ATC160505: Report of the Standing Committee on Finance on the Financial Intelligence Centre Amendment Bill [B 33 - 2015] (National Assembly- section 75), dated 26 April 2016
Report of the Standing Committee on Finance on the Financial Intelligence Centre Amendment Bill [B 33 - 2015] (National Assembly- section 75), dated 26 April 2016.
The Standing Committee on Finance, having considered and examined the Financial Intelligence Centre Amendment Bill [B 33 - 2015] (National Assembly- section 75), referred to it, and classified by the JTM as a section 75 Bill, reports the Bill with amendments [B33A – 2015].
- The Financial Intelligence Centre Amendment Bill [B33 – 2015] (FICA Bill) updates South Africa’s anti-money laundering and combating of terrorism financing legislation so that it aligns with best practice and standards, as set by OECD Financial Action Task Force (FATF) and UN. The FICA Bill also closes gaps identified by the FATF Mutual Evaluation on South Africa conducted in 2009. Further, the FICA Bill enables South Africa to effectively implement UN Security Council Resolutions relating to freezing of assets, and gives effect to the Constitutional Court decision requiring the FIC to obtain a search warrant for non-routine inspections.
- Among the key issues raised at the public hearings on the Bill convened by the Standing Committee on Finance (SCOF), were the following:
- Various stakeholders claimed that National Treasury did not consult adequately with them on the draft Bill, despite the implications it had for them.
- There is a need for a National Risk Assessment to be conducted before introducing a risk based approach. This is required of countries in terms of FATF.
- The Bill was too prescriptive and defeated the risk-based approach that was meant to be introduced through the Bill.
- The requirements for on-going due diligence were onerous, especially with single transactions or prospective clients who may well decide not to continue with a business relationship with an institution. There should be a transaction exemption amount for a single transaction as proposed by FATF.
- The definition of a “Politically Exposed Person” in the Bill is wider than the international standard requires and includes a prominent person in the private sector. This would be difficult to implement without a readily available list of prominent persons in the private sector who undertake business with Government.
- The Bill has a “one-size-fits-all” approach that does not take into account the wide differences in the scope, nature, services and structure of different sections of the financial sector. The definition of “client” may result in unintended consequences in some sectors such as attorney’s profession and casino industry. Separate regulation of attorneys should be considered taking into account the fact that 75% of attorneys practices are made up of sole practitioners. The casino industry is a fast paced entertainment industry and the current exemptions would have to remain if the industry has to meet the new obligations. Casinos pose very little money laundering risk and this needs to be taken into account.
- A number of the updated FATF standards and recommendations underpinning the Bill are relatively new and it is not clear from the Bill how they are meant to be implemented.
- Sufficient account was not taken of the costs and complexity of implementing some of the provisions of the Bill.
- There should be a provision in the Bill that provides for a consultative process with the public and industry similar to the Financial Sector Regulation Bill, especially with regard to Exemptions, Directives and Regulations.
- The Committee is concerned that there were not enough submissions by NGOs and other sections of civil society in the public hearings process. None of the trade unions made any representations on the Bill.
- The Committee requested NT to meet with the stakeholders and seek to bridge some of the differences between them. They held several meetings, and it was reported that most of their differences were resolved in a “give-and-take” approach.
- As with almost all Bills processed by the Committee, every amendment proposed by stakeholders who took part in the public hearings was tabulated, and each one of them, irrespective of its value, was considered by the Committee as it processed the Bill. Stakeholders were allowed to engage with the Committee until the final amendments to the Bill, without in any way eroding the MPs authority to make the final decisions. Members of the Committee took into account both the positions of NT and the stakeholders before deciding on what final amendments to make. The Committee believes that this approach contributes to a better quality Bill, and one that is more consensual and more likely to be implemented cooperatively and effectively.
- The response of the Committee to the issues raised in paragraph 2 above included:
- There is an urgent need to combat financial crime, terrorism financing and other related crimes more effectively, and the aims of the Bill are fully supported.
- It is recognised, however, that it will be difficult to implement such a comprehensive Bill overnight, and there is a need to take account of the diversity of the financial sector. The Committee proposed that these challenges be dealt with through phasing in aspects of the Bill, providing for exemptions for sectors of the industry, ensuring more effective regulations, directives and guidance notes. The Minister and Director of the Financial Intelligence Centre will facilitate this. Amendments to the Bill also provide for regular consultation with the relevant stakeholders on these issues. Some flexibility has also been introduced on certain provisions, along the lines of a “comply or explain” principle.
- The Committee accepts the difficulties NT has in finalizing a National Risk Assessment and agrees that this not be done before the adoption of this Bill, and that the institutions specific risk-based frameworks can address the key relevant issues. However, the Committee believes that NT, together with other relevant Government departments, should seek to finalise the National Risk Assessment within a reasonable timeframe.
- The definition of ‘prospective client’ be removed from the Bill and be left to institutions to determine in their Risk Management and Compliance Programmes when a person becomes a prospective client.
- Due diligence measures for identifying the beneficial owner of legal persons were made less onerous by clearly providing for cascading steps.
- The list of persons was removed from definition and moved to Schedules 5 and 6. A new section 79A empowers the Minister, by notice, to amend the lists following public consultation.
- The Minister will by regulation decide the threshold on a single transaction below which there would be a less onerous due diligence on the client and no ongoing due diligence. The wider definition of “Prominent Influential Persons” is accepted, but the Minister of Finance will delay the effective date of those provisions relating to private sector Prominent Influential Persons until Government makes such a list available. However, the current unavailability of such a list should not deter institutions from understanding the risk profile of their clients and undertaking their own due diligence.
- NT agreed that compliance costs will be continuously assessed and monitored with the industry.
- Parliament will receive a report at least once a year on the implementation of the Bill
- The Committee notes the large number of investigative authorities which could have access to information in the possession of the Financial Intelligence Centre. Given the possible abuse of this information, especially if some of these authorities become politicised, the Centre is urged to share information that it has to in a responsible manner, with the strictest conformity with the law. While the fight against financial crime must be intensified, it is important not to abuse peoples’ right to privacy.
- The Committee expresses its appreciation to the NT team for the quality and amount of work they did on this Bill and the conciliatory manner in which they engaged with the stakeholders.
Report to be considered
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