Financial Intelligence Centre Bill: Formal Consideration; Provincial Tax Regulation Process Bill: DP Amendments

Meeting report

Financial Intelligence Centre Bill
Mr Phillips, a member of the drafting team, went through the amendments contained in the sixth draft of the Bill. Throughout the Bill there were many technical amendments such as all references to 'shall' have changed to 'must' to conform to new drafting convention. Amendments of this nature will not be referred to.

Clause 1 - The definition of money laundering was amended to concentrate the definition on what exactly money laundering is.

Clause 3 - A grammatical change is effected. 'Further objectives' is replaced with 'other objectives' the former being regarded as being too clumsy.

Clause 6(3) - The first time that the Minister appoints a director he does not need to consult with the Council. He only needs to consult with the Council in respect of subsequent appointments.
The amendment reflects this principle.

Clause 10(4) - The Minister had to consult with the Council when prescribing the policy framework subject to which the Director performs his functions. The clause is now amended so that the minister does not have to consult with the Council.

Clause 12 deals with the security screening of the staff. The heading is changed to reflect that this clause does not refer to the Director. Clause 13 deals with the security screening of the Director by the Minister.

Clause 15 states that the Auditor-General must audit and report on the accounts and financial records of the Centre. Treasury had to check that the Auditor General is happy with the language and the AG subsequently confirmed that the language is fine.

Mr Phillips pointed out that there were only technical and grammatical changes to Clause 19(3) & 19(4). Mr Andrew (DP) was unhappy with 19(4) because it allowed the accountable institutions and supervisory bodies to change their representatives whenever they consider it appropriate to do so. He submitted that this could hinder the ability of the Council to make decisions. He suggested that the person that replaces the representative be a designated alternative.

Mr Phillips suggested that 19(4) be broken up into two subsections. The first will allow the body to send and alternate to the council and the second will allow the body to change the representative.

Mr Andrew and the Committee were happy with this suggestion.

Chapter 3 deals with intergovernmental coordination. Ms Hogan expressed the ANC view that the type of coordination in this chapter falls under the scope of government and should not be in legislation. Legislation was too rigid and the ANC would prefer if this clause were removed.

Mr. Andrew said that from what was related to him by members of Justice is that when there is no statutory obligation to get together and because of the rivalries between departments, meetings just never take place. For this reason he thinks that this chapter should be included in the Bill.

Mr Phillips expressing the view of the task team and National Treasury said that intergovernmental coordination must occur but it was their strong view that it should not be dealt with in the Bill. Even if it is in the Bill, it does not mean that the various departments will meet because there are no penalties if they do not.

Mr Andrew said that he understood the points raised but failed to see how the chapter contributes to rigidity.

Ms Hogan replied that Chapter 3 is not the heart of coordination. There is coordination on the ground all the time so it would be superfluous to have the chapter in the Bill.

Prof. Turok said that if two people want to call a meeting they can force everyone to join and this is where rigidity comes in.

It was agreed in the Committee that this chapter be deleted.

Mr Phillips noted that there would now be consequential changes to the numbering in the final draft as a result of the deletion.

Clause 22 (Duty to identify clients) - There was concern in previous meetings that accountable institutions would not be able to transact with existing clients until the information on the existing clients is collected. To deal with this concern a new clause 84(3) is added in the short title and commencement clause. This new clause states that the commencement of clause 22(2) is suspended until one year after the commencement of clause 22(1).

The old clause 27(6) is turned into a separate clause 28 to accommodate the request of the Committee to have it stand on its own.

Clause 30 (Suspicious and unusual transactions) - All the references to oblige a person to report a transaction if they reasonably ought to have suspected that it is in connection with unlawful activity is deleted. A person must have actual knowledge or suspicion. The drafters were unhappy with clause 30(1)(b)(iv) because it assumed that a person would know that a depositor was attempting to evade tax. The clause was deleted and replaced by a clause borrowed from Australian legislation. The new clause now requires a person to report a transaction if there is a suspicion that it may be relevant to the investigation of tax evasion.

