Financial Intelligence Centre Bill: deliberations

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Finance Standing Committee

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

Relevant Documents
Fourth Draft, Financial Intelligence Centre Bill (amended as requested by the joint portfolio committee)

In this meeting the two Committees started to finalise deliberation of this Bill. The Committee dealt with issues which had been identified as problematic areas which would have to be discussed after all optional clauses had been chosen. The Committees therefore jumped from one area of the Bill to another discussing all those flagged issues.

The duration of the afternoon session was only 40 minutes. Clause 17 was discussed whereafter Adv. de Lange gave the procedure that would follow today's meeting. The meeting ended with the co-chairs thanking the role-players.


Meeting report

Clause 15 - Functions
In clause 15 there were two options with the second one being the preferred option. This clause dealt with the functions of the of the Advisory Council but the subclause under debate was that relating to the provision of secretarial support and financial resources to the Centre.

Mr Phillips said that this clause provided to the provision of secretaries and administrative assistants and money for the paying of electrical bills and related items.

Adv de Lange advised that the words 'within the scope of the Centre's budget' be removed. There was no need to include these words here. The new formulation would be more favorable for the Centre as it would require the Council to consider the needs of the Centre when determining its budget. It would thus create the need without unnecessarily limiting it.

Clauses 21 and 22
As a result of the redrafting process clause 22 was collapsed to form part of clause 21.
The old clause 22 dealt with the transition between the situation of the past and the situation envisaged by the Bill.

Ms Hogan reminded that if the Bill came into force, it would effectively mean that people would not be able to draw money from an ATM. This clause provides relief for this and provides that an accountable institution has a certain period of time to get up to speed with the legislation. The clause would have to be more detailed stipulating things such as the time frame allowed to acquire information not yet known to the bank.

Mr Phillips said that the clause would be expanded to provide for Ms Hogan's concerns.

Mr K M Andrew (DP) wanted to know why subclause (d) was needed. Subclause (d) provided that accountable institutions needed to take the prescribed steps 'to trace all accounts at that accountable institution that are involved in transactions concluded in the course of that business relationship'. He was concerned that the clause provided that the accountable institution must trace the origin of all accounts involved in a transaction. Nowhere did the clause provide for where one person had more than one account.

Mr Smit however contended that subclause (d) was intended to provide for this.

Mr Phillips added that once an accountable institution knew the client then it would not matter how many accounts that person opened.

Adv de Lange then wanted to know why this provision was not included in clause 21(1).

Mr Phillips said that clause 21(1) dealt with a different category of transactions, namely those concerning existing business relationships.

Ms Hogan asked what the position was in relation to the long-term insurance industry. She wanted to know where the know-your-client obligation lay, with the broker or with the insurance company.

Mr Philips said that this was a complicated matter that depended on the circumstances. Simply put, he said, each must know their own clients. If a broker sells insurance then he must know his clients. Conversely, if the broker works for an insurance company then the company must know its clients. Also when a broker is acting under a principal, then in terms of the Bill, the insurance company is under an obligation to know the identity of the principal.

Optional subclause 3 was submitted by Prof L de Koker, but was rejected by the Joint Committee.

Mr Philips said that what the clause sought to include was matters that were currently left to be dealt with in the regulations. These matters would best be left to be dealt with in the regulations after consultation with the relevant bodies as to provide otherwise would be too rigid and would thus create problems.

Clause 24 - Period for Which Records Must be Kept
The period for which records are to be kept was five years in terms of this clause.

Adv de Lange wanted to know if this five year period was a standard in the rest of the world.

Mr Smit said that it was as it was the period required the Financial Action Task Force (FATF).

Clause 25 - Centralisation of records
This clause used to provide that a group of accountable institutions part of the same business group, could centralise their records.

Mr Phillips said that the drafters reconsidered this clause and felt that it would be best if this were not allowed. He said that it would be better for third parties to keep the records. The duty to keep records remains with the accountable institutions even when they outsource this function to third parties.

Clause 26 - Admissibility of Records
Mr Phillips made reference to the underlined text in the clause. He felt it is necessary to have some form of certification requirement.

Adv de Lange assumed that this would be subject to the normal rules of certification, namely that a policeman or other certification office would be able to certify the document.

