Financial Intelligence Centre Bill: deliberations

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Finance Standing Committee

14 August 2001
Chairperson: Ms Hogan (Finance), Adv de Lange (Justice)
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Meeting Summary


Relevant Documents
Financial Intelligence Centre Bill 

Chapter 3 Parts 1 and 2 (Clause 21 -27) were left for the afternoon session. The morning session discussion centered Chapter 3 Part 3 (Clauses 28 to 35). Most clauses were resolved with little debate. The technical effect of harmonizing Clause 29 on the previously drafted clauses was considered for every section. The inclusion of all of the provisions of the soon to be redundant Section 7 of POCA was discussed. Other debates centered around the definition of a business for purposes of the Bill, issues relating to SARS especially whether SARS should be placed under a general reporting duty for suspicious transactions (the SARS representative submitted that this should not be the case), the inclusion of 'suspicious enquiries' as being reportable, and the possibility of mechanisms for applications for exemption from reporting duties. The peculiar problems relating to JSE transactions and the implications for privacy and attorney's privilege were raised briefly in conclusion.

The afternoon resumed at Clause 35 and went through to Clause 42. Chapter 3 Parts 1 and 2 (Clause 21 -27) were skipped and were revisited in this session.

Meeting report

Adv de Lange summarized the previous session noting that the committee had dealt with definitions the previous day, as well as the creation of various categories for reporting, namely cash transactions, suspicious or unusual transactions and cross-border conveyancing of money. The category of reporting institutions (such as second hand car dealers) was added to the existing category of accountable institutions. Today the focus would be on the heart of the Bill, that is, the reporting duties upon which the drafters would have to get specific instructions. Mr Phillips, a member of the drafting team, was present to take the committee through the relevant sections of the Bill.

Part 3: Reporting duties
Clause 28 - Cash Transactions above prescribed limit

Advocate de Lange noted that Option 2 of the Fourth Draft was the proper one for inclusion and there were no objections.

Clause 29 - Suspicious transactions
Mr Phillips explained Option 3. It included and took over the provisions and functions of Section 7 of the Prevention of Organized Crime Act (POCA), and had been amended to make specific reference to unusual transactions and tax evasion. The most important difference in Option 3 was the obligation on everyone to report. This was not the case in Option 1 where only accountable institutions had the duty.

Adv de Lange noted that the heading had changed and that it was obvious that this section now dealt with persons and accountable institutions. He queried whether the phrase 'or accountable institutions' should be added after the term 'business' in ss 1 for purposes of clarity. He also asked whether all businesses now were made accountable under this section.

Mr Phillips responded that the obligation was on a business as a legal entity and also on the managers or employees who acquired knowledge of suspicious transactions. He continued that the matters to be reported were contained in subclause (1)(a) -(c) and that (c) was a catchall provision.

Adv de Lange queried whether s 7 of POCA was adequately included in the Bill.

Mr Phillips said that it did and noted that item 1 in Schedule 3 of the Bill repealed s 7 of POCA.

Adv de Lange queried interim arrangements for the functions of s 7, especially whether the regulations in force made under POCA would fall away automatically.

Mr Phillips said that they would and noted that until the Bill takes effect the person/s designated by s7 will continue to act.

Adv de Lange referred to subclause (1) of Option 3 and asked for an explanation of the suggested deletion of 'accountable institution.

Mr Phillips said that accountable institutions fall into the class of 'a person who carries on a business'.

Mr Swart (ACDP, Justice) asked whether law enforcement was satisfied with these provisions.

Adv de Lange replied that he was aware that at least the Office of the Prosecutor had considered and approved this.

Ms Hogan (ANC, Finance) asked whether a definition of a business was necessary.

Mr Phillips responded that there was no need as this was usually self-evident, and on the rare occasions when there might be doubt, the courts could determine the matter.

In reply to Ms Hogan asking if an illegal operation like a 'chop' shop would still qualify as a business, Mr Phillips said that it would.

