Documents handed out:
Financial Intelligence Centre Bill (Fourth Draft) [this working draft is as it stands on 16/8/2001]
Submissions on the Financial Intelligence Centre Bill – Book C
Economic Perspectives - An Electronic Journal of the U.S. Department of State
The two Committees began final deliberations on the Financial Intelligence Centre Bill. The document that formed the basis of these discussions was the fourth draft of the Bill, which listed a number of possible options in relation to each clause. The Committees went through Clause 1 to 11 selecting those options to clauses which were felt to present the best possible formulation of the law.
The preferred options of the National Treasury and the Justice Department are marked with a "*". Where clauses or options are not specifically discussed it can be assumed that the preferred options were adopted.
Ms B Hogan asked why the words ‘or institution’ had been removed from the definition of "accountable institution". Mr Smit , from the Asset Forfeiture Unit, said that institution had been removed because it was felt that the word ‘person’ which also appeared in the definition was wide enough to include institutions or juristic persons.
In terms of clause 1(d) the South African Revenue Service was now included as an accountable institution. Ms Hogan asked if SARS was comfortable with this and the SARS representative indicated no objection. The clause was accepted.
The inclusion of travelers cheques under the definition of "cash" was discussed. Mr Smit said that travelers cheques should be included as in their use they would eventually make their way back to the bank where the bank would be able to pick up suspicious transactions. Ms Hogan wanted to know why they merited specific mention as surely travelers cheques were legal tender and would be included because of this. Mr Smit said that in South Africa travelers cheques were definitely not legal tender but a substitute.
Adv De Lange said that he identified that there was a need for concern because what the drafters were trying to provide for here was the situation where travelers cheques came into the country from other countries where money-laundering legislation was relaxed.
Mr Smit said that it was to curb money-laundering activities in both directions, that is, not just laundered money coming in but also on its way out of the country.
Mr Malan added that this inclusion was an attempt to monitor not only travelers cheques but also the underlying transaction that gave rise to those travelers cheques.
In relation to the definition of cash, Option 2 was adopted subject to the inclusion of travelers cheques in the definition.
deletion of "client"
Ms Hogan asked why the definition of client had been deleted. Mr Smit replied that the definition of client that was originally contained in the Bill could not accommodate for its use throughout the Bill. As a result the drafters felt that the definition should be omitted and the ordinary meaning of the word apply.
Option 1 for the definition of council was discussed. In terms of this section the FIC can set up a council to co-ordinate the efforts of law enforcement agencies. Mr Smit said that the FIC would prefer to have its own committee. He said this would be best because the committee set up in terms of the Proceeds of Organised Crime Act, even though similar in principle, lacked some of the institutions that the FIC would need to work with. In addition to this there was a definite split in the kind of work these two organisations did.
Adv de Lange said he appreciated the idea but said that the individual law enforcement agencies needed to be approached and consulted. He said that this was a problem all over the world, and the only proper course of action would be to legislate and provide a legal framework. Adv de Lange was referring to Clause 14 which left considerable discretion to individuals to advise by way of the Council. Adv de Lange said that these processes should ideally not be left to the discretion of individuals and time lines or requirements should most definitely be included.
Adv de Lange also felt the focus and composition of this Council was wrong. He said that the Council should include ministers of various departments because their guidance within their departments is highly desirable. He said that through this council one was actually trying to co-ordinate policies towards money-laundering in departments relating to the Centre.
Mr K Andrew (DP) agreed with Adv de Lange saying that the committee established in terms of the Proceeds of Organised Crime Act had never met. He said that it needed to be decided whether such council or committee was to be formed and if so, then minimum requirements as to when and how often they should meet must be spelt out in the Bill. Option 1 was adopted.
Adv de Lange said that he was under the impression that the definition had been changed to include the words "unlawful activity". Mr Smit said that he had spoken to Mr Willie Hofmeyer (head of the Special Investigating Unit) who informed him that making the definition of money laundering too broad would create problems. He said that these problems would arise not in relation to the reporting duty but would instead cause problems in relation to access to information.
Ms Hogan then asked what a reporting institution was in the optional definition. Mr Smit said that a reporting institution was an institution that was obliged to report suspicious transactions but was not subject to any of the other obligations that an accountable institution is subject to, such as the ‘know your client’ and record keeping obligations.
Ms Hogan then asked why the definition of ‘prospective client’ had been deleted. Mr Smit said that this definition had been removed for the same reason that the definition of client had been deleted. Instead the ordinary meaning of this word was held to apply.
New subclause 3
This deals with the circumstances in which individuals are deemed to have knowledge of certain facts.
Mr Andrew commented that this clause was superfluous and that the concept of knowledge was vague and open-ended.
Mr Smit replied that this section had been taken from the Proceeds of Organised Crime Act.
New subclause 4
Adv de Lange asked if subclause (4) provided for a kind of negligence.
Mr Smit said it did but also provided for more than negligence in that it also dealt with constructive knowledge.
Adv de Lange said that he had trouble understanding the subclause providing for constructive knowledge and the inference of negligence.
Mr Smit replied that the section tried to provide for different measures of negligence. He said that the section would lower the standard when the person in any given position was less competent and would likewise raise it when a person in any given position had increased skill or knowledge.
