Bill in­fringes on the rights of cit­i­zens

Closer scru­tiny must be made of the FIC Amend­ment Bill be­fore it is passed, writes Sello Mashao Rasethaba

The Star Early Edition - - INSIDE -

ON SEPTEM­BER 24, 2016, the Black Busi­ness Coun­cil (BBC) wrote to Pres­i­dent Ja­cob Zuma for­mally ob­ject­ing to the Fi­nan­cial In­tel­li­gence Cen­tre (FIC) Amend­ment Bill and re­quest­ing that he not sign it into law as per the pow­ers con­ferred upon him by the con­sti­tu­tion.

The let­ter in­di­cated that the BBC is not obliv­i­ous or rather dis­mis­sive of at­tempts by the gov­ern­ment to im­ple­ment in­ter­na­tional stan­dards as set out by the Fi­nan­cial Ac­tion Task Force (FATF) to fight against ter­ror­ist fi­nanc­ing and money laun­der­ing. How­ever the BBC ar­gues that the bill:

• “Is a dan­ger­ous piece of leg­is­la­tion in terms of its po­ten­tial im­pacts on the rule of law and on con­sti­tu­tion­ally pro­tected rights, and on the health of South Africa’s democ­racy and sovereignty. Money laun­der­ing and ter­ror­ism fi­nanc­ing must be coun­tered in ways that are fully con­sis­tent with the Repub­lic’s core con­sti­tu­tional val­ues (that in­clude lib­erty, non-dis­crim­i­na­tion, and the rule of law), that are ev­i­dence-based, and that are likely to be ef­fec­tive,” and

• “Is in­ef­fec­tive in coun­ter­ing money laun­der­ing and fi­nanc­ing of ter­ror­ism ac­tiv­i­ties by virtue of what is omit­ted from the Bill, and will ac­tu­ally be counter-pro­duc­tive in that it could eas­ily get in the way of ef­fec­tive polic­ing, in­tel­li­gence-gath­er­ing and pros­e­cu­to­rial ac­tiv­ity.”

The Reg­is­trar of Banks and Deputy Gov­er­nor of the South African Re­serve Bank, Kuben Naidoo, clearly does not agree with the BBC and has, ac­cord­ing to press re­ports, penned an af­fi­davit barely nine months af­ter his ap­point­ment, stat­ing that the re­fer­ral by Zuma of the FIC Amend­ment Bill “sets the coun­try back in ful­fill­ing its in­ter­na­tional obli­ga­tions to the Fi­nan­cial Ac­tion Task Force”.

He goes fur­ther to say SA’s fail­ure to bring the FIC Amend­ment Bill into op­er­a­tion will likely re­sult in a neg­a­tive state­ment from the FATF that our coun­try’s frame­work for ad­dress­ing money laun­der­ing and com­bat­ing fi­nanc­ing of ter­ror­ism does not meet in­ter­na­tional stan­dards.

If this is true, Naidoo has to­tal dis­re­gard for the BBC and in the process ig­nores rea­sons we ad­vanced. He is quoted as say­ing that Zuma’s ac­tions will cause “other FATF mem­ber coun­tries to re-eval­u­ate the risk of deal­ing with SA’s fi­nan­cial in­sti­tu­tions given their non-ad­her­ence to in­ter­na­tional stan­dards”.

South Africa is not the only coun­try grap­pling with this is­sue. For ex­am­ple, an anal­y­sis by Know Your Coun­try, an on­line li­brary that pro­duces coun­try anti-money laun­der­ing (AML) re­ports, coun­try tax rates, in­ter­na­tional sanc­tions and ge­o­graph­i­cal anti-money laun­der­ing re­ports, notes that the US has a ma­ture le­gal and in­sti­tu­tional AML/com­bat­ing of fi­nanc­ing of ter­ror­ism (CFT) frame­work, hav­ing first crim­i­nalised money laun­der­ing in 1986.

The frame­work cov­ers most re­quire­ments of the FATF rec­om­men­da­tions. There are many agen­cies in­volved in com­bat­ing money laun­der­ing and fi­nanc­ing of ter­ror­ism at both fed­eral and state lev­els en­com­pass­ing reg­u­la­tory, law en­force­ment, pros­e­cu­to­rial and other roles. The US is a found­ing mem­ber of the FATF, and has un­der­gone three as­sess­ments against the FATF rec­om­men­da­tions.