Adv de Lange suggested that there might be a definition in the Companies Act but Mr Phillips said that he knows of none such. Adv de Lange concluded that the Courts would have to supply the definition and the legislator could then amend the Bill accordingly. He raised the concern here about the informal sector and how this could be included in the definition. He directed that this aspect be followed up on by the drafters.

Ms Hogan raised the issue that the expansion of the reporting duty to businesses that were not accountable institutions would necessitate those businesses setting up internal reporting and monitoring systems, some of which might already be in place as a result of POCA.

Adv de Lange countered that the duties under POCA were not the same as here. Mr Phillips clarified this by saying that only suspicious transactions were reportable by such businesses.

Ms Hogan asked whether regulations would be created defining what constitutes a suspicious transaction.

Mr Phillips said that there would be regulations and that the FIC would provide guidelines in line with, for example, Britain where such guidelines are provided. He noted further that an internal system might not be of much concern to a chemical factory, but that a chain of jewelers may be well advised to concern themselves with having such an internal system.

Ms Hogan was concerned that the FIC Council, which would draw up these regulations, would be made up only of representatives of accountable institutions and not of other business associations.

Mr Phillips explained that there would always be a lack of perfect fit when imposing guidelines across a wide spectrum, that it was unusual to impose the duty on everybody, accountable institutions and others,
and noted that indeed most jurisdictions impose the contemplated duty only on cash dealers.

Adv de Lange suggested that this could be dealt with by applications for exemption.

Ms Hogan raised the problem of whether the FIC would have to monitor or implement this.

Mr Phillips answered that this matter had been dealt with in the internal report. He continued that the current list of business and accountable institutions was long and comprehensive, and that the minister could designate other businesses as accountable institutions by notice in the Gazette.

Ms Hogan suggested that pawnshops would need guidelines.

Mr Phillips concurred that they could be added later.

Adv de Lange suggested that guidance by the courts could be given using subclause (4)(d), noting that ultimately the boss of the business must account for all offences, with smaller institutions doing what they can according to their resources. He moved on to consider the meaning of 'Suspicious and unusual' in the heading of Option 3.

Mr Phillips responded that this was taken from the American rules. He moved on to examine 29(1) b (ii) and noted that the drafters wished the committee to give instructions on whether the clause should stop after the words …'or lawful purpose'. The second part thereafter was put in to protect the customer's privacy who has a once off unusual transaction such as an inheritance, and the burden of the enquiry and explanation is dealt with before getting to the FIC.

Mr de Lange asked for caution in this instance, especially regarding the consequences for businesses, and suggested that Mr Smit, also of the drafters, be heard before the committee accepted the expanded version.

Mr Phillips commented that the provision related to accountable institutions who were in the normal course obliged to establish relations with customers anyway. The Americans had several methods for eliciting such explanations, one of which in the context of electronic banking was to warn or question the customer on ATM credit card slips.

Adv de Lange suggested that once off occurrences like lottery wins or inheritances were not high volume events and would not therefore be a burden on the accountable institutions. He noted that the clause created some flexibility and allowed the business to first ask the client for a reasonable explanation.
He went on to address 29 (1) b (iii) which referred to tax evasion only and did not incorporate the whole tax system, the focus being on isolated schemes i.e. a narrower option.

Mr Latief (SARS) voiced his approval of this clause. He continued that the focus within SARS was restricted to pure revenue law (the VAT Act, the Income Tax Act and the Customs and Excise Act) and this clause supported that.

Ms Hogan questioned Mr Latief as to whether SARS was a business with a reporting duty ito Option 3.

Adv de Lange stated that this was not the present case but that there would be a duty on Accounting or Lawyers firms to report.

Mr Latief concurred and noted that the SARS function was to receive tax returns and moneys and that it would be difficult for SARS to determine from a return if anything was suspicious.

Adv de Lange referred to the Goldfields case where the accountant of Goldfields helped Goldfields evade tax, but then heard of the whistleblower rewards for reporting to SARS, started giving them information and hoped to collect the reward. Goldfields argued however that since the accountant was an employee of Goldfields, the reward should go to them. The court ruled in their favor.

