Financial Intelligence Centre Bill: deliberations

Meeting report

The drafting team consists of Adv Smit, Mr Phillips, Ms Brown, and Mr Malan. Two United States experts, Mr Casseler and Mr Meyers, who are in the country for two weeks, were present to assist in the deliberations on the Bill.

Definitions - clause 1
Suggestions for the definition of ''Cash''
The National Gambling Board suggests that the qualification to cheques in subclause (d) should be deleted.
The options before the committee are:
- to keep the definition as it stands now, or
- delete the qualification to subclause (d) as the Gambling Board suggests, or
- delete (d) completely and then deal with this issue under a separate clause under the reporting requirements.

Prof Turok (ANC) said that they should keep the definition of cash simple (including cheques). Under the reporting requirements they should then say which must be reported and which must not.

Ms Hogan (ANC) said that a cheque is traceable therefore they do not need it included and reported on. The problem arose in the case of gambling where cash can be transformed into legitimate cheques.

Adv Masutha (ANC) said that they should avoid regulating the gambling industry in the definitions. They should regulate it in the body of the Act. Therefore they should delete the whole paragraph completely. They should deal with cheques in respect of gambling matters under its own specific clause.

The committee will come back to this issue.

Smartcards
The National Gambling Board suggests the definition of cash should include ''smartcards''.
With smartcards cash can be deposited electronically. The cards are described as being anonymous carriers of cash.
Ms Hogan explained that one pays money to put a monetary value on the card (you buy a monetary value for the card). The card can then be used for the amount of money that the card is valid for.

Adv De Lange asked if the definition of cash as it stands now excludes electronic transfers.
Adv Smit replied that electronic transfers are dealt with in clause 30 (international transfers) of the Bill. This is the only place in the Bill where this is dealt with. To include it in the definition of cash will overload the FIC. It would mean for example that credit card payments would be included.

Ms Hogan asked in which way exactly it is that a smartcard is an electronic transfer.
Adv Smit replied that this is hard to say now. The phenomenon is not in great use in South Africa yet. The danger with the smartcard is that money can be transferred anonymously.

Mr Andrew (DP) did not understand how the smartcard would circumvent the activity that the Bill was trying to trace. Even with the card one had to pay somewhere to put money on the card. This meant that it should be traceable.

Adv De Lange replied that it could be a problem in the gambling scenario. A person could put a huge amount of money on the card, possible by using a machine.

Adv Smit replied that he does not know and that he would find out about it.

Krugerrands
The Johannesburg Stock Exchange suggests that the definition of cash should include Krugerrands.
Mr Andrew said that there must be a transaction in order for one to acquire the Krugerrand. If the person pays in cash then the vendor will be caught in the net. If one includes Krugerrands then that opens the door for a wide range of things - why not then include Persian carpets for example.

Mr Phillips replied that they looked at a wide range of things (such as Persian carpets for example) and decided not to include this. There is no reason to deal with this because of the vendor.

Adv Smit said that probably the only place where Krugerrands are traded in the normal course of business is on the JSE.

Ms Hogan said that the committee would contact the JSE to ask them for motivation.
Adv De Lange agreed that they should call the JSE and added that it did not seem sound to mix Krugerrands in with the definition of money.

Days
This is defined as ''working days''. Although there is a legal definition of ''working days'' in the Interpretation Act the committee is still unhappy with using it as a definition for ''days''. They pointed out that it was so wide that it could include Saturdays or even Sundays.
Prof Turok suggested that they rather say ''weekday''. The committee will come back to this.

Investigating authority
The definition includes all state institutions with investigating capacity.
Mr Andrew asked if this was the intent as they should not make it wider than intended. For example, would a traffic officer or a metre maid be included in this definition.
Mr Phillips said that the term appears in clause 40 of the Bill which sets out who may request information. The words make sense when used in this context. The person must be an authorised officer and there are only 4 listed categories of authorised officers.

Adv de Lange pointed out that in terms of subclause 1 the Centre can exercise a discretion. The effect of this is that the authorised officers are not limited to 4 categories. They should pick up on Mr Andrew's point. The investigating authority should not be able to have access to any information. It should only be the information that is specific to their investigation.

