Financial Intelligence Centre Bill: Deliberations On Clauses 13 - 21

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Justice and Correctional Services

28 May 2001
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FINANCE PORTFOLIO COMMITTEE, JUSTICE PORTFOLIO COMMITTEE: JOINT MEETING
29 May 2001
FINANCIAL INTELLIGENCE CENTRE BILL: DELIBERATIONS ON CLAUSES 13 - 21

Chairpersons:
Ms Hogan (Finance), Adv de Lange (Justice)

Documents handed out:
Financial Intelligence Centre Bill [B1-01]
Memorandum of Submissions on the Bill (email info@pmg.org.za for document)

SUMMARY
This meeting covered consideration of Clauses 13 through 21 of the Financial Intelligence Centre Bill. The summary of submissions made in relation to these clauses were examined. The discussion was straightforward with no substantial amendments being proposed to the Bill.

MINUTES
Audit - Clause 12
Ms Hogan asked what was meant by the term 'financial records' which appears in this section. Mr Phillips, a member of the drafting team, said he did not know exactly what it meant , but undertook to find out the exact meaning.

Delegation - Clause 13
Adv de Lange (ANC) wanted to know if clause 13(1) had two parts, and if it did, what these two parts purported to do. Mr Phillips said that the clause did indeed consist of two parts. He said the first section provided for the delegation of a power possessed by the Director. The second part provided for the delegation of a function.

Adv de Lange had a problem with this formulation. He inquired whether or not these two parts of the clause were not providing for the same thing. He also reminded that a power can be delegated, but that one did not ordinarily delegate a function. He further asked whether it was solely within the capacity of the Director to delegate a function.

Mr Phillips said that subclause 13(1) had to be read with subclause 13 (2) which provided that the Director be ultimately responsible for all actions taken by the FIC. He added that subclauses 13(1) and (2) were taken from the Public Finance Management Act, with the equivalent of clause 13(1) being broken up into two sections in that Act.

Adv de Lange suggested that this might be the best form to follow in the FIC Bill too. He believed that the problems around this clause were structural in nature.

Chapter 2 - Money-Laundering Advisory Council
Establishment - Clause 14
Adv de Lange suggested that the name of the Council be changed as to avoid confusion about its motives and functions. Two suggestions made were:
- add the word 'control' at the end, making it the 'Money-Laundering Control Advisory Board'
- call it the 'Anti-Money-Laundering Advisory Council'.
The first suggestion received greater support.

Functions - Clause 15
This clause provides that the Council advise the Minister on various matters. Adv de Lange expressed concern that having accountable institutions advising the Minister on measures meant to control those institutions might not be such a good idea. These accountable institutions being on the Council might be able to sway the Minister's mind.

Ms Hogan reminded that the Council was not a decision-making body, but merely an advisory one. She said to separate any of the accountable institutions from discussions would result in a loss of the synergy between the accountable institutions and the law. Also, regardless of what the Council advises, the Minister's decision will always be taken independently and will not of necessity be affected by the motives of any accountable institution.

Adv de Lange agreed with Ms Hogan but felt that in certain instances it would be wiser not to have certain organisations present at particular discussions. Specifically, Adv de Lange said he saw no reason why accountable organisations should be present at discussions relating to counter money-laundering policies. He said he saw no reason why accountable institutions should advise the Minister on how to regulate other accountable institutions and themselves.

Mr Phillips said that this was initially one of the drafters' biggest concerns. However, Mr Phillips said that this Council was not the only forum where governmental law enforcement agencies could meet to discuss policies and methods, as there was no need for legislation to provide for such meetings.

Adv de Lange accepted Mr Phillips' point but added that he would prefer for concrete provisions to be put in place. Adv de Lange said that often where many departments were involved, informal structures led to a complete lack of action. He said that if the Council was going to offer a platform for law enforcement to come together and work together, then an encompassing framework would be necessary.

Composition - Clause 16
Many submissions were made in relation to clause 16. Most of these were requests for rewording of the clause.

The South African Insurance Association had submitted that consumer representation be provided for. Mr Phillips said that Clause 16 did provide for this as the Minister could appoint a representative. If he did not, then consumers could lobby for representation in terms of subclause (1) (j).

Here Ms Hogan raised the question of why consumers would want or need representation on the Council. She said the only conceivable reason would be if consumers were burdened with the costs of compliance with the Act.

The South African Institute of Chartered Accountants had submitted that an association representing a category 'accountable institutions' that is not included in the Council should be able to approach the Minister. Mr Phillips said that anybody could approach the Minister if not under subclause (1) (h) , then under (1) (j).

Meetings and Procedure - Clause 17
Mr K M Andrew (DP) had a problem with the wording. He said that experience has shown where meetings are provided for in an informal manner, meetings never materialize. He suggested that a wide discretion be given with a minimum requirement. The Act should provide that the Council can meet on its own initiative, but not less than twice a year, for example.