Ms Jana (ANC, Justice) suggested that SARS is not a business, but questioned the situation where a SARS bill is paid in cash. Mr Phillips reiterated that SARS had no reporting duties here.

Adv de Lange suggested that the drafters adapt section 31 to include and elaborate the new categories under Clause 29.

Ms Hogan noted that a cash payment to SARS was a clever way to launder money.

Adv de Lange moved on to subclause (1)(c), the catch all provision and submitted that it was for the courts to interpret narrow or wide and that the FIC´s job was to push these parameters if another particular form of laundering developed that required the Act to be accordingly amended. He commended Mr Phillips for a very neat and harmonized draft. He moved on to look at subclause (2).

Mr Phillips explained that this clause only dealt with cases where a customer inquires about a possible transaction, and how such enquiries should lead to reports.

Adv de Lange summarized that if suspicious scenarios in (a) (b) or (c) would have arisen from the contemplated transaction enquired about then a report would have to be made.

Mr Phillips noted the change at the end of (b) adding 'or series of transactions' and that in subclause (3) an accountable institution was replaced by 'no person'.

Adv de Lange warned against breaches of individual privacy, citing the example of where details in an application for credit card ended up broadcast on the Internet. He concluded that there was nothing further to add to this 'suspicious and unusual transactions' clause.

Mr Swart (ACDP) asked if s7 of the POCA was collapsed into this Bill since there were lots of obligations in POCA that seemed not to be here. He asked if the Justice Department had considered all this.

Mr Phillips confirmed that provisions equivalent to POCA were in this Bill. He also confirmed that the Bill had been technically adjusted to accommodate the impact of the new s29. Adv de Lange warned that the effect of s29 should be considered in all other clauses

In response to Imam G Solomon (ANC, Justice) asking if suspicions and amounts were two different reporting categories, Mr Phillips explained that in the case of reporting on amounts of cash, there was no discretion required given the floor set in the legislation, and that this was absolute and easy to police. Regarding the suspicion category, no monetary limit had been set. The UK has a floor limit of 50 000 pounds. It was drafted that all suspicious transactions should be reported. He asked if the drafters should consider giving the Minister a discretion to create a floor amount.

Adv de Lange said that this was a good idea to avoid a flood of de minimus reports. Imam Solomon and Ms Hogan agreed.

Adv de Lange asked whether the drafter wanted to avoid perhaps having to amend legislation at a later date.

Mr Phillips suggested that the floodgate problem could be addressed by giving the Minister a discretion to exempt certain transactions from reports. Adv de Lange concurred that exemptions were a good solution too, and that this would also preserve the flexibility of the legislation.

Clause 30 - Electronic transfers of money to or from the Republic
Adv de Lange asked for an explanation of the suggested deletion of 'that is not a bank'.

Mr Phillips noted that inter bank transfers would still be covered by this section, despite the deletion

Adv de Lange concurred that 'another person' could be interpreted as being another bank or not a bank

Ms Hogan noted that the Banking Council had argued against this deletion because of the enormous burden of the potential reporting duty.

Mr Malan proffered that the reporting duty was similar to that under exchange control, which systems were still in place. Ms Hogan concluded that the exchange control system could be adapted to the reporting function.

Adv de Lange said that the banks could report the affected transactions on a list and send it to the FIC.

Ms Hogan wandered whether Western Credit Union transfers would be captured.

Mr Malan claimed that Western Union were obliged to transfer by means of a dealer authorized by the Reserve Bank i.e. another bank and Ms Hogan noted that this would bring them into the loop.

Adv de Lange concurred that this included banks, and that all electronic transfers above a certain amount were to be reported and that if a volume problem arose then they could perhaps be exempted. He asked where the exemption provisions could be found in the Bill.

Ms Hogan and Mr Phillips indicated that they were to be found in 52(b), which permitted exemptions by the Minister, and Mr Phillips suggested that bank-to-bank transfers to an acceptable jurisdiction like the USA perhaps would be an obvious candidate for exemption.