The FATF as­sess­ment in 2006 found the US had im­ple­mented an AML/CFT sys­tem that was broadly in line with in­ter­na­tional stan­dards.

Like South Africa, it has sig­nif­i­cantly strength­ened its AML/CFT regime since the pre­vi­ous mu­tual eval­u­a­tions, in­clud­ing through en­hanced leg­is­la­tion, sub­ject­ing most de­posit-tak­ing in­sti­tu­tions to the full range of AML/CFT re­quire­ments, ag­gres­sive law en­force­ment ac­tion, and good co-op­er­a­tion do­mes­ti­cally and in­ter­na­tion­ally.

Short­com­ings in the US were iden­ti­fied, no­tably in re­la­tion to some spe­cific re­quire­ments for un­der­tak­ing cus­tomer due dili­gence (CDD), the avail­abil­ity of cor­po­rate own­er­ship in­for­ma­tion, and the re­quire­ments ap­pli­ca­ble to cer­tain des­ig­nated non-fi­nan­cial busi­nesses and pro­fes­sions (DNFBPs).

In re­la­tion to CDD, the eval­u­a­tors de­ter­mined that not all re­quire­ments were im­posed on fi­nan­cial in­sti­tu­tions (FIs) us­ing in­stru­ments that com­plied tech­ni­cally with the FATF stan­dard and also con­cluded there were no re­quire­ments for FIs to look be­yond a cus­tomer to es­tab­lish the iden­tity of the ben­e­fi­cial own­ers in all cases.

Clearly, this is not an easy mat­ter be­cause the eval­u­a­tors found the US’s com­pli­ance with the two rec­om­men­da­tions deal­ing with the trans­parency of le­gal per­sons and ar­range­ments was very weak and rated both as non-com­pli­ant.

In re­la­tion to DNFBPs, the US was found to be non-com­pli­ant with the FATF rec­om­men­da­tions re­lat­ing to CDD, record­keep­ing, sus­pi­cious trans­ac­tion re­port­ing, and in­ter­nal con­trols and par­tially com­pli­ant with the rec­om­men­da­tion on reg­u­la­tion and su­per­vi­sion.

The US Mu­tual Eval­u­a­tion Re­port adopted by the FATF at its ple­nary meet­ing in Oc­to­ber 2016 and pro­duced in De­cem­ber con­cluded that while the US was largely com­pli­ant, “lawyers, ac­coun­tants, high-end real es­tate agents and trust and com­pany ser­vice providers (other than trust com­pa­nies) who es­tab­lish or other­wise fa­cil­i­tate ac­cess to fi­nan­cial ser­vices for le­gal per­sons and ar­range­ments are not sub­ject to com­pre­hen­sive AML/CFT re­quire­ments, and are not sys­tem­at­i­cally ap­ply­ing ba­sic or en­hanced due dili­gence pro­cesses and other pre­ven­tive mea­sures, as needed; and this is fur­ther ex­ac­er­bated by the de­fi­cien­cies in the Ben­e­fi­cial Own­er­ship (BO) re­quire­ments”.

These facts are ig­nored by the likes of Naidoo, whose ap­point­ment by Zuma in March 2015 was hailed as a mile­stone by jour­nal­ist Hil­lary Joffe, who pro­claimed that Naidoo is not a po­lit­i­cal de­ployee. Ac­cord­ing to Joffe, Naidoo “comes from a fam­ily with deep roots in the ANC (and many years, col­lec­tively, spent in pri­son). He be­gan his po­lit­i­cal ca­reer at the age of 11 as a founder mem­ber of the United Demo­cratic Front-af­fil­i­ated Le­na­sia Youth League, played a lead­ing role in the 1980s school boy­cotts, and had the du­bi­ous dis­tinc­tion of be­ing the first House of Del­e­gates pupil to write ma­tric while in de­ten­tion”.

“Naidoo worked in the Trea­sury dur­ing the Trevor Manuel era (and some of Pravin Gord­han’s), head­ing the bud­get of­fice for some years be­fore he went off to the Pres­i­dency to set up and head the sec­re­tariat of the Na­tional Plan­ning Com­mis­sion,” wrote Joffe.

With these cre­den­tials, one would ex­pect Naidoo to fight to pro­tect the Bill of Rights as en­shrined in the Con­sti­tu­tion of the Repub­lic of South Africa.

