Madam Speaker, hon members including the hon Mike Ellis ... [Laughter.] The Financial Intelligent Centre Amendment Bill being debated in this House today seeks to substantially enhance the regulatory framework for oversight of compliance with our laws to support the detection, investigation and prosecution of the laundering of the proceeds of crime.
These announcements in turn will contribute to our efforts to promote greater collaboration, sharing of information and efficiency in the manner in which supervisors and divergent industries can respond to risks that cut across their respective jurisdictions.
Those who seek to gain financial power from criminal activity will exploit every opportunity to abuse the services by financial institutions, so their illegal profits may remain undetected. This may be a trite point to make but it bears repeating. Is it that hon members of this House are reminded of the context in which these amendments are to be considered?
This is why our resolve to build the necessary mechanisms that will take financial power away from criminals should be unwavering. The consequence when this abuse of our financial institutions is left unchecked is that doubts are cast of the integrity of our financial sector and its ability to expose such abuses.
It's for this reason that in 2001, when we passed the Financial Intelligence Centre Act, we made supervisors responsible for supervising compliance with its provisions. The amending Bill before this House seeks to make it fundamentally clear that we intend for this responsibility to be part of supervisors' future functions.
However, merely spelling out that supervisors are expected to carry out this responsibility would be an empty gesture if they are not also given the tools to carry out these functions. Therefore, with these amendments, we shall give supervisors a broad range of powers, including administrative sanctions which will enable them to reduce risk of compliance failure or carrying.
As said, I still firmly believe that the most effective way to prevent compliance failures is to promote that culture of compliance. The provisions in these amendments strengthen the position of supervisors in relation to the industries they supervise.
However, I hope that when we talk about compliance, we remind ourselves of the context which I referred to earlier. In this regard, institutions in the private sector should be encouraged to spend their energy and resources in meeting the obligations that will enable them to expose the abuse of their services should it happen, rather than testing the resolve of supervisors charged with maintaining the integrity of the industry.
The matters dealt with in the amending Bill received widespread comments during a long and an exhaustive consultation process. I would like to thank all those who took time to engage objectively and seriously with these matters with the view to improve the final product which we have before us to consider.
I would also like to thank the Portfolio Committee on Finance under the guidance of the hon chair, Nhlanhla Nene, for interrogating the Bill and helping to sharpen it as an instrument that will deliver greater efficiency in our efforts to combat criminal abuse of our financial sector. I hereby request that the House supports the passage of the Financial Intelligence Centre Amendment Bill 2008. Thank you. [Applause.]
Madam Speaker, hon members, in 2001 Parliament passed the Financial Intelligence Centre Act. This Act is meant to assist the law enforcement agencies in their fight against organised crime and protect our financial system from being contaminated with the proceeds of crime. This was a very important decision indeed, as it made it difficult for criminals to launder their dirty money through our financial system.
Accountable institutions like banks are required by the law to report suspicious transactions to the Financial Intelligence Centre. The law enforcement agencies are then expected to use that information to undertake further investigations on those suspicious transactions.
However, we need to point out that this framework had its own shortcomings. Part of the problem was that the enforcement measures were inadequate and inappropriate in certain circumstances. The Financial Action Task Force on Money-laundering, an international body, commented on the supervision of compliance regarding the principal Act during an evaluation of South Africa in 2003.
It recommended that South Africa should give adequate powers to a supervisory body to enable them to enforce the provisions of the principal Act. The problem with the principal Act was that it provided for enforcement through criminal sanctions only. That posed serious challenges because some of the offences were merely of a regulatory nature.
The Financial Intelligence Centre could not enforce compliance through administrative penalties or sanctions as the principal Act had not conferred such powers on the centre. An effective regulator must possess the power to enforce compliance through administrative sanctions. This is an established international practice. Hence the Financial Action Task Force on Money-laundering recommended that South Africa should pay attention to this matter.
The Financial Intelligence Centre must have powers to undertake inspections, issue directives, request information, impose administrative sanctions and institute proceedings in the High court. This Bill addresses these shortcomings.
The Financial Intelligence Centre can approach the High Court to compel an accountable institution to comply with any provisions of the principal Act or stop contravening the Act. The centre can also restrain an accountable institution from conducting business pending an application in court.
There are certain interested parties who perceived the powers conferred on the centre as unconstitutional, especially those dealing with administrative sanctions. We sought legal advice on this matter when we were dealing with the Pension Fund Amendment Bill in 2007. There is no substance in this argument. It is an established international practice to confer such powers to a supervisory body. The hon Sibidla will elaborate on the enforcement provisions contained in the Bill in greater detail.