In clause 33(2) the references to supervisory bodies and SARS are removed because other parts in the Bill deal with the exchange of information in relation to these bodies.

Mr Phillips raised a concern made by the Johannesburg Stock Exchange (JSE) that brokers cannot know who stands behind the institutions they deal with. The nature of trading is such that there is a trail of the transaction and clause 35(4) is not needed to try and establish this trail. All that 35(4) accomplishes is that it disrupts trading where even a few seconds is vital.

Mr Phillips said that the aim of the Bill is to establish a paper or an electronic trail therefore 35(40 is not needed because other parts of the Bill already achieves this.

It was agreed that this clause could be deleted.

Clause 36 (Monitoring orders) - To address previous concerns this clause was amended to make it clearer that a monitoring order can only be obtained if the director personally approaches the court or if he has authorised it in writing. The Finance Ministry is of the opinion that this is not needed because Clause 10 specifically states that only the director is responsible for the performance by the Centre of its functions.

Clauses 39(2) & (3) deal with the competency and compellabality of a witness. As it stands now a witness is competent but not compellable. Mr Phillips reminded the Committee of Adv. De Lange's (Chair Justice) view that he does not see why a witness cannot be compelled to testify and suggests that this clause be deleted. Mr Phillips advised that the banking industry would want this clause to foster confidence.

Ms Hogan said that they would follow the wish of the banking industry and retain the clauses.

Clause 46(30 is a new clause. If a Centre refers a matter to a supervisory body or any other body for investigation in terms of clause 45 and they do not do anything, then the Centre will be able to investigate.

Clause 53(2) - If a person negligently fails to report listed activities then an offence is committed. This is included to cater for the deletion of the concept that a person reasonably ought to know that a transaction should be reported.

Clause 54 - If a person referred to in clause 30(3) discloses facts or information in respect of a report for any purpose except those contained in clause 30(3) is guilty of an offence.

Clause 56 - A failure to send a report to the Centre is an offence. People likely to send a report are custom and border officials. If people bring money in to the Republic then that official is obliged to send a report to the Centre.

Clause 60 - The offence that was contained in this clause is now deleted to address the concerns of the JSE.

Clause 63 - It is an offence if an accountable institution fails to formulate internal rules, fails to make internal rules available to employees and fails to make internal rules available to the Centre when requested.

Clause 70 simplifies the penalties that apply to the various offences. Offences are considered to be serious and less serious. The offences grouped in the first sub clause are serious and carry a max jail term of 15 years and a maximum fine of R10 000 000.00. The lesser offences carry a maximum jail term of 10 years and R 1 000 000.00.

Ms Hogan was concerned about the sentences but said that the Justice Portfolio Committee had asked for harsh penalties and that the Finance Portfolio Committee had no knowledge of how the penalties worked legally. Therefore the penalties should remain as is.

Clause 75(3) - If an accountable institution needs to be added or deleted from schedule this clause states that before this is gazetted it must be approved by Parliament first. The Ministry of Finance has submitted that this clause must be deleted and the process can be dealt with in terms of the parliamentary rules.

Ms Hogan advised that Adv. de Lange had said that the Schedule is part of an Act. Consequently if it is to be amended, it must come before Parliament. Thus it would be fine if this section remains in. There are many clauses of this nature in the Bill and consequently all of them remain.

Mr Andrew (DP) was concerned that Clause 79 that allows the Minister to make regulations when he considers it necessary, gives the Minister to much discretion.

Mr Phillips suggested that instead of saying when the Minister considers it necessary they could just say when it is necessary.

Me Andrew felt that such an amendment would address his concerns.

In terms of 79(2)(c) if a person fails to comply with a regulation a maximum sentence of six months and a maximum fine of R100 000 can be imposed.

In Schedule 1 the definition of accountable institution is amended to ensure that public accountants are included.

Item 16 in Schedule 1 is deleted and replaced by the Ithala Development Corporation. The drafters decided to include this body because it fell under one of the exemptions but at the same time was a body that could accept deposits.

Schedule 2 only has technical changes.

Schedule 2A becomes Schedule 3 and deals with a list of reporting institutions.

