FINANCIAL INTELLIGENCE CENTRE AMENDMENT BILL

1. FINANCIAL INTELLIGENCE CENTRE AMENDMENT BILL Briefing to the Portfolio Committee on Finance 6 May 2008

2. Structure of briefing • Overview of the FIC A/B • The FIC A/B: • Most significant amendments • Brief clause by clause discussion • Implementation of the Bill once enacted and other related initiatives (schedules)

3. Background • The proposed amendments to the FICA are urgently required to - • close regulatory gaps • effect improvements to certain provisions • provide for increased enforcement capabilities of the FIC and supervisory bodies • Though the improvement of our laws is an on-going process, there are a number of important interventions which can made at present • SUPERVISORY BODIES: FSB, Registrar of Banks, the Registrar of Companies, the Estate Agents Board, IRBA, the National Gambling Board and the Law Society of South Africa

4. Background • Global integration of financial sector activities have grown significantly since promulgation of FICA in 2001 • Higher efficiency in the functioning of the financial sector companies locally and abroad • Introduced new risks for the financial sector and challenges to the regulators • Creates efficient platform money-laundering • Cross-border regulatory arbitrage • Enhance regulatory regime to keep pace with global financial sector innovations • Close regulatory loopholes through an efficient administrative framework

5. Objective of Bill • The main objective of the Bill is to provide for an administrative enforcement framework to enhance supervision of and enforce compliance with the FICA • Promotes regulatory efficiency by enabling prompt corrective measures to remedy pressing risks • 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

6. 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

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

8. South African Context • Remind Committee of the principle Act and the reasons for the FIC Act 2001 • Creates a system • FATF standards as the backdrop • Need to protect the system from mischievousness and wiles of criminals • Belief that supervisors have important role to monitor financial system for anti-money laundering and counter-terrorist financing so that institutions not exposed to criminal acts • Supervisors have the responsibility but changes give the teeth to enforce • Failure to implement raises problems: • Raises costs even further/ reputational damage

9. South African Context • It is believed that this will improve the proper administration of the FIC Act and hence the effectiveness of the anti-money laundering and counter-terrorist financing regime, particularly in the compliance and enforcement areas • Extensive consultation over 18 months with incorporation of many views

10. Concerns / difficulties • The FICA currently provides for enforcement of its provisions through criminal sanctions only • Any contravention of or failure to comply with the Act constitutes an offence • Enforcement through criminal sanctions is lengthy and complex process • Criminal sanctions alone are inappropriate for measures that are, in fact, regulatory in nature • Criminal sanctions in respect of certain contraventions remain important, but an administrative enforcement process will – • prevent additional pressure on the formal justice system • provide a more flexible and efficient manner to address regulatory contraventions

11. Concerns / difficulties • The lack of express provisions establishing administrative enforcement structures – • impacts negatively on the proper administration of the FICA • limits the effectiveness of the anti-money laundering and counter terrorist financing regime, particularly in the compliance and enforcement areas • The draft Bill establishes an administrative enforcement framework to enhance supervision and compliance

12. Administrative enforcement • The key features of the administrative enforcement framework are: • to clearly express the mandate of supervisory bodies to supervise and enforce compliance with the obligations on accountable institutions regulated by them under the Act • to extend the 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 • to empower the 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

13. Administrative enforcement • The key features of the administrative enforcement framework are: (cont) • 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

14. Consultation process • A consultation document was circulated for comment in November 2006 to – • all supervisory bodies • the representatives serving on the Money Laundering Advisory Council for comment • The document was also placed on the Centre’s website inviting interested parties to comment by 26 January 2007

15. Consultation process • All comments received on the consultation document were considered and, where appropriate, incorporated into the draft Bill • Subsequent to the consultations referred to above, comments were received from the SARB, the FSB, SAPS, DoJ&CD and the JSE Securities Exchange • Amendments were thus subjected to a vigorous consultation process

16. 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

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

18. 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

19. Comments / misconceptions • Available funding and resources to meet obligations imposed on supervisory bodies • the FIC A/B does not impose additional obligations on supervisory bodies • aims to enhance the ability of supervisory bodies to meet their existingsupervisory obligations under the FIC A/B • achieved by creating a number of measures or tools that supervisory bodies may utilise to effectively enforce compliance with the FIC A/B, in addition to tools and measures afforded to them in their establishment legislation

20. Comments / misconceptions • Available funding and resources to meet obligations imposed on supervisory bodies (cont) • 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 FIC is assisting a number of supervisory bodies with training and capacity building • Centre is preparing an implementation plan to facilitate the phased implementation of the FIC A/B • 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

21. 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

22. 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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