Financial Intelligence Centre Bill: deliberations

Meeting report

CHAPTER 4
Part 3 : Reporting duties
Clause 40 - Access to Information held by the Centre
This section stipulates the circumstances and procedures required to request information. Information must be requested in writing and the request must specify what information is required and the purpose for which the information is required.

Adv de Lange (ANC, Justice) expressed concern that the requirements in clause 40 would create a burdensome process that would possibly waste a lot of time and resources.

Mr Smit, a member of the drafting team, insisted that the requirements were necessary. He said that in other jurisdictions they have found that information is sometimes taken for ulterior motives. He said that these requirements will prevent, to a certain extent, people from accessing information that is not relevant for their purposes.

Mr Phillips, another member of the drafting team, added that written permission is not as onerous as it seems. The written request simply provides a record of who is asking for what information. The Director of the Centre's has the responsibility to protect the information. Mr Phillips said that this is a delegable task.

A submission was made that the Reserve Bank should have access to information held by the Centre. Ms Hogan (ANC, Finance) said that the Reserve Bank does have investigative powers but that it is unclear to what extent its powers extended to the Financial Intelligence Centre.

Mr Malan, a member of the drafting team, said that this is true and that discussions as to the Reserve Bank's involvement are currently being held.

Clause 41 - Protection of confidential information
No submissions were made in relation to this clause and discussion was brief. Adv de Lange (ANC, Justice) asked if there were sanctions linked to the clause. Mr Phillips said yes and that this would be discussed later in the clauses dealing with offences.

Part 4: Self-regulation to Ensure Compliance with this Act
Clause 42 - Formulation and implementation
The Banking Council submitted that subclause (1)(d) should be deleted. This clause stipulates that accountable institutions must formulate and implement internal rules concerning - (d) the training of employees of the institution to recognise and handle suspected money-laundering activities.

The Chairperson (Justice) was unclear as to why the Banking Council would request such an amendment.

Mr Smit said that it might be because of the provision in subclause (3). Subclause (3) provides that the accountable institution must provide a copy of the internal rules to each of its employees involved in transactions to which the Act applies.

The Chairperson (Justice) suggested that this might not be possible because different institutions are different sizes. In effect subclause (3) might not be able to deal sufficiently with a one-man firm or a company.

Mr K M Andrew (DP, Finance) was of the opinion that the Banking Council's submission would create the best situation. He said this in light of the fact that training is not an internal rule. Internal rules are concrete and create a recognisable obligation. Training on the other hand is a matter of degree and allows more room for noncompliance or delayed compliance.

Ms Hogan (ANC, Finance) then said that compliance would be the biggest problem and therefore tougher compliance measures were needed. She said that Prof L de Koker's submission was worth noting. The Professor's submission called for the appointment of compliance officers at management level. Ms Hogan said the heading of Part 4 of the Act should be noted. It did not involve exclusively 'rules', but also compliance. She said she agreed with Mr Phillips when he said that compliance measures were needed in addition to any internal rules. This is important because the compliance officers would be the interface between the accountable institutions and the Centre.

Mr K M Andrew (DP, Finance) said he agreed wholeheartedly but it should be remembered that in small institutions the appointment of a compliance officer was not practical. For this reason internal rules had an equally important role to play and should not be marginalised to any extent.

Adv de Lange (ANC, Justice) said that an additional clause should be created to provide for a compliance regime. In addition to this, regulations should be formulated to elaborate on the principles behind the compliance regime.

Ms Hogan (ANC, Finance) said she was confused as to the title of Part 4. The title reads 'Self-regulation' but she said surely the accountable institutions would be subject to a regulatory body.

Mr Malan said that there is substance behind the term 'self-regulation'. He said the rules which provide for self-regulation are found in the Act, so maybe they language should be changed to create a more accurate sense of the purpose of the clause. Mr Malan suggested changing the title of the clause to "Rules to ensure compliance". Mr Malan also pointed out that the standard international practice was that the centre should not be responsible fon a day to day basis for ensuring that accountable institutions observe the rules.

Adv de Lange (ANC, Justice) called for a redrafting of the entire clause.

CHAPTER 5
Part 1: Administrative proceedings
Clauses 43 to 47
These clauses were considered together as Part 1 of Chapter 5 is currently under debate concerning its constitutionality. The clauses provide informally for breaches by accountable institutions. In the event of a breach by an accountable institution, the Centre can initiate proceedings. The accountable institution can then voluntarily agree to the hearings. The problem arises that the Centre then plays a judicial role in these proceedings.