Schedule 3 becomes Schedule 4. In this schedule a section of the Prevention of Organised Crime Act 121 of 1998 is repealed because it is now dealt with in this Bill. This schedule also amends the Promotion of Access to Information Act 2 of 2000 because in terms of this Act access to information held by SARS is limited. The amendment removes this obstacle.

The last part of the act deals with administrative inquiries. Adv. David Unterhalter gave a legal opinion stating that the administrative inquiries raises constitutional concerns. The Ministry of Finance suggested that the whole part be deleted.

Ms Hogan said that she had read the legal opinion and agrees that it should be deleted.

Ms Hogan mentioned that Mr Smit (Drafting Team) and Mr Michelle had both prepared separate presentations on the implementation on the Financial Intelligence Centre but due to time constraints, they could not be heard. Also the presentations were not germane to the Bill itself. The presentations will be tabled in Parliament with the Bill.

There were no further comments. Ms Hogan read the motion of desirability and all the members present agreed to adopt the Bill.

Provincial Tax Regulation Process Bill: DP Amendments
Ms Hogan informed the Committee that the DP chief whip had raised concerns and said that certain points need to be debated before the Bill went to the House. She informed the Committee that the remainder of this session will be used to listen to the DP's concerns and if they are valid then the Bill will be referred to the House for a resolution for it to be sent back to the Committee for amendments to be effected.

Mr Andrew (DP) provided the Committee with the written amendments that his party proposes and continued to motivate each of them.

Before Mr Andrew started he informed the Committee that his amendments were based on the Bill as it was amended on 12 September 2001 and not on 14 September 2001. For this reason some concerns have already been addressed in the amendments of 12 September 2001.

Clause 3(5)
Mr Andrew said that the Minister would inform all concerned parties of the evaluation of the proposed tax and that he does not see why it is necessary to have this clause. The phrase 'progress of evaluation' is vague and he does not know what it is intended to mean. Mr Andrew had no principle objection to the clause being included in the Bill.

Ms Hogan said that the clause could stay in the Bill.

Clause 3(6)(b)
Mr Andrew again raised a previous concern that there was no time frame provided for the Minister make his view available in writing.

Mr Katla explained what Mr Momoniat had said at the 14 September 2001 meeting. He said that a tax can be simple or complex. The complex taxes could require that the Minister needs up to a year to form a view. Also the provinces could submit many taxes at once and the Minister would be hard pressed to conform to time frames.

Ms Hogan said that the Minister must have a reasonable amount of time to make an informed opinion. The 60 days that the DP proposes is too inflexible. Because the Minister must make reports on the progress to the Council there is transparency and accountability.

Mr Andrew emphasised the point that the Minister could drag his feet if he did not like the tax.

Ms Hogan referred to S228 of the Constitution and pointed out that the Minister can only consider the factors in this section. He cannot delay the new tax for any other reason unless Mr Andrew is implying that there is going to be bad faith on the part of the Minister.

The Chair ruled that the Committee stop discussion on this and go ahead with the other concerns because time was a factor as the Bill was due to go the House that afternoon.

Clause 3(6)(b)
The clause states that the Minister must agree with the Council for an extension before he introduces the Bill in Parliament. Mr Andrew submitted that the Minister should rather agree with the MEC concerned because only this province has an interest in passing the Bill. He did not see the rationale in having the whole Council involved in this process because the other provinces should not have a say in the potential delay of the new tax.

Ms Hogan said that they could not make any amendments as they are merely looking at whether they must withdraw the Bill.

Staying with clause 3(6), Mr Andrew proposed that after it is stated that the Minister must regulate the rate band and the tax base, a proviso must be attached obliging the Minister to adopt the rate band and tax base that the province had included in its proposal in terms of clause 2(c).

Mr Katla said that even if a tax is constitutional it must still be regulated. A tax might not be unconstitutional but the Minister might want to regulate the rate band and tax base to ensure the coherence of the taxing system.

Mr Andrew disagreed with this line of reasoning. He said that the coherence of the tax system does not extend to the rate band and the tax base but only to whether the new tax prejudices national economic policy, economic activity across provincial borders and the mobility of goods, services and labour.