There are those who contest that certain provisions of the Bill are not consistent with the Promotion of Administrative Justice Act. There is no substance to this argument also. The provisions in this Bill regarding the appeal processes are fair and just.
Firstly, an institution or person may appeal against a decision of the centre to the appeal board. Secondly, the decision of the appeal board may be taken on appeal to the High Court as if it were a decision of a magistrate in a civil matter.
Let me turn to another matter that sparked heated debates, that is the consultation process. There are some interested parties who are of the view that there was not sufficient consultation on this Bill. The information presented to us by the National Treasury clearly indicates that there was sufficient consultation.
A consultation document was circulated for comment in November 2006 to all supervisory bodies and representatives serving on the Money-laundering Advisory Council for comment.
The document was also placed on the Financial Intelligence Centre's website inviting interested parties to comment by 26 January 2007. The submissions were considered and incorporated into the draft Bill. We are satisfied that there was adequate consultation during the drafting of this Bill given the evidence presented before us.
This Bill enhances the sharing of information and co-operation between the centre, supervisory bodies and law enforcement agencies. The sharing of information and co-operation are critical to the successful implementation of this Bill, and ultimately, the prosecution of criminals.
We need to deal a fatal blow to organised crime. Therefore, we appeal to our law enforcement agencies to build investigation and analytical capacity among their members. The ANC supports the Bill. [Applause.]
Madam Speaker, I want to start off by complimenting Minister Manuel and the National Treasury on their continued performance, as well as the Portfolio Committee on Finance for the high level of deliberations.
Suid-Afrika doen nie sake in isolasie nie. Ons is afhanklik van internasionale handel en beleggings en ons moet die internasionale beleggers en handelsvennote die versekering kan gee dat ons 'n finansile bestel het wat betroubaar, geloofwaardig en bo verdenking is. (Translation of Afrikaans paragraph follows.)
[South Africa is not trading in isolation. We are dependent on international trade and investments and must be able to give trading partners the assurance that we have a financial system that is reliable, credible and above suspicion.]
In order to combat money-laundering and related criminal activities, the Financial Intelligence Centre Act will impose control obligations on accountable institutions to identify clients, report transactions to the Financial Intelligence Centre, FIC, etc, with supervisory bodies who will perform supervisory functions.
A review of the Financial Intelligence Centre Act became necessary in order to comply with the 2003 Financial Action Task Force's international standards and also to try and restore our image which is currently seen and perceived to be a haven for fraudsters and money-laundering operators, for which drastic measures are urgently required. Although the FATF has recommended that South Africa should give adequate responsibilities and powers directly to supervisory bodies, the FIC proposed that this authority be provided to them primarily. Questions have been raised regarding the low rate of prosecutions. The Treasury stated the lack in express provisions establishing administrative enforcement structures and powers in the Financial Intelligence Centre Act, which impact negatively on the administration of the principal Act, and is limiting the effectiveness of the anti-money-laundering and counterterrorist financing regime.
Die DA steun die beginsel van hierdie wet heelhartig, maar daar is tog kommer oor die effektiewe implementering in die praktyk. Die taak kan nie vermag word sonder dat alle belanghebbende partye deel is van die proses nie. Hoewel ons verseker is dat almal geraadpleeg is, kom dit teenstrydig voor met die inligting wat ons bekom het van veral die Banking Association of South Africa en die Law Society of South Africa. Hierdie organisasies en hul lede is myns insiens onontbeerlik vir die suksesvolle implementering, maar het hulle onopgeloste bekommernisse. Sonder die bedryf se inkoop, kan verwag word dat die wet dalk nie veel meer werd gaan wees as bloot 'n gebaar om die internasionale besorgdhede te probeer sus nie. (Translation of Afrikaans paragraph follows.)
[The DA wholeheartedly supports the principle of this Bill, but is however concerned about its effective implementation in practice. The task cannot be done without involving all the stakeholders in the process. Even though we were given the assurance that everyone was consulted, it seems to be inconsistent with the information that we received from particularly the Banking Association of South Africa and the Law Society of South Africa. These organisations and their members are, as far as I am concerned, indispensable for successful implementation, but they do have their unresolved concerns. Without the industry buying into it, it can be expected that the Bill may be nothing more than a mere gesture to pacify international anxieties.]
The Bill provides wide-ranging powers - all discretionary, without guidelines - on the exercise of the discretion. The centre will now have the power, for instance, to issue a written directive to any category of accountable institutions. It also adds the responsibility of supervising compliance to the functions of all supervisory bodies with the principal Act and provides for a range of powers to conduct inspections and impose a range of substantial administrative penalties. There is no indication, however, as to how these adjudicative administrative powers will be exercised and how an accountable institution can access courts if it wants to challenge a directive.
