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FINANCIAL INTELLIGENCE FINANCIAL INTELLIGENCE CENTRE AMENDMENT BILLCENTRE AMENDMENT BILL

Briefing to the Select Committee on Finance Briefing to the Select Committee on Finance

10 June 200810 June 2008

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Structure of briefingStructure 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

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BackgroundBackground 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

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BackgroundBackground 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

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BackgroundBackground 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

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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

BackgroundBackground

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Objective of Bill 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

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Objective of Bill 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

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Significant AmendmentsSignificant 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

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Significant AmendmentsSignificant 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

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Significant AmendmentsSignificant 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

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Significant AmendmentsSignificant 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

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Comments / misconceptions 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

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Comments / misconceptions Comments / misconceptions The perceived regulatory overlap between the

Centre and supervisory bodies

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 afteronly after requesting the supervisory body to act and the latter fails to do so

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Comments / misconceptions 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

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Comments / misconceptions Comments / misconceptions Available funding and resources to meet

obligations imposed on supervisory bodies

the FIC A/B does not impose additional obligationsdoes 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

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Comments / misconceptions 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

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Comments / misconceptions 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

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PCoF AmendmentsPCoF 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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QUESTIONSQUESTIONS

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THANK YOUTHANK YOU