Adv de Lange noted that Western Union worked through banks and Mr Phillips noted that Item 24 in Schedule 1 included Western Union as an accountable institution.

Adv de Lange suggested that an important issue to consider might be what was to be contained in a printout report.

Clause 31 - Reporting by supervisory bodies and the SARS
Mr Phillips said that a supervisory body would only learn of suspicious transactions through an accountable institution.

Adv de Lange asked whether s29 (iv) activities would be reported under s31

Ms Hogan raised the issue of confidentiality of SARS information.

Mr Latief noted that the Commissioner's view was that it is not in the best interests to have a general suspicion reporting duty on SARS because it is too onerous, because most payments arise out of assessment and tax return, suspicion would arise out of scrutiny and the process of scrutiny was a machine like process because of the bulk, and that it was thus impossible to detect suspicious transactions. However on the other side, information did come from audits or investigations and this could be reported, though current rules prevented the SARS from disclosing this information.

Adv de Lange asked whether confidentiality was not an issue here and Mr Latief reiterated that the commissioner had no problem with Clause 31 if it was restricted to accountable institutions, but that a general suspicion reporting duty was impossible to comply with.

Adv de Lange concurred that the crooks were not the bank or the accounting firms but the 'Staggies' . On a policy basis business were included as accountable institutions as this is where individual suspicions can be reported. He concluded that SARS fells between businesses and supervisory bodies as categories and that his feeling was that SARS inclusion was unnecessary and of little value.

Mr Swart (ACDP) asked whether s 7 of POCA placed a duty on SARS.

Adv de Lange said SARS was not included because it was not a business.

Ms Hogan proposed the scenario where a bank is taken over by a criminal body like the mafia and queried who would make reports then, and whether this was not the context for the application of Clause 31.

Mr Latief noted that the bulk of payments made to SARS were in cash and not electronic.

Adv de Lange commented again that SARS appeared to be the ideal money-laundering vehicle and this was even more reason to consider these provisions again. He noted further that logically s31 should come straight after s29 and that the drafters should look into this. He summarized that there was thus opposition to the inclusion of SARS in the section so far.

Clause 32 - Conveyance of cash to or from the Republic
Adv de Lange asked whether s32 reports were to be made to the FIC.

Mr Phillips replied that a customs officer usually made these and then the report was to be transferred to the FIC.

Adv de Lange noted that a duty was created by this link. What if the customs people did not report, was an offence thus created?

Mr Phillips referred to s50 and noted that no offence for the customs official specifically was created since this was an administrative matter not a crime. If customs have issued instructions then the official can be disciplined under the Public Service Act rather than a criminal court. If it is proved that official is complicit in crime then that is an additional crime; the failure to report is merely a failure to do his job.

Adv de Lange concluded that regulations and disciplinary sanctions should be in place for this to work but asked the drafter to give more consideration as to how to make sure that the link between customs and the FIC did function.

Clause 33 - Reporting procedures
Adv de Lange commented that subclause (2) of Option 2 was made much clearer by the addition of 'for the performance by it of its functions', and praised the drafters.

Mr Phillips suggested that 'and the grounds for the report' in subclause (3) was necessary since the FIC might need to get background information.

Clause 34 - Continuation of transactions
It was noted that 'suspicious' in the heading had been deleted and Adv de Lange queried whether the 'unless' part be retained, given the possible costs / damages arising out of the exercise by F of this power i.e. if transactions were halted.

Mr Phillips suggested that this be read in conjunction with s35 (2) and that share transactions might be exempt here.

Ms Hogan noted that there was a submission from the Stock Exchange that the operating system of the exchange would not be able to function if this power were given to FIC. Mr Phillips agreed, explaining that the effect of the section was that the Stock Exchange has to ask the FIC for permission before putting though a suspicious transaction. Ms Hogan added that one cannot stop a Stock Exchange transaction once it has started.

Adv de Lange asked if other jurisdictions had similar provisions and whether they worked. Mr Phillips answered that he had spoken to an official/legislator (FAT) in Paris. France does have such a provision but since it has not yet been applied to an actual case, its efficacy has not been tested.