We are in need of a policy to effectively counter money-laundering, the financing of terrorism and other related criminal activities.
Ek vertrou dat die versekering wat Tesourie en die FIC my gegee het dat hierdie uitstaande besorgdhede van die bedryfsrolspelers aangespreek sal word en ek versoek ook dat hulle dan aan die portefeuljekomitee daaroor moet terugrapporteer.
Die Minister het die goedkeuring van hierdie wetsontwerp nodig om die internasionale gemeenskap gerus te stel en daarom sal die DA die aanvaarding van hierdie wetsontwerp met die genoemde kwalifikasies steun. Ek dank u. (Translation of Afrikaans paragraphs follows.)
[I trust the assurance given to me by the Treasury and the FIC that these unresolved concerns of the role-players in the industry will be addressed, and I also request that they report back to the portfolio committee in this regard.
The Minister needs this Bill to be approved in order to put the international community at ease, and therefore the DA will support this Bill with the above-mentioned qualifications. I thank you.]
Chairperson, money-laundering, criminal financing and terrorist financing are some of the most serious commercial crimes facing not just South Africa, but also the entire international community.
Post the September 11, 2001 attacks, or 9/11 as it is known, the international community became much more vigilant in countering these crimes through a series of statutes and procedures. The hon Moloto did indicate that the Financial Intelligence Centre Act was passed in 2001. However, there was a need for the review of the implementation of the Act which was suggested by the Financial Action Task Force, which showed up certain shortcomings. So, the Bill before the House today aims to do exactly that. Very importantly, it moves enforcement from a criminal perspective only to an administrative enforcement - a process that will hopefully be more streamlined, quicker to respond and would remove some of the pressure on our criminal justice system. The IFP supports this shift.
Among others, the Bill turns the centre into a super regulator - a provision that caused some debate amongst sectors that already have their own regulators. A legitimate question raised in the committee was whether these regulators which already perform a supervisory role will be supplanted with more powers by the centre. The IFP hopes that the expanded role given to the centre will not lead to this situation. Hopefully there will be better co-ordination and co-operation between various regulators and not conflict which would paralyze enforcement. We do hope that there is no toe trampling and blurring of responsibilities. All regulators are urged to act with common purpose and vision.
The IFP would also have liked to see the scope of institutions covered by the Act being widened to cover all possibilities for money-laundering. But, however, most importantly, this Bill will stand or fall by its implementation. There is no point in having good legislation on paper that cannot be implemented in practice. For instance, the budgetary implications for this Bill have not yet been fully costed and, as a party, we find that problematic. What the legislation is in effect doing is presenting the centre with a blank cheque which it might use when approaching the Treasury for future funding. For this reason, the IFP will be monitoring the implementation of this Bill very carefully to ensure that it will indeed be an improvement on the principal Act.
The IFP will, however, support the Bill. Thank you.
Chairperson, the Bill before us seeks to plug existing gaps and ensure compliance with the Financial Action Task Force, FATF, standards. A consequence of noncompliance was an unfavourable credit rating for the country and affected the risk factor perceived by foreign investors. It is essential that the country's risk for money-laundering and terror financing is minimised resulting in South Africa being rated a better credit risk and a better choice for investors.
South Africa has been described as being very vulnerable to crime syndicates. Whilst the Financial Intelligence Centre, FIC, has been an effective weapon in the fight against money-laundering in South Africa, much still needs to be done. At present, agencies such as commercial banks and other role-players are required to report any suspicious transactions. As a consequence, 21 466 suspicious transactions were received for the period 2006-07, of which 549 referrals, amounting to R1,4 billion, have been referred to the investigating authorities.
The need, thus, for an effective FIC in combating money-laundering and terrorism cannot be overemphasised. However, certain concerns have been expressed that the FIC will become a super regulator and that turf wars will result. The ACDP understands that the intention of the Bill was not for the FIC to supervise other supervisory bodies, such as the Financial Services Board.
However, the new functions and powers contained in the Bill will no doubt put pressure on those existing relationships. The Bill, therefore, gives recognition to various Memoranda of Understanding to define the relationships between the various parties. Both the FIC and supervisory bodies may appoint inspectors on either a permanent or an ad hoc basis. The FIC would only take action if there was no supervisor in place or where there was a supervisory failure.
In view of these welcome developments and the need for an effective FIC, the ACDP will support this Bill. I thank you.
Chairperson, the main objective of this Bill is to provide for an administrative enforcement framework within which administrative penalties, under the principal Act, can be applied in deserving matters. The Act, as it stands today, provides for enforcement of its provisions through criminal sanctions and requires the involvement of a number of law- enforcement agencies. This makes enforcement inappropriate for measures that are regulatory in nature.