Adv de Lange objected to this measure of negligence and the criteria used to attribute constructive knowledge to someone. He reminded them that the benchmark test in such a situation is an objective one using the reasonable man as the measure. He said that this clause was adding a subjective element to test for negligence, a situation that goes against one of the basics of our law.
Chapter 1: Financial Intelligence Centre
Clause 3 - Objective
The objective of the Centre was discussed under this heading. Mr Andrew said that he had no objection against the preferred option, and said he thought that it should say that the Centre’s primary objective is to combat money laundering. He said that if you failed to combat money laundering then you have failed in your objective. He continued that the Centre was primarily an information gathering institution. This information was then passed on to those law enforcement agencies that would act upon that information. So when evaluating the performance of the Centre one should look at whether or not it effectively gathered information and passed it on to the proper authority. This is what should be looked at rather than the degree to which actual money laundering has been curbed.
Mr Phillips, a member of the drafting team, said that the word ‘combat’ did not connote actual victory but alluded to a process. He said that this was wide enough to accommodate Mr Andrew’s concerns.
Adv de Lange said that the three subclauses in clause three all provided for more or less the same thing. The provisions overlap to some extent and could cause trouble. He would prefer for the drafters to consolidate these three subclauses. To this, Mr Phillips said that subclauses (2) and (3) were means to achieve (1).
Adv de Lange asked if the substitution of the words ‘assist and promote’ for ‘combat’ in the subclause 3(1) would make the application of this section wider or narrower. Mr Phillips said that he felt the substitution would accomplish neither of those. Ms Hogan said that perhaps the suggested substitution would represent the best formulation. She said that this formulation would indicate that the Centre is not the only institution responsible for the combating of money laundering. The Joint Committee decided to adopt Option 6 subject to the definition of ‘money laundering activities’.
Clause 4 - Functions
The options for clause 4, dealing with the functions of the Centre, were considered. Ms Hogan said that she felt that many of these functions were unnecessary for the Centre to do itself. She felt that there were other bodies who should be responsible for some of these functions. She failed to see why the Centre had to supervise and ensure compliance. She felt that supervisory bodies already in place should be given this task instead. She said that these supervisory bodies had the expertise in their specific areas and actually did on site inspections, why then should the Centre have to develop expertise in all these different fields and have to increase its staff so that it can make on site inspections. The ideal situation would be to have a co-operative relationship with these supervisory bodies. This formulation resulted in a duplication in that the Centre would be setting up another institution to perform a function that can be, and is possibly already done by an institution already in place. The Centre already had a huge workload and to give it more work would hamper its ability to perform is duties properly.
Mr Malan, a representative of the Treasury Department, said that throughout the Act there was a call for co-operation. This was done to prevent duplication and to minimise the work each institution does. He also stated that the Act calls for these supervisory bodies to report to the Centre.
Ms Hogan said that what they were discussing was the not the factual position but the framework provided for by the Act. What needed to be established was who would make sure that matters such as staff training and appointment of compliance officers takes place. The present situation posed a possible problem in that it might provide for two regulators in one realm. This was a highly undesirable situation characterised by jurisdictional problems.
Mr Andrew said that what should also be remembered is that with the more regulatory bodies an individual is expected to deal with, the cost of running a business is increased. He asked how big a bureaucracy was being created through the Bill. He likewise felt that the best way to regulate would be to use established bureaucracies as they already had the skills. To do its own job, the Centre would also require skilled individuals, something that was not in abundance.
Adv de Lange replied that adding subclause (c) would not remedy the problem. To include these regulators one would have to include a clause in this Act or their empowering Acts specifically providing for the desired position. The provisions would have to provide for what information will be given to the Centre and what steps would be taken if this information requirement is not met. He agreed with his co-chair’s observation that a duplication of institutions would result. This section would have to be reconsidered after the examining the empowering legislation of some of the regulatory bodies
Clause 5 - General powers
Mr Andrew suggested that long leases be added to that category of transactions that can only be concluded by the Centre with the permission of the Minister. His motivation for this was that these long leases are sometimes as costly as any of the other transactions for which ministerial consent is required.
Ms Hogan said that this provision probably followed a precedent set by other legislation. They would refrain from providing as suggested to avoid complication.
Optional clause 6A
Adv de Lange wanted to know how this clause had been arrived at. He said it was onerous in that it required the minister to appoint someone to make a finding in relation to the removal of the director.
Mr Smit said that this clause had been lifted out of another Act, the specificities of which he could not remember. Mr Smit said that he would find the source of this clause and present the information to the Committee.
Clause 9 – Staff
Clause 9(9) was deleted
New optional clause 9A was said to be a simple security screening process. Adv de Lange said that this section was replication of a section in the Act which gave rise to the Scorpions.
Clause 11 – Funds and Financial year of the Centre
Ms Hogan asked what the precise meaning of subclause (c). Mr Phillips said that the clause provided for situations where the Centre needed to sell old or unwanted assets. It provided that this money would into the estate of the Centre. Adv de Lange recognised the need but said that as it stood the section was a ‘blank cheque’. He said that perhaps the permission of the minister should be required.
The meeting was concluded.
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