Mr Smit however indicted that what had been intended was certification by an officer of the accountable institution. This would be done to verify the record as actually being a record of that accountable institution.

Adv de Lange said that doing this would be an attempt to change the law of certification. He said that such a move would result in officers of accountable institutions becoming certification officers.

Adv de Lange asked what form of evidence these records would constitute. He asked if they would be regarded as hearsay, or if they would be able to constitute evidence as to the truth of their contents. Would the records be regarded as proof that a transaction took place, or whether a witness would have to be called in.

Mr Smit said that the section tried to provide for a situation where the record would be evidence of a fact contained in the document.

Mr Phillips reminded that this clause had also been raised as a concern by Ms S M Camerer (NNP) in the original discussions.

Ms Camerer said that she was not sure that this position would be the best as it was not desirable for accountable institutions to be responsible for the certification of their own records.

Adv de Lange said that this concern was a valid one and that the only law that should apply would be the ordinary law of certification.

Clause 27 - Centre's Access to Records
Ms Hogan said that she was concerned by the inclusion of the SARS as an institution whose records the Centre would have access to during ordinary working hours.

Adv de Lange then added that he was confused as to why the records of supervisory bodies were also included in this clause.

Mr Smit said that he identified the concern of both the chairpersons but said that this clause only provided for access to records kept in terms of clauses 23 and 25.

Adv de Lange said that the clause did not state this and that it obviously should if it were to be included in the Bill. Without this proviso the clause would be too wide and give the Centre access to a range of very sensitive information. Why in the preferred option two for section 27, was a warrant not required for information referred to in clause 23(1)(a) (b) and (c).

Mr Phillips said that the information that did not require a warrant was not as sensitive as the other information in that section. The kinds of information that did require a warrant were of a particularly sensitive nature.

Adv de Lange inquired about how the process of acquiring information would ensue in reality. Would one first ask for the information and then get a warrant or would a warrant be required. Mr Phillips said that seldom do the accountable institutions take an adversarial stance towards institutions such as the Centre. The accountable institutions volunteer as much information as legally possible. However, these accountable institutions are often bound by confidentiality obligations. The acquiring of a warrant is then means to get around this and to release the accountable institution from their privacy obligations. Why was a warrant was not required for those exempted in terms of clause 27 because they still involved information of a somewhat sensitive nature?

Mr Phillips said that this information was just background information to establish whether or not someone was a client of a particular accountable institution.

Adv de Lange said that despite this the preferred option might still encounter constitutional problems, and for this reason he preferred option one.

It was decided that options one and two would be collapsed into one clause to provide for both concerns.

Adv de Lange said that the redraft should expressly state that only background information can be requested for in this manner, and that information of even a slightly sensitive nature would require a warrant.

Clause 42A - Training and Monitoring of Compliance
Ms Hogan asked who would have to actually provide the training. Namely was the accountable institution bound to train its own staff or could this task be outsourced or someone hired to do it. Mr Phillips said that this task could be done by anyone as long as the staff of an accountable institution was trained adequately.

Ms Hogan said that she envisaged a problem in relation to the appointment of a compliance officer, in terms of subclause (b), in the context of small practices. Could one individual within the organisation have a dual role, one of which would be a compliance officer? She illustrated this with the example of a small real estate agency consisting of an agent and a secretary. Could the seretary in addition perform the function of a compliance officer.

Mr Phillips said that this would be one solution while the other would be to simply exempt these institutions from specifically this obligation.

Adv de Lange then pointed out that the clause provided that staff be trained to comply with their duties under the internal rules of the accountable institution, while it says nothing about their duties under the Act itself. Subclause (a)(iii) should be redrafted to provide for this.

Adv de Lange suggested that a better solution would be to have a much simpler section with specifics being contained in the regulations

Clause 42B - Auditors to Confirm Compliance
Ms Hogan said that she felt that this was not the proper function for an auditor. Auditors would not have the skills to do this properly. This would properly be regarded as a function of the relevant supervisory bodies. These bodies would possess the skills to do so and be in the best position to do so.

