Financial Intelligence Centre Bill: deliberations

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Finance Standing Committee

17 May 2001
Chairperson: Ms Hogan (Finance), Adv De Lange (Justice)
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Meeting Summary

Documents handed out
Financial Intelligence Centre Bill [B1 - 2001]
Summary of submissions on the Financial Intelligence Centre Bill (email info@pmg.org.za for document)

The Committee examined Clauses 2, 3 and 4 of the Bill.

The Committee is trying to determine how the concepts of ''money laundering'' and ''proceeds of unlawful activities'' will relate to each other in the Bill. In this regard Adv de Lange raised a concern that if the objective clause (clause 3) is defined too narrowly (by referring only to money laundering) then SARS will be excluded from using the information gathered by the Financial Intelligence Centre to catch tax evaders. This is an undesirable consequence.

After eleven o' clock the meeting was closed to the public. The Committee proceeded to have a closed session with two American experts on the issues covered by this Bill.

Meeting report

Establishment - Clause 2
Professor Turok asked why the Centre must be outside the public service.

Ms Hogan replied that they will need highly qualified people working there and these people are difficult to attract into the civil service.

Adv de Lange said that some structures get special privileges but then other rights are taken away from them. The Scorpions for example has special privileges but it has no right to strike.
Adv de Lange added that they would have to ensure that the provisions in the Bill are sufficient to create a new structure. None of the civil service rules apply so they will have to create everything.

Objective - Clause 3
Ms Hogan asked if saying that the objective of the Bill is to combat money laundering would not restrict the range of activities that the Centre can be involved in.

Adv Smit feels that this clause should be deleted. The responsibilities of the Director are set out and this line does not add anything to it. He suggested an approach that leaves some ambiguity for interpretation, for example saying something like ''principal objective''.

The Committee turned to the PriceWaterhouseCoopers (PWC) suggestion in respect of this clause.
Adv Smit said that he agreed with their suggestion on subclause 1. However he did not approve of their suggestion for subclauses 2 and 3 because it gives too much detail.

Mr Davidson (DP) commented that he did not like the term ''principal objective'' because it begs the question, ''What are the other objectives?''
He suggested that they leave the clause as it is. It is broad enough to encompass all objectives.

Adv de Lange summarised the options:
- they can keep the original clause,
- they can add to subclause 1as suggested by PWC,
- they can delete the whole clause, or
- Professor Turok suggested that they could add the words ''and matters related thereto''

Imam Solomon (ANC) said that the primary objective of the Centre is to gather information and intelligence. If one says ''combat'' then it is implying that the Centre has powers.

Adv Masutha (ANC) agreed that the implication of the word ''combat'' is too strong.

Professor Turok disagreed. He said that the Centre will institute legal action, this is combating.

Mr Davidson said that one must read the clause with the official objective of the Bill. Clause 3 is only a reassertion of this. In light of this he said that clause 3 is not necessary.

Adv de Lange said that it is also a possibility for them to do a preamble. This is more general.

Mr Lever (DP) agreed that this (a preamble) is a good reason to delete the objective clause. If one elevates the status of the objective clause to being part of the Act then it can be used to interpret other clauses in the Act. Therefore it is more prudent to leave out an objective clause.

Adv Masutha agreed with Mr Lever that they would be elevating the status of the clause by making it part of the Bill. He suggested that they rather say ''take measures toward the combating of money laundering''.

Mr Phillips replied that Cabinet's instructions to them was that the legislation must combat money laundering. The objective clause is important for interpretation. It focuses minds on what the Financial Intelligence Centre must do. Clause 3 must be read together with clause 4. If clause 3 is taken out then the Director of the Centre could start putting huge demands on the Centre to start fulfilling additional functions. This clause is the anchor and he suggested that they leave it in the Bill.
If the functions are seen as objectives then the Centre could end up being bigger than intended.

Adv de Lange raised a concern that if the objective of the Bill is limited then SARS would not be able to use the information gathered by the Centre for catching tax evaders. It will be beyond the objective.