Adv de Lange inquired as to the costs of these meetings as the Bill seemed to show no sign of providing for these costs. Mr Phillips was of the opinion that there were no real costs and that the only support that would be required would be secretarial and administrative.

Mr Phillips said that attending these meetings would be in the best interest of those who would in fact attend them, he therefore saw no reason why the taxpayer should bear the costs of these meetings.

Adv de Lange said that a framework needed to be put in place to better provide for the coming together of all relevant parties with all parties being present. He said that even if only administrative and secretarial support was required, these too should be expressly provided for.

Mr Andrew was also of the opinion that costs incurred, and who would bear these costs, needed to be clearly detailed in the Bill.

Adv de Lange expressed his concern that subclause (3) seemed to be able to override the need to consult. He said a section such as this would be reasonable if it applied only in exceptional circumstances.

Mr Phillips said that this was indeed the intention of the drafters and that the clause would be made to reflect more accurately that intention.

Chapter 3 - Accountable Institutions and Supervisory Bodies
Part 1- Accountable Institutions
Application of Act to Accountable Institutions - Clause 18
Mr Smit (of the Asset Forfeiture Unit and a member of the drafting team) submitted that subclause (1) be deleted as the Act in its entirety could not, and would not, apply to all accountable institutions. Adv de Lange suggested that the subclause either be deleted or its application narrowed.

Mr Smit suggested that subclause (2) (b) be deleted as an accountable institution could not cease to be such, as it would continue to have an obligation to report suspicious transactions.

Mr Smit also expressed dissatisfaction at the Minister's ability to amend the schedule in subclause (3). Adv de Lange said that amendment by notice in the Gazette was desirable as it makes amendment of the schedule easier than by changing the legislation. Despite the ability of the Minister to amend the schedule, Parliament remains in ultimate control. Adv de Lange said actions arising from 18(2)(a) and (b) should be approved by Parliament before coming into force.

Exemptions - Clause 19
Adv de Lange felt that clause 19 (1) best be dealt with in a similar manner suggested for clause 18. He wanted exemptions to be approved by Parliament as clause 19 in its present form gave the Minister the ability to fundamentally change the application of the Bill.

Adv M Masutha (ANC) suggested that an additional element be introduced into clause 19: an exemption of individual transactions be allowed in the light of a set of circumstances. Adv de Lange noted this suggestion as a reasonable one but was uncertain if this situation was already provided for under clause 19 (1) (c).

Part 2 - Supervisory Bodies
Application of Act to Supervisory Bodies - Clause 20
As with clause 18 (1), Adv de Lange said clause 20 (1) would have to be deleted or formulated in such a way to give it limited application, as the Act cannot in its entirety be said to apply to all supervisory bodies.

Mr Andrew said that the changes that can be made by the Minister in terms of this clause should also be made subject to approval by Parliament. He asked why the South African Revenue Service had been included in Schedule 2 as a supervisory body. He could understand the SARS being classified as an accountable institution but failed to see how it made its way into Schedule 2.

Mr Phillips admitted that this position was indeed strange. This construction had been used for convenience. Such a structure would aid the transfer of information amongst the SARS and other supervisory bodies. SARS had been included under Schedule 2 to confer upon it the duty to report suspicious transactions. He concluded that the position would probably best be changed and that the drafting team had indeed been looking at ways in which to oblige the SARS to report suspicious transactions without including it in Schedule 2.

Adv de Lange expressed a dissatisfaction with the clauses dealing with Supervisory Bodies. He said that 'something was missing' in that the Bill did not sufficiently outline what would be supervised and what form this supervision would take.

Chapter 4 - Money Laundering Control Measures
Part 1 - Duty to Identify Clients

Identification When Business Relationships are Established or Single transactions Concluded - Clause 21
It was felt that this clause cast the net too wide and would require accountable institutions to keep an impractically large volume of records. Most of these records would relate to small transactions. The example given by the National Gambling Board was of the casino were innumerable people come in and place a small bet. It is impractical for the casino to keep records of all these small once-off transactions.
Adv de Lange said that this problem could be remedied by clause 19(1)(c).

Mr Andrew had a problem with the word 'client' in the clause. In light of the definition of client in the Bill, the responsibility to know one's client would be cast far too wide. He gave an example of where an individual goes into the bank to deposit money into another's account. He said that in terms of this clause the bank would have to know the depositor, a position which surely cannot be seen as reasonable.

Ms Chohan-Kota (ANC) did not agree, saying that even such a small transaction did leave a paper trail.

To this Ms Hogan replied that a paper trail cannot be so loosely construed. She said that a deposit slip hardly constituted a paper trail or a "know your client relationship".

Clause 21 was not dealt with in its entirety before the meeting was adjourned.

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