Money laundering
Adv de Lange said that the definition limits money laundering to four activities. The committee will have to consider whether sections 4, 5, and 6 of the Prevention of Organised Crime Act (POCA) encompasses all money laundering activities. They should go with the widest possible definition.
The term ''money laundering'' is used often throughout the Bill. Therefore they must be clear on the definition.

Proceeds of unlawful activities
It is defined as the meaning given in POCA. Adv de Lange said that the definition in POCA is enormously wide.

The Banking Council is of the view that tax evasion should also be considered the proceeds of unlawful activities.

Mr Phillips indicated that they have discussed this with SARS. SARS feels that including them would have enormous administrative implication. If Parliament is going to bring SARS in then it must first be certain that they will have the necessary capacity. There is ongoing discussion with SARS.
Mr Phillips feels that SARS argument has merit. They must feel ready to take on the obligation. They cannot be inserted in the Bill without their backing. The process is ongoing.

Adv de Lange replied that he did not understand why SARS would have an additional burden. There would not be a duty on them to report. It is the lawyer or the accountant who discovers the evasion who would have the duty to report.

Mr Andrew pointed out that tax evasion does not fit in the Bill. It is not really related to money laundering activities.

Prof Turok disagreed. Tax evasion is an element that has enabled many criminals to be caught. He pointed out that his fear was that the line between evasion and avoision is so unclear that criminals could use it as a defence. When faced with tax evasion charges they could say they were not tax evading it was simply avoision. In this way they could escape being charged.

Ms Hogan is also in favour of including tax evasion in the definition. Sometimes the evasion is the only evidence in respect of crime.

Adv Smit said that the proceeds of tax evasion are included. It is undeclared income (from legitimate work) that is not included.
However it is hard for banks to distinguish between the two. Adv Smit suggested a separate clause for this because it is not really proceeds, it is legitimate.

Mr Andrew said that he is opposed to tax evasion but once the act of tax evasion has been identified then there are laws to deal with it. The purpose of the FIC is to close loopholes in the system. Tax evasion refers to that situation where someone overstates his expenses or does not declare income. The laws to deal with this are in place.

Adv Masutha said that an unlawful act is also an omission. An omission to declare income could be an unlawful act regardless if the money is earned legitimately.

Adv de Lange asked if it was part of American law.

The American experts said that it is not. The process of tax evasion per se is not part of American law.

Adv de Lange asked the Americans to examine this, especially in respect of clause 29. He noted that he had a lot of problems with clause 29. The committee held this issue over.

Property
This is also defined with reference to POCA.
Mr Andrew suggested that an annexure be attached to the Act instead of simply making so many references. It makes the Act difficult to read.

Mr Phillips responded that cross-references are important because the Acts work together. It may not be that elegant but it is practically and legally good for implementation.

Adv de Lange agreed that both members have a good point.

Prof Turok suggested that they use footnotes.
Mr Phillips was not averse to the idea. He pointed out that this was done in the LRA (Labour Relations Act). An explanatory memorandum could then be added specifying that no meaning is to be given to it.

Adv Masutha said that they must be careful about using tools that is not traditionally part of legislation.
Adv de Lange said that the Interpretation Act is very old. They have asked the Law Commission to start redrafting it to bring it up to scratch. They could use the footnotes as a mechanism to make the Act read easier.

Transaction
There are various elements to the definition. One element is that in terms of the definition it is only a transaction if it is carried out in accordance with the type of business carried on by that institution.

Mr Landers (ANC) pointed out a loophole with this. Does it mean that if it is not this type of business that it is not a transaction?

Mr Phillips said that the bank also has to buy furniture but they do not want this to be recorded at the FIC for example. They only want records of the business of the Bank.
There is a small risk of abuse but this is reportable under POCA anyway. There will always be loopholes. No money laundering regime is full-proof. He added that they are comfortable with this definition.

Another element of the transaction is that the transaction must be concluded between the client and the accountable institution.
Adv de Lange pointed out that there would be a problem if a criminal tried to set up as an accountable institution.
Mr Landers agreed saying that the schedule does not limit accountable institutions to banks.

Mr Phillips replied that one would then be dealing with the commission of crimes and not with money laundering.