The FATF is the in­ter­na­tional stan­dard-set­ter in the fight against ter­ror­ist fi­nanc­ing, cor­rup­tion and money laun­der­ing. It was es­tab­lished in 1989, by a Group of Seven (G7) Sum­mit held in Paris. The sum­mit recog­nised the grow­ing threat posed by money laun­der­ing to the bank­ing sys­tem and fi­nan­cial in­sti­tu­tions and set up the FATF to de­velop and pro­mote na­tional and in­ter­na­tional poli­cies, glob­ally, to help elim­i­nate this threat.

In 2001, the FATF took over re­spon­si­bil­ity for the de­vel­op­ment of stan­dards in the fight against ter­ror­ist fi­nanc­ing. FATF has be­come a pow­er­ful in­ter­na­tional body, not through for­mal le­gal or treaty pow­ers, but by us­ing peer pres­sure and the threat of black­list­ing to get 180 ju­ris­dic­tions to sign up to its stan­dards. With some gaps, FATF has largely suc­ceeded in get­ting coun­tries to pass AML and CDD laws.

How­ever, as FATF it­self recog­nises, sim­i­lar ef­fort must be made to en­sure these laws are im­ple­mented ef­fec­tively by gov­ern­ments, su­per­vi­sors, law en­force­ment and fi­nan­cial in­sti­tu­tions.

There must also be an as­sur­ance that some peo­ple do not use this to fur­ther their own po­lit­i­cal goals, there is no fi­nan­cial ex­clu­sion, racism and dis­crim­i­na­tion, and that FATF rec­om­men­da­tions are im­ple­mented in a trans­par­ent and demo­cratic man­ner and, in par­tic­u­lar to South Africa, there is re­spect of the con­sti­tu­tion and in par­tic­u­lar the Bill of Rights.

FATF mon­i­tors com­pli­ance with the 40+9 rec­om­men­da­tions through a twopronged strat­egy. Firstly, mem­ber coun­tries com­plete an an­nual self-as­sess­ment style ques­tion­naire and, se­condly, the FATF reg­u­larly con­ducts on-site mu­tual eval­u­a­tion re­port ex­am­i­na­tions on in­di­vid­ual ju­ris­dic­tions, as­sess­ing the ef­fec­tive­ness of their na­tional poli­cies in deal­ing with money laun­der­ing and ter­ror­ist fi­nanc­ing.

The mu­tual eval­u­a­tion of South Africa was per­formed in 2009. Since then, there have been 11 fol­low-up re­ports to mon­i­tor how South Africa is pro­gress­ing in im­ple­ment­ing the rec­om­men­da­tions.

The OECD is a per­fect ex­am­ple of how dif­fer­ent gov­ern­ment de­part­ments can work to­gether with busi­ness and other stake­hold­ers to fight cor­rup­tion bribery. In June 2016, the OECD com­piled a re­port that eval­u­ated South Africa’s im­ple­men­ta­tion of the OECD Con­ven­tion on Com­bat­ing Bribery of For­eign Pub­lic Of­fi­cials in In­ter­na­tional Busi­ness Trans­ac­tions and the 2009 Rec­om­men­da­tion of the Coun­cil for Fur­ther Com­bat­ing Bribery of For­eign Pub­lic Of­fi­cials in In­ter­na­tional Busi­ness Trans­ac­tions.

Ac­cord­ing to the OECD re­port, the South African gov­ern­ment’s com­mit­ment to fight­ing cor­rup­tion, in­clud­ing the OECD for­eign bribery of­fence (OECD of­fence), is ex­pressed in key na­tional pol­icy doc­u­ments in­clu­sive of the Na­tional De­vel­op­ment Plan (NDP, Chap­ter 14: Fight­ing Cor­rup­tion), the 2014-2019 Medium-Term Strate­gic Frame­work (MTSF) and the Na­tional Se­cu­rity Strat­egy (NSS).

Global Wit­ness has rec­om­mended that FATF as­ses­sors should seek in­put from a broad range of stake­hold­ers on the im­ple­men­ta­tion and ef­fec­tive­ness of a coun­try’s AML sys­tem.

This could in­clude busi­ness, civil so­ci­ety, par­lia­men­tar­i­ans, aca­demics, jour­nal­ists, other ju­ris­dic­tions and other peo­ple with ex­pe­ri­ence or knowl­edge of the AML sys­tem.

