a willingness to comply with the legislation. A broad framework is applicable to all accountable institutions.

Chairperson Hogan asked about South Africa's involvement and obligations in terms of international organisations which watch money laundering.

The Deputy Minister replied that such an organisation offered South Africa membership last year in Prague. To be eligible for membership SA must be an observer of money laundering for one year. If SA is an observer from June this year then SA will be eligible from June 2002. The issue is in the pipeline but SA has not accepted the offer yet.

Mr Lekgoro (ANC) asked if the Centre has any special power to enforce a particular matter.

Mr Phillips replied that the Centre has this. A judge can get a warrant to access information for example. However there are limits to how far the FIC can go. Once the FIC gives the information to the relevant investigating authority then it is within the discretion of that investigating authority to decide how to proceed with the information.

Adv De Lange noted that the Act will only apply to accountable institutions. He said that the committee needs a list of those institutions not included to see if some of them should be in the FIC Act.

The Deputy Minister replied that they would provide the list of the institutions excluded from the Schedule.

Mr Phillips added that they focused on the 80/20 principle. They listed those institutions which are most susceptible to money launderers. There is a range of potential businesses through which money launderers can act, for example, through car dealers. However this has been left out of the list. Mostly it occurs through banks.

Adv De Lange referred to the regulations. He wanted to know what would be in the regulations and what would be in the Act.

The Deputy Minister replied that they will decide what is more appropriate to put in the Act and what must rather be put in the regulations. Mr Phillips added that there are various parts of the Act that they envisage being fleshed out in the regulations.

Adv De Lange also asked about the exemptions. He said that the exemptions should be tabled in Parliament and approved by Parliament.

Mr Phillips said that this is a policy decision. The Deputy Minister replied that they would give consideration to the role of Parliament.

Adv De Lange referred to clause 1(2) of the Bill. This clause restores the attorney client privilege which was limited in Prevention of Organised Crime Act. In FIC the privilege has been retained. Advocate De Lange asked for a comment.

Mr Phillips replied that the privilege is fundamental to South Africa's adversarial system and its implementation of justice. Sometimes the scope of the privilege is misunderstood. The person is protected in terms of his common law rights (where he is seeking advice). However, attorneys are accountable institutions and their trust accounts, for example, are subject to the Bill.

Mr Mgidi noted that the information held by the FIC is confidential. Can a person who cannot get access to this information resort to the Promotion of Access to Information Act and in this way frustrate the objects of the FIC Bill? Ms Camerer echoed this question.

The Deputy Minister replied that the Bill imposes a responsibility on the Centre to keep the information confidential. Mr Phillips pointed out that the Bill was drafted before the Access to Information Act was passed.

Adv De Lange said that they must get legal advice on this. The Bill will have to be compared to the Act. It is possible that they may have to amend the Access to Information Act.

Chairperson Hogan asked about the reporting requirements for the accountable institutions.

Mr Phillips replied that not all institutions would have the same requirements. In this regard the sooner the draft regulations were available, the better.

Ms Hogan commented that with e-cash the Bank was not needed as an intermediary. She asked if the Act dealt with this.

Mr Phillips replied that the definition of ''transaction'' in the Bill covers e-cash. He admitted that there could be complex problems in respect of e-cash.

Adv De Lange referred to clause 15(1)(a)(i) : "the advisory council must advise the Minister on policies to combat money-laundering". He raised a concern about the private sectors involvement in the Advisory Council saying that the Council must not be used for lobbying.

Mr Phillips replied that the weight of the advisory council is with government agencies (for example the Reserve Bank). The body will not be used to promote lobby interests.

Advocate De Lange said that he was not sure if subclause 15(1)(a)(i) should be discussed with the private sector. He said that they must give more thought to it. He is not saying that there should not be a role for the private sector but the question is "What role?''

In conclusion co-chairperson De Lange noted that the committee would meet again on Friday 23 March to hear submissions on the Bill. The meeting was adjourned.

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