Ms Hogan referred to the fact that the regulatory act cannot underpin the taxing power of the province, it must just regulate it. She also reminded the Committee of the view of Mr Grote that the rate band and tax base must be regulated to ensure the coherence of the taxing system. She noted that this had been discussed before and that she had heard that the DP did not like the Bill because of inconsistencies and stupidities. But it seemed as if there is a major difference of opinion.

Mr Andrew advised that he was not aware that he was going to be given the opportunity to discuss the proposed amendments in this meeting and he was simply going to hand them in with the Bill to the House for debate.

Mr Mofokeng (ANC) said that he was not happy with the procedure now and suggested that they must rather open up debate again in the light of all the changes suggested by Mr Andrew.

Ms Hogan said that the Bill could not be sent back if people had any differences with the Bill but all that Mr Andrew is doing is pointing out inconsistencies.

The Chair asked Mr Andrew to stick to pointing out the inconsistencies.

Clause 4(1)
Mr Andrew pointed out an error in this clause. There should be a cross-reference referring to clause 3(6) not 3(7).

Mr Katla agreed and said that this was a typing error.

Mr Andrew indicated that he had nothing further.

Ms Hogan asked Mr Katla to get opinion considering the constitutionality of regulating the rate band and tax base from Counsel. The Bill will be sent to the House and certain amendments relating to inconsistencies would need to be effected in the House. The DP would have to decide how to handle the outstanding issues in the plenary.

Appendix:
PROVINCIAL TAX REGULATION PROCESS BILL
1. Clause 3(1) in lines 34, 35 and 36:

delete all the words after "Minister" in line 34.

2. Clause 3(5):

delete the whole clause.

3. Clause 3(6)(a) in line 34:

before "notify" insert "within 60 days of the meeting of the Budget Council contemplated in subsection (4)(a)"

4. Clause 3(6)(b)

(a) in line 35, delete "90" and substitute "60"
(b) in line 36, delete "members of the Council" and substitute "the MEC for Finance concerned"
(c) after line 42,
add "provided that the tax base in subsection (6)(b)(i) and the rate bond in subsection (6)(b)(ii) must permit the tax base and the tax rate contemplated in subsection (2)(c).

5. Clause 3(7)

(a) in line 46,
delete "(4) and (5)"
and substitute "(3) and (4)"
(b) in lines 46 and 47
delete "has, on reasonable grounds, reservations about the constitutionality of the proposed provincial tax" and substitute "is, on reasonable grounds, satisfied that the proposed provincial tax is not constitutional"
(c) in line 48
before "notify"
insert "within 60 days of the Budget Council meeting contemplated in subsection (4)(a),"

6. Clause 3(8)

(a) in line 52
after "reconsideration"
add "and possible amendment"
(b) in line 53
delete "the proposed provincial tax fully accommodates the Minister's reservations amended or in its original form",
and substitute, "the Minister is, on reasonable grounds, now satisfied that the proposed provincial tax, amended or in its original form, will not be in breach of section 228(2)(a) of the Constitution,"
(c) in line 54
delete 'either"
(d) in line 55
(i) delete "(a)" and 'or"
(ii) delete "(7)" and substitute "(6)"
(e) in line 56
(i) delete "(b)" and
(ii) before "refer"
insert "Provided that if the minister is satisfied on reasonable grounds, that the proposed provincial tax is still in contravention of the Constitution, the Minister must within 30 days"
(f) in line 58
delete "(7)"
and substitute "(6)"
(g) in lines 59 to 61
delete subsection (10)


7. Clause 4(1) in line 3

delete "3(7)"
and substitute "3(6)"

Clause 5(2) in line 16

delete "3(1)"
and substitute "sections 3(2)(a), (2)(d)(iii), (iv) and (v), (2)(e)(i), (ii) and (iv) and (2)(g)".

Clause 5(3) in lines 17 to 19
delete subsection (3).
Clause 7 in lines 32 and 33
delete subsection 7(b).

18 September 2001