New definitions which have been suggested for insertion
Identity
The Association of Unit Trusts suggested a definition of ''identity'' (see document for definition).
Ms Hogan said that it is not desirable to have a general definition of identity because there are different identity requirements for different organisations.
Mr Phillips agreed because one also does not want to overburden the Centre.
Adv de Lange said that it should rather be in the Regulations.

Adv Masutha said that there should be some requirement on an accountable institution to obligate that institution to check the legality of the client's identity document. The legislation (not the regulations) should provide a minimum requirement.
Adv de Lange said that he agreed with the point but that it could be put in the regulations.

Mr Andrew agreed with Adv Masutha saying that it is pivotal to identify the client therefore this should be provided for in the Act.

Adv De Lange agreed that there must be clear identification. The question was whether it should be put in the Regulations or in the Act. He said that the regulations are part of the Act.

Mr Phillips said that clause 21 deals with this somewhat by saying that ''reasonable steps'' must be taken to establish the identity of the prospective client. This was done to cover the instance where the Act comes into force before the regulations. If this happens then there is a duty/obligation to do this. The idea is to flesh it out in the regulations.

Person
The committee decided not to use the definition of ''person'' as suggested by the Association of Unit Trusts.

Report
The Association of Unit Trusts also suggested a definition of ''report''. The committee was not in favour of this definition. Mr Phillips said that they should rather deal with this in the regulations.

Suspicious transaction
This definition is also suggested by the Association of Unit Trusts. Mr Phillips said that the danger of defining this term is that in practice there may be acts which fall short of the definition. The effect would be that some transactions would go unreported even if they are obviously suspicious. They prefer to leave this to good sense.

Other issues - Schedule 1
1) Prof Turok pointed out that the reference in point 8 of Schedule 1 (list of accountable institutions) is very wide. There is a reference to ''fund'' - this is very broad because one gets many informal funds. Would this catch stokvels for example?
There is also a reference to ''a person, other than a bank''. Prof Turok asked what is ''other than a bank''?

Adv Smit replied that these are institutions which are exempt from the Banks Act.
To the second question he replied that the reference was to money brokers who act as an intermediary between the client and the bank. The person acts as a conduit.

2) Adv de Lange suggested that they say something to the effect that the Minister can proclaim other accountable institutions.

Adv Smit replied that the route they have taken is to put an exemption clause in the Bill (clause 19). In terms of this clause the Minister has the power to exempt accountable institutions from the Bill.

Prof Turok said that the duty should not be on the individual to ask for an exemption.

Regulations
Mr Andrew noted that clause 53(1) said that the Minister ''may'' make regulations and not ''must''. He suggested that they split the list under clause 53 into two categories. One category would list the instances where the Minister was obliged to make regulations and the other category would list the instances where the Minister had a discretion.

Adv de Lange agreed. He added that the having regulations is a way of delegating legislative powers to the Minister. It gives the Minister a duty. Parliament must monitor this within a time frame. They must delegate the power to the executive while keeping some control over it and at the same time while not stifling the executive.
Adv de Lange made these comments in light of the fact that often Parliament rushed to pass bills on a deadline only to see that the regulations were not done timeously.

Legal professional privilege - Clause 1(2)
Adv de Lange noted this as being a contentious issues. Two of the drafters (Mr Phillips and Adv Smit) have opposing views on how the issue of privilege should be dealt with in the Bill.

Mr Phillips feels that the attorney-client privilege should be protected by retaining subclause 1(2). He agrees that the attorney-client privilege should not be used as a defence to the abuse of attorney trust funds but this is provided for in the common law anyway. He does not agree with the way the privilege was dealt with in POCA. The privilege is an important constitutional right and in POCA there are some arbitrary exemptions.

Adv Smit has previously indicted that this subclause should be deleted. In this instance he refrained from making a comment. He said only that the privilege issue is also dealt with in clause 37 of the Bill and it is undesirable to deal with the same issue in two different places. If Mr Phillips view is taken then clause 37 and subclause 1(2) should be one clause.

Adv de Lange instructed Mr Phillips and Adv Smit to meet and discuss this issue.

The meeting was adjourned.