Adv de Lange noted that this clause was not clear to him and that it would be left for later consideration.

Clause 35 - Intervention by Centre
Mr Swart asked whether from the perspective of the law society and of justice Clause 35 did not give rise to problems concerning the undermining of the attorney-client relationship, and if so how did other jurisdictions deal with this consideration.

Mr Phillips readily conceded that this clause did constitute draconian inroads on hallowed rights, nevertheless that there was a need to make attorneys accountable to report suspicious activities/ amounts.

Mr Swart submitted that the reporting of ongoing transactions was a problem, not the reporting itself per se. There was also the issue of subsequently appearing for a client. He submitted that the internal rules of the law society should deal with this more appropriately than individual attorneys.

Adv de Lange rebutted that a legal duty is created in the Bill and applies to accountants and also the trust accounts of attorneys. The moneys kept in such accounts have nothing to do with a client's case and in this respect the attorney is merely acting as a bank for his client. As such the attorney must report.

Ms Camerer (NNP, Justice) asked what one would do after reporting a client, whether one could still appear for the client; the client is entitled to representation, therefore would another attorney step in. Was this not an untenable position?

Adv de Lange claimed that this was no different for accountants, in that they too must continue to keep their clients. The attorney might have a problem where he is called as a witness in a criminal case against his client.

Ms Camerer concurred with this problem scenario.

Adv de Lange reiterated that this was not different to accountants who were in a more invidious position having full disclosure and knowledge of their client's financial details.

Ms Camerer submitted that accountants were not bound by the same rules of privilege as attorneys.

Adv de Lange claimed that there was no magic in privilege or the myths of confidentiality - crooks activities were not to be kept hidden. He noted that he fell asleep during the prior debate on these issues and concluded that there was to be no further debate on this subject at this time.

In Clause 35(1) the word accountable is deleted. Adv. de Lange suggested that the word should remain. This is a technical change and was not discussed further.

Clause 35 now has four subsections with the two new optional sub clauses inserted by the drafters becoming 35(3) & 35(4). The committee had no problems with these clauses.
Another technical change suggested by Adv. de Lange was to retain "accountable institution" in the new 35(4).

Ms Joemat (ANC Finance) asked who was liable for the damages suffered if transactions were wrongly frozen. Mr Phillips from the drafting team replied that as long as the act was in good faith there would be no recourse.

Mr Phillips, a drafter, explained the rationale of the 5-day period in Clause 35(1). It gave the prosecuting authority a window to decide whether to get a restraining order in respect of the assets concerned. This is so because the Centre will act in terms of this Bill but the prosecuting authority will need to act in terms of other legislation if they wanted to seize the assets. Mr Phillips gave an example: Criminal X deposits funds into his sister's account and the sister is to transfer it into an offshore account. Here there is more than one transaction but it is in respect of the same funds. So the funds can be frozen at any stage then the prosecuting authority has five days to decide whether they want to take further action.

Clause 36 - Monitoring Orders
The drafters explained that the purpose of this clause is to allow the Centre through a court order to monitor all the transactions on a specific account for a period of three months.

The Bill contains three options as to the procedure for getting the order and more importantly whom to approach. Ms Hogan (ANC Finance) believed Option 2 is better as confidentiality would be better served if a judge in chambers was approached as opposed to magistrates. It was agreed that Option 2 is the correct approach to use. 36(1) would therefore start at Option 2 and continue from "may, upon written application…"

The question of jurisdiction was discussed and it was agreed that the part on jurisdiction could be left out because it is envisaged that four judges on a national level will be hearing the applications.

The Centre can approach the court if in terms of Clause 36(1) if reasonable grounds exist. Adv. de Lange questioned what this meant and wanted a consistent test throughout the Bill and instructed the drafters, Mr Phillip and Mr Smit, to investigate the cogency of the test for interception and monitoring. Later when 36(1)(a) & (b) was reached the test became clear as it is contained herein and Adv. de Lange was satisfied with it and suggested that the definition of money laundering be kept wide for the courts to interpret as they see fit.