Professor Turok said that if they added ''and matters related thereto'' then this problem would be addressed. He added that tax evasion by people who money launder should be in the Bill.

Mr Lever said that tax evasion would fall under the Act insofar as it is an unlawful act. Tax evasion is unlawful. If one tries to legitimise money acquired this way then that is money laundering.

Adv de Lange said that said that he was unsure in his mind as to how money laundering and unlawful activity fits together in the Bill.

Mr Lever said that with money laundering and proceeds of unlawful activities they were defining one concept in terms of another. This is not desirable.

Adv de Lange said that the objectives and the functions should be clearly in line with clause 29. Clause 29 is the heart of the Bill. If they base clause 29 on ''money laundering'' and on the ''proceeds of unlawful activities'' then whenever money laundering is used then it must also refer to proceeds of unlawful activities. This will address the concern he had about SARS.

Adv Masutha said that money laundering is not defined in the FIC Bill. The concept as it is used in the FIC Bill relates to the reference to money laundering in POCA (Proceeds of Organised Crime Act). POCA refers to money laundering as well as other activities. This means that the definition of money laundering as it is used in the FIC Bill is really broader than intended.

Mr Phillips said that there is nothing wrong with defining a collection of offences under one piece of legislation and only using one offence in this legislation.

Options for clause 3 include:
- delete the objective clause
- retain the original clause
- change it to ''principal objective''
- add ''and related matters''
- add ''principal'' and ''related matters'' to one clause
There are many technical options. Adv de Lange asked Adv Smit to draft a few options.

Functions - Clause 4
Association of Unit Trusts proposal - the Committee felt that adding the words ''in the form of prescribed guidelines'' would defeat the whole objective. They feel that it is not something that one says in a functions clause.

JSE proposal - The Committee did not approve of this clause as the investigating authorities will sit in the Centre anyway.

Life Offices Association proposal - They feel that the FIC should have more investigating capacity.

Adv de Lange said that the Centre does not have to investigate the information received therefore there is no reason to create a new investigating unit. Creating a new investigating unit will not solve the capacity problem. They would then have to give more money to other areas. Mr Phillips agreed by saying that the capacity problems in the police service should be dealt with in the police service. Adv de Lange said that it would also be a constitutional problem because they cannot simply create a new investigation unit. Mr Lever agreed with Adv de Lange.

Ms Hogan said that the problem highlighted during the submissions is that the police did not deal with reports of suspicious transactions (made by banks or persons) with the proper discretion. The way they handled the matter was such that the person who made the report could be at risk because their identity was not protected. Often cases did not get investigated.

Adv de Lange replied that the problem was that people were looking at POCA. The problem that parliament faced when drafting POCA was if people are given a duty to report then where will they report. The Minister said that people must report it to the police. This was only intended to be an interim measure. They knew that it would be problematic because this is not really the police's job. With the FIC it is different. The information is gathered and it is not really sent anywhere. It does not go onward from the Centre. There will be people from SAPS and the Asset Forfeiture Unit at the Centre to analyse the information.

Mr Phillips said that they are not creating a mini-police at FIC. They are also not following the American model where the Centre is just a clearing house. The SA Centre will receive information and pass it on to the investigating authority. Thus SA has taken the middle road.

Professor Turok said that the problem was that in order for the Centre to work there must be money allocated to personnel to work there. He feared that the police in the Unit can easily be withdrawn if the budget decreases for example. If no prosecutions arise from the Centre then it will be a failure.

Adv de Lange replied that they will have to monitor implementation all the time. Top money laundering cases currently do not go to the police. It goes to the Scorpions and the Asset Forfeiture Unit. The government is creating capacity at the upper end of the crime market. This expertise will be in the Centre. These investigators are well-trained and well-qualified. Thus the picture is not as bleak as Professor Turok is painting it. What they are creating now is different from POCA.

At this stage the meeting was closed to the public and the Committee proceeded to have a closed session with two American experts on the issue.

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