Adv de Lange (ANC, Justice) suggested that because the proceedings were voluntary, constitutionality was not an issue.

Mr Phillips said that despite the voluntary nature of the proceedings, the constitutionality of the clauses might still be questionable. He added that it was not worth the risk to include the section if decisions, once handed down, could be challenged on the grounds of unconstitutionality. Mr Phillips pointed out that the National Treasury expressed the opinion that these clauses were not central to the function of the Centre and that Part 1 of Chapter 5 would best be omitted in its entirety.

Adv de Lange said clarity on the position was needed and the matter would again be discussed after further investigation.

Clause 48 - Offences: All persons Including Accountable Institutions
The Association of Unit Trusts submitted that the word 'intentionally' be inserted in the beginning of paragraphs (a) to (f).

Mr K M Andrew (DP, Finance) said that perhaps negligence should be considered, and the clause be changed to provide that intention was a prerequisite for guilt.

Mr Smit reminded the Committee that the courts always apply a presumption that the legislator requires intention as a prerequisite for guilt. He said that where there is strict liability, the legislator would have to expressly provide for this. This matter could be left to the rules of statutory interpretation and hence there was no need to include the word 'intentionally' anywhere in the section.

Mr Smit suggested that the clause be broken up into subclauses.

Adv de Lange agreed with Mr Smit's suggestion. If the clause was divided into sub-clauses, the offences could be grouped together according to severity. He said that this would make it easier to impose harsher sentences for more severe crimes.

Clause 49 - Offences: Accountable institutions
The Life Offices Association submitted that this clause should include a reference to employees of accountable institutions.

Mr Smit said that the intention of the clause was to place obligations on accountable institutions and not employees. However he added that perhaps the section could be expanded to detail when an employee would be guilty and when the institution would be.

Clause 51 - Penalties
Adv de Lange said that the penalties in this clause were far too mild and should be considerably increased. Adv de Lange rejected the submission by the Association of Unit Trusts to lower the period of imprisonment in sub-clause (1) to less than 10 years.

Clause 55 - Insertion of section 6A in Prevention Act
Mr Phillips said that this new section provided for a new crime known as structuring. Structuring is the practice of breaking a transaction into a number of smaller transactions to disguise the nature of the transaction. This would also include the situation where a transaction was conducted in an unusual manner.

Dr Rabie (NNP) wanted to know if this new provision would cover the situation where transactions were broken up into smaller transactions to disguise the real size of the transaction. This would be done to avoid satisfying a threshold requirement for reporting. Dr Rabie identified this practice as "smurfing", as it was referred to in discussions relating to the Proceeds of Organised Crime Act.

Mr Phillips said that this clause would indeed provide for such a situation.

Adv de Lange was pleased with the provision of this clause but was once again dissatisfied with the sentence imposed. He said that he would like the possibility of a forfeiture element to be considered for inclusion into clauses dealing with sanctions.

Clause 57 - Short title and commencement
Adv de Lange asked if there was a need for staggered commencement.
Mr Phillips indicated that this measure had already been provided for.

Schedule 1 : List of Accountable Institutions
The Banking Council submitted that the Reserve Bank be included as an accountable institution.

Mr Malan said that the Reserve Bank should not be included as an accountable institution, perhaps as a supervisory body but not as an accountable institution.

Most of the other submissions made in relation to schedule 1 all called for the inclusion of additional trades and industries in the schedule as accountable institutions. Amongst these were dealers in gold coins, auctioneers, stokvels, jewellers and stamp dealers. Car dealerships received the most votes for inclusion in the schedule.

Mr Smit said that the list was already quite long. He said that in drafting the schedule care was taken not to include institutions that would tax resources and not to include too many institutions. Mr Smit reminded the Committees that many of these other institutions mentioned in the submissions would have an obligation to report suspicious transactions in terms of the Proceeds of Organised Crime Act.

Schedule 2 - List of Supervisory Bodies
The Banking Council submitted that the reference to the South African Revenue Service should be deleted. Mr Phillips said that this matter was currently under investigation.

The Chairperson (Justice) said that the drafting team must compile a report indicating all the changes discussed and decided upon in all the meetings. He said that where more than one view was expressed, each view should be included. He said that the next step is the formulation of an implementation plan. Adv de Lange said that he would do all he could to not pass the Bill if no implementation plan had been formulated.

The meeting was adjourned.