Mr Landers (ANC Justice) was concerned that the clause did not specify who must make the application because surely not just any clerk at the Centre should be able to do this.

Mr Phillips said that staff from other agencies will be seconded and it will be them who bring the application. The committee was not satisfied with this answer and felt that the clause must be more specific. Mr Phillips replied that in terms of the Bill only the Director can act and he can delegate. This was still not acceptable to Mr Landers because then the Director could delegate to the clerk.

Adv de Lange suggested that the clause should include something stating that the application must be authorised by the Director.

Mr Swart was concerned about the fact that it was a final order with no way of the respondent challenging it. Mr Smit said it was different from your everyday ex parte orders because this one lasted for only three months then lapsed.

Clause 36(2) & (4) remains unchanged.

The main changes to this clause are that judges grant the application and that the application be authorised by the Director.

Clause 37 - Reporting duty not affected by confidentiality rules
The purpose of this clause is to exclude legal professional privilege from the ambit of 37(1). 37(2) specifically states when the privilege applies - when the attorney is approached for legal advice or for pending or contemplated litigation. No changes were made to this clause.

Clause 38 - Protection of persons making report
The clause indemnifies bodies or persons acting in good faith in terms of this act. Clause 54 also deals with the same issue but for government representatives. So Option 1 keeps the indemnification separate from government reps and Option 2 combines all indemnification in Clause 54. It was agreed that separatation is better to prevent clumsy drafting. Option 1 was adopted.

38(2) states that a witness can choose to testify and cannot be compelled to give oral evidence. Adv. de Lange was not happy with this and the question was asked why are the witnesses (person who makes initial report) not compellable.

Mr Smit responded that they needed protection so that more people would make reports. He also pointed to Clause 39 that allows a certificate from the accountable institution to be used instead of the person's oral evidence.

Adv. de Lange said that this was hearsay and that it was unconstitutional if the accused is not given the opportunity to cross-examine the person especially if identity is in issue.

Mr Andrew (DP Finance) said that he has sympathy and understands that people need to be protected especially in today's climate where the police cannot protect citizens.

Adv. de Lange said that "we do not want to spend lots of money and in the end we cannot successfully prosecute because the witness has the choice not to testify".

Mr Smit said that the Centre gathers evidence and builds a case from that evidence.

The non-compellability is borrowed from Australia and Adv. de Lange wanted to know what other jurisdictions had done so.

Ms Hogan said the discussion was getting too technical and that Clauses 38 & 39 be held over for later. It was agreed that the drafters need to look at this further. Adv. de Lange said that there were lots of mechanisms to protect witnesses and the drafters should look at this as well as other jurisdictions.

Clause 38 & 39 was therefore unresolved.

Clause 40 - Access to information held by the centre
The SA Revenue Service was included in Clause 40(1)(a) as a body having access to the info held by the Centre. This was accepted.

A new 40(1)(b) replaced the old one. It was the same in content but just better regulates the procedures for sharing info with other investigating authorities outside RSA. Mr Andrews wanted to know why there would be an exchange of information only when the activity is in the territory of the foreign entity requesting the info, surely it should also be made available if the activity takes place in South Africa. Mr Phillips agreed with this and said the clause should include a reference to activities inside South Africa.

Mr Andrews also said that there could be a problem if the entity getting the info from the Centre does not adhere to the same confidentiality principles as we do. It was pointed out that any sharing of info is governed by an agreement. (Two optional clauses deal with the agreement)

The drafters inserted a new optional clause and this would be 40(1)(d). It will only be included if 42C is inserted. The committee had no problem with 42C so this new optional clause remains. The purpose of this clause is for the Centre to give information to the supervisory bodies if it feels that any action should be taken against the accountable institutions.

Clause 40(1)(e) and 40(2) remains the same.

The two optional sub-clauses referred to earlier deals with the agreement that is entered into when information is shared. Mr Andrews felt that the confidentiality should be included in the agreement. Mr Smit said that confidentiality is always part of such agreements but this could mean nothing because the information could still fall under the foreign country's freedom of information legislation. Also, these agreements have an escape clause, which only binds the foreign entity to confidentiality as far as they are able to do so. This is so because their jurisdictions could force them to hand over the information. The two sub-clauses now become 43 and 44.