Mr K M Andrew (DP) said that this looked like an additional level of surveillance that did nothing other than adding cost to the whole procedure. He also reminded that auditors were under an obligation to report crimes which they came across.

Ms Hogan then asked if all categories of accountable institution was subject to one of the supervisory bodies contained in schedule two.

Mr Smit said that apart from item 14 in schedule one, all other categories of accountable institution is subject to a supervisory body.

Adv de Lange said that in this case the clause would have to contain a resolution stating that once a supervisory body for this category of accountable institution is set up, then an amendment to schedule two would have to be made to include the new supervisory body.

Afternoon Session


Clause 17 - Meeting and procedures
In earlier deliberations the committee asked the drafters whether it would not be better to break up clause 17(1) into subparagraphs as is it is now included in option 2. The same question was put to the drafters by Adv. de Lange.

Mr. Phillips referred to the two options and said that there is no difference if it is broken up or not.

Clause 17(2)(a) - it was agreed that Option 2 is the better one because it obliges the council to meet at least once a year.

Clause 17(2)(c) is a new addition. Mr. Andrew (DP Finance) wanted to know who are the persons referred to in this clause. Does it mean that the Council can call people to its meetings for assistance or can they contract out to have work done on their behalf?

Adv. de Lange said that any person outside the Council could be asked to perform any task.

Mr. Phillips clarified and said that the clause envisaged both situations contemplated by Mr. Andrew.

Adv. de Lange pointed out clause 17(3), which on a first reading seems the same as 17(2)(c), and asked whether if these clauses were not saying the same thing.

Mr. Phillips explained that 17(2)(c) refers to assistance to the Council while 17(3) refers to assistance to the committee and therefore both clauses are needed.

Mr. Lekgoro (ANC Finance) was worried about clause 17(2)(b) which says that the Council may determine its own procedures. The member felt that it seemed as if the Council could determine different procedures at each meeting. Adv. de Lange advised that regulations would govern the procedure as referred to and this is how it was normally dealt with in other legislation.

The committee was in agreement with clause 17(4). Adv. de Lange felt strongly that where the act is going to call for consultation with the Council that those who are obliged to consult do not get away with the mere writing of a letter. Therefore the need for each Council member to give his or her comment in writing is a mechanism for avoiding this.

CHAPTER 3, Clause 17(A) - Independent coordinating Committee
Adv. de Lange instructed the drafters to amend this Chapter as per previous discussions. One of the main changes is to move away from the wording that gives the coordinating committee the task of coordinating the functions of the Centre. The function of this committee will be to coordinate the activities surrounding money laundering.

Another point that arose in earlier meetings, was who is going to chair the coordinating committee.

Ms. Hogan (ANC Finance) said that the Treasury is a good bet because it is neutral.

Mr. Malan said the FIC Director should chair the committee because the Centre has a vested interest in the decisions being made. The committee and drafters agreed with this submission.

It was further agreed that Chapter 3 needs to be included in the Act and Adv. de Lange wanted the drafters to attend to the changes as previously discussed. In short, changes would need to be done to the functions and composition of the coordinating committee.

Adv. de Lange then asked the drafters whether they were happy with the instructions given to them in so far as it would enable them to submit a redraft to the joint portfolio committee.

Mr. Phillips said yes and advised that the redraft will be ready by 11:00am tomorrow.

Ms Hogan asked the representative of SARS if there were any outstanding issues. The rep said that that the only issue was clause 27 which gave the Centre access to SARS records.

It was agreed in principle that there should not be access to SARS records.

Ms. Hogan said that access is not needed because SARS was not a supervisory body as in the past and that they will be represented at the Centre.

Mr. Phillips said that there is the question of reciprocity because SARS was given access to Centre records. There was also the added question if the Promotion of Access to Information Act that allows access to SARS records. Therefore this issue still needed to be clarified in discussion.

Procedure after today:
- The two chairs will meet with the drafters to see if all the changes have been made.
- The redrafted bill will be circulated to the members hopefully on Monday.
- The bill will go through the party process.
- A date in 2 - 3 weeks will be arranged to go through the bill for a final time.
- If there are no further small changes then the committee can vote.

All the role-players were thanked by both chairs for their hardwork and commitment.

The meeting was adjourned.


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