The current model lacks an administrative process, which will provide a more flexible and efficient way of addressing certain contraventions of the Act. Therefore, the proposals in front of us are meant to allow the centre to respond effectively towards all kinds of breaches of the principal Act. The penalties, among others, include issuing a warning or reprimand, issuing a directive to take remedial action, or a suspension of certain business activities, to mention a few.
It further gives powers to assist the centre and supervisory bodies in determining when compliance failure occur, as well as an appeal procedure concerning sanctions imposed by the centre. We think that by establishing an appeals board, in a way, this Bill deals with some of the concerns of those affected by this Act. During our hearings there were individuals who were not in favour of some of the amendments to control money-laundering - even some from this House chose to reserve their comments.
It is important to remind some members of this House, particularly those who chose to reserve their comments on the Bill, about the effects of money- laundering. Money-laundering has an effect on a number of areas like micro and macroeconomics. At a microeconomic level, the private sector is vulnerable to money-laundering due to what is termed as the 'crowding-out effect'. Money-launderers tend to set up what is known as front companies where their profits are not the proceeds from the business itself, but from some form of criminal activity. These front companies often offer their products at a very low price, giving them an undeserved competitive advantage. Legitimate businesses then cannot compete as there is no fair competition involved and are, therefore, forced to close shop, resulting in workers ending up unemployed.
At a macroeconomic level, money-laundering can force countries to make policy mistakes due to measurement errors in macroeconomic statistics arising from money-laundering. At this level, money-laundering can also lead to misallocation of resources due to distortions in relative asset commodity prices arising from money-laundering activities.
I have highlighted just a few of the serious effects of money-laundering and hope that those who think that money-laundering does not have victims, may now be convinced otherwise. From what I have said on how money- laundering can affect the social and financial wellbeing of every individual, it is clear that, if it goes unchecked, money-laundering is detrimental to economic development. It damages the financial institutions, impairs productivity, and can even distort a country's international capital flow.
Money-laundering is a threat to the proper functioning of a country and its financial system. Therefore, the efforts of the ANC-led government to legislate and enforce laws to combat money-laundering are efforts to make crime not worth committing and not just punishing the perpetrators. The ANC supports the Bill. Thank you.
Chairperson, I want to express my appreciation to all parties for their support for this piece of legislation. It is a very necessary piece of legislation and a necessary set of amendments, as hon members have indicated.
I think part of what we have is a situation that, since 2001, different regulations have been applied differently. What we need to be able to do is to ensure that all the accountable institutions will respond in the appropriate manner and for that reason there needs to be some ability to lean on them because those responsibilities should not be taken too lightly.
The hon Marais made reference to the presence of some regulators and I think it is necessary for us to distinguish between regulators and what, in some instances, are industry associations. If you look at banks in South Africa, it is actually quite highly regulated. The Registrar of Banks located at the Reserve Bank has a very good and strong relationship and would be the regulator. That does not change the fact that the banking association has an important role to play as an industry association and they are not an accountable institution in the same sense of the word.
However, in respect of the legal profession, it is very difficult because the reach of the Law Society of South Africa is actually quite limited. And the ability to deal with that very necessary distinction between privilege and abuse is something that we have to work at continuously. I think we are persuaded that the National Law Society doesn't quite exist and that there needs to be a different set of relationship structures within the provincial law societies, and hopefully these would not just follow the norms of the four provinces of the past.
I do want to give hon members the assurance that the idea is not to set up the FIC as a super regulator. It would cost an enormous amount of money and the systems to try and do that would just be an overwhelming task. We do want the FIC to have close relations with regulators.
I hope that part of what they would be able to do in the future is to also raise, in the context of Parliament, some naming and shaming of those accountable institutions that don't want to perform their role. Then we have to get to the bottom of that. Then we would have a sense of who they are and where the abuse is. But I think we need to bring those issues into the open because it is one thing to pat the banks on the back for they know you as clients and all of the other things that they do but I think, by the same token, we must bring into the open those who don't actually want to comply or play a role and some of them are state institutions. So, we need take some of those issues forward.
In respect of the cost that the hon Singh raised, I am assured that the cost at the Financial Intelligence Centre will be marginal. In the industry, by and large, accountable institutions should be already doing the things that the amendments require of them to do. So, I can't really see save to try and duck and dive past the amendment proposed here. While the issue of costs have been raised as strongly as it has been in the course of the parliamentary hearings, clearly it is something that we will keep an eye on.
Again, Chairperson, I express appreciation for this Bill. Thank you.
Debate concluded.
Bill read a second time.