Most of the discussion in this clause centred around 40(1)(f). A consequence of this clause is that any person can request from the Centre the information that the Centre holds that concerns him. These requests will be done in terms of the Promotion of Access to Information Act. Adv. de Lange says that this Act should be excluded from the ambit of the Promotion of Access to Information Act otherwise it will be undermined. Adv. De Lange wanted to know whether the information held by the Centre falls under any exemptions.

Mr Phillips said that to his knowledge in other jurisdictions the freedom to information always trumps other legislation and one would need to amend the Promotion of Access to information Act if one would want to exclude this new Act. Adv. De Lange says that this issue should be left for now but that it was important to read through the exemptions in the Promotion of Access to Information Act and see if it applies to the Financial Intelligence Centre Bill.

Clause 41- Protection of confidential information
This clause remains unchanged.

Clause 29- Suspicious transactions
At this point the discussion went back to Clause 29. Adv. De Lange asked the drafters' view as to when the duty arises to report suspicious transactions. Mr Smit said that as soon as something suspicious occurs, the suspicion must first be vetted and then only should the duty to report arise. It was decided that the drafters need to discuss when a suspicious transaction needs to be reported.

The Committee was about to start at Clause 42, which deals with measures to promote compliance by accountable institutions. Ms. Hogan said that the Committee had not yet discussed the duties of accountable institutions and that this should be done first. The Committee proceeded to do so.

Clause 21 - Duty to identify clients
Clause 21(1) compels accountable institutions to follow prescribed steps to identify clients. These prescribed steps still need to be drafted by Treasury and Adv. De Lange suggested that reasonable interim steps be included so that this clause can come into operation sooner. Mr Phillips said that regulations containing the prescribed steps are being drafted and will come into force on the same date as the Act. Ms. Hogan wanted to know if, without the prescribed steps, there is nothing with which accountable institutions need to comply. Mr Phillips said that was the case but he was confident that the regulations would be in place. A representative of the Treasury said that they want this part of the Act to be in place by mid next year so the regulations would have to be completed by the same time.

Ms Hogan said that she feels that they need interim measures just in case Treasury lags behind. Mr Phillips alerted the Committee to Clause 21(2), which prevents an accountable institution from transacting until the prescribed steps are taken. If interim steps were put into place, Clause 21(2) would cause the following: Mr X is an existing client of a bank and deposits his salary cheque. If the bank does not follow the interim steps to verify this client, in terms of Clause 21(2), they cannot release the funds in his account to him. Mr Phillips then suggested that Clause 21(1) should come into force with the interim steps but that the operation of Clause 21(2) should be suspended until the prescribed steps have been completed.

Adv. De Lange wanted to know why they could not have a sub-clause saying that interim steps are in operation until the prescribed steps are completed. Mr Phillips said that they should wait for the prescribed steps because interim steps would be impractical and expensive. Banks would need to change from their current position and train staff for the interim steps and then later train staff for the prescribed steps. Ms. Hogan said that she now understood the concerns of Mr Phillips.

Adv. De Lange pointed to the note on page 33 and said that there is no way that these problems should go to the advisory council because then this will become a dragged out process.

Ms. Hogan says that the duty to know your client is very broad. A person who places a bet (gambler) and a person who walks into a bank are very different. In each accountable institution you need different regulations. Ms. Hogan therefore asked where are these regulations going to be drawn up. She says that a central body is needed so that one does not have the gambling sector doing one thing and the estate agents doing another. She suggested that the FIC should have working groups for each sector.

Adv. De Lange said that at this point it needs to be decided whether interim measures are put in or should they wait for the prescribed steps and that for now Clause 21 should stay as it is.

The meeting ended here and at the next sitting the Committee will look at the specific amendments to Clauses 21 to 28 (Parts 1 and 2 of Chapter 4) and then continue from Clause 42.



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