1 FINANCIAL INTELLIGENCE CENTRE AMENDMENT BILL Briefing to the Select Committee on Finance 10 June June 2008

PCOF Structure of briefing  Background to the FIC Amendment Bill  The FIC Act  The need for amendment  The FIC A/B:  Objectives of amendments  Most significant amendments  Comments / misconceptions  Amendments recommended by Portfolio Committee on Finance

PCOF Background  FIC Act  establishes regulatory framework to facilitate prevention, detection, investigation and prosecution of money laundering and terror financing activities  compliments Prevention of Organised Crime Act  applies to financial institutions such as banks, insurers and securities dealers, and non-financial institutions such as casinos, estate agents, attorneys and accountants

PCOF Background  FIC Act Requires institutions to:  Identify customers  Keeping records  Report information  Implement internal rules  Appoint compliance officers  Train staff  Compliance by institutions with these obligations must be supervised by competent authorities

PCOF Background  Amendments to FIC Act are necessary because  FIC Act only implicitly deals with supervisors’ ability to oversee compliance with these obligations  FIC Act lacks express provisions relating to supervisory bodies’ mandate to supervise compliance with obligations and administrative enforcement structures and powers  FIC Act only provides for enforcement of obligations on financial and non-financial institutions through criminal sanctions

PCOF  The Financial Action Task Force (FATF) on Money Laundering commented recommended that –  SA should give appropriate and adequate responsibilities and powers to supervisory bodies to enforce the FICA  this be done by amending sector-specific legislation  In the South African context, however, more appropriate to provide for this authority in the FICA to ensure consistency in the enforcement powers afforded to supervisory bodies Background

PCOF Objective of Bill  Two main objectives:  to enhance structures and powers for supervision of compliance with FIC Act  to address powers and functions of supervisors and provide legislative structure for administrative enforcement of obligations under the FIC Act  Follows the precedents of the "enforcement committee" as established in the Securities Services Act and the administrative penalties regime introduced in 2007 under the Pension Funds Act

PCOF Objective of Bill  Aims to ensure consistency with international standards for regulation, supervision and compliance with anti-money laundering and counter terrorist financing measures  A limited number of technical amendments are also proposed to enhance legal certainty and clarity

PCOF Significant Amendments  Clearly expresses mandate of supervisory bodies to supervise and enforce compliance with obligations on accountable institutions regulated by them under the Act  Extends powers and functions of the Centre to –  enhance supervision and enforcement of compliance in a coordinated and integrated manner together with supervisory bodies  fulfil the responsibilities of a supervisory body in respect of persons not supervised or regulated by a supervisory body in terms of a law  Empowers Centre and supervisory bodies to undertake inspections, issue directives, request information, impose administrative sanctions and apply to the Courts for an interdict or mandamus, where appropriate

PCOF Significant Amendments  The key features of the administrative enforcement framework are:  to ensure consistency in the enforcement powers afforded to supervisory bodies  to enhance cooperation and sharing of information between the Centre, supervisory bodies and law enforcement agencies  to create an appeal mechanism against decisions of the Centre or supervisory bodies  to provide for every accountable institution and every reporting institution to register with the Centre

PCOF Significant Amendments  It is believed that these amendments will improve:  proper administration of FIC Act and hence effectiveness of anti-money laundering and counter-terrorist financing regime, particularly in the compliance and enforcement areas  consistency with international standards for regulation and supervision in relation to compliance with anti-money laundering measures

PCOF Significant Amendments  Belief that supervisors have important role to monitor financial system for AML/ CFT so that institutions not exposed to criminal acts  We need to be ahead of crooks so that they cannot exploit weaknesses

PCOF Comments / misconceptions  In general, recent comments focus on -  the perceived regulatory overlap between the Centre and supervisory bodies  the positioning of the Centre as a super regulator  available funding and resources to meet obligations imposed on supervisory bodies  the inappropriateness of certain institutions being listed as supervisory bodies  The legality / constitutionality of administrative sanctions

PCOF Comments / misconceptions  The perceived regulatory overlap between the Centre and supervisory bodies only after  the Centre may, where a person is subject to the jurisdiction of a supervisory body, exercise the administrative enforcement powers afforded in the draft Bill only after requesting the supervisory body to act and the latter fails to do so

PCOF Comments / misconceptions  The positioning of the Centre as a super regulator  the Centre is the central point in respect of money laundering issues in SA and must –  supervise and enforce compliance with the FICA and facilitate effective supervision and enforcement by supervisory bodies  monitor and give guidance to accountable institutions, supervisory bodies and other persons regarding the performance and compliance by them of their duties and obligations in terms of FICA  annually review the implementation of the FICA and submit a report thereon to the Minister

PCOF Comments / misconceptions  Available funding and resources to meet obligations imposed on supervisory bodies does not impose additional obligations  the FIC A/B does not impose additional obligations on supervisory bodies  NT and the Centre acknowledge that the capacity and expertise of certain supervisory bodies must be improved to ensure the effective enforcement of the FICA  the draft Bill empowers a supervisory body to use any levies or charges it is authorised to impose or collect in accordance with other laws to defray expenditure incurred in performing its obligations under the FICA

PCOF Comments / misconceptions  The inappropriateness of certain institutions being listed as supervisory bodies  Not a matter for the Bill as legislative authority to amend the Schedules to the FICA has been delegated to the Minister  Centre undertaking review of Schedules to ensure appropriate listing of supervisory bodies

PCOF Comments / misconceptions  The legality / constitutionality of administrative sanctions  Same issues were mooted with the introduction of the administrative penalties regime in 2007 under the Pension Funds Act  Independent SC opinion, Parliamentary Law Advisors and the Office of the State Law Advisor advised that administrative penalties are constitutional and legal

PCOF PCoF Amendments  PCoF recommended following amendments to Bill as Tabled:  Technical amendment to definition of “bearer negotiable instrument  Amendment to definition of “this Act” to address concern about inclusion of “order, determination or directive” in definition  Reference to directives inserted in clause 4 and reference to order, determination or directive inserted in clauses 13 and 14  Two new clauses inserted to amend sections 37 and 38 of the principal Act so as to exclude duties of confidentiality and at same time expand coverage of legal professional privilege

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