The ques­tion is to what ex­tent does the FIC and in­deed Trea­sury, in their par­tic­i­pa­tion in FATF and re­sponses to fol­low-up re­ports to the 40 + 9 rec­om­men­da­tions men­tioned above, en­com­pass other gov­ern­ment de­part­ments, the crim­i­nal jus­tice sys­tem and law en­force­ment?

Trea­sury may best em­u­late the OECD process which has an ex­ec­u­tive man­age­ment com­mit­tee com­pris­ing di­rec­tors general or their del­e­gated rep­re­sen­ta­tives of the de­part­ments rep­re­sented in the struc­ture and an op­er­a­tional man­age­ment com­mit­tee that takes de­ci­sions re­gard­ing the in­ves­ti­ga­tion and pros­e­cu­tion of cor­rup­tion of­fences.

All de­ci­sions re­lat­ing to the in­ves­ti­ga­tion and pros­e­cu­tion of the OECD of­fences also take place un­der the aus­pices of the ACTT op­er­a­tional man­age­ment com­mit­tee. With­out prej­u­dic­ing the NPA’s and DPCI’s con­sti­tu­tional obli­ga­tion to per­form their du­ties with­out fear, favour or prej­u­dice, all de­ci­sions are col­lec­tive.

FATF also states that “coun­tries are free to im­ple­ment the de­tails of the rec­om­men­da­tions in the man­ner they choose, in or­der to fit them into their own con­sti­tu­tional frame­works. De­spite not be­ing bind­ing, many coun­tries have cho­sen to make a com­mit­ment to im­ple­ment them in or­der to com­bat money laun­der­ing.

“Global Wit­ness rec­om­men­da­tion: As­ses­sors should seek in­put from a broad range of stake­hold­ers on the im­ple­men­ta­tion and ef­fec­tive­ness of a coun­try’s AML sys­tem. This could in­clude busi­ness, civil so­ci­ety, par­lia­men­tar­i­ans, aca­demics, jour­nal­ists, other ju­ris­dic­tions and other peo­ple with ex­pe­ri­ence or knowl­edge of the AML sys­tem.”

Why is the FIC Amend­ment Bill ig­nor­ing this ad­vice?

A del­e­ga­tion from the BBC met with the As­so­ci­a­tion for Sav­ings and In­vest­ment South Africa (ASISA) where it was agreed we con­vene a work­shop on the FIC Amend­ment Bill to dis­cuss BBC con­cerns and how these con­cerns can be re­solved.

The work­shop took place and in­cluded the South African Re­serve Bank, Trea­sury, the Bank­ing As­so­ci­a­tion of South Africa and the Fi­nan­cial In­tel­li­gence Cen­tre (FIC). Naidoo was part of this meet­ing. In its meet­ing, the BBC em­pha­sised its con­cerns:

“The pro­vi­sion in FIC Amend­ment Bill of Prom­i­nent Per­sons as de­fined, in­fringes on the rights of cit­i­zens as con­tained in Chap­ter 2 (Bill of Rights) of the con­sti­tu­tion, par­tic­u­larly sections 7, 8 , 9, 10, 12, 14, 18, 19, 21, 22, 25, 32, 33 and 34;

“The pro­vi­sion in (the) FIC Amend­ment Bill of Risk Man­age­ment and Com­pli­ance Pro­gramme as de­fined, vi­o­lates the con­sti­tu­tional right to due process and ef­fec­tively pre-au­tho­rises vi­o­la­tion of the es­tab­lished sacro­sanct le­gal prin­ci­ple of ‘Audi Al­teram Partem’.

“The pro­vi­sion (in the) FIC Amend­ment Bill of Risk Man­age­ment and Com­pli­ance fur­ther­more pre-au­tho­rises vi­o­la­tion of the Con­sti­tu­tion and the rule of law by trans­fer­ring crim­i­nal in­ves­tiga­tive, pros­e­cu­to­rial and ju­di­cial au­thor­ity from law en­force­ment agen­cies and the in­de­pen­dent ju­di­ciary into the hands of bank­ing and fi­nan­cial in­sti­tu­tions.”

Trea­sury ex­plained the process fol­lowed in pass­ing the FIC Am­mende­ment Bill. Un­for­tu­nately we could not agree on a com­mon ground to re­solve the is­sue and we will all be ap­pear­ing be­fore the stand­ing com­mit­tee on Jan­uary 25. We will con­tinue to lobby our mem­bers of par­lia­ment from all the par­ties that they do not turn par­lia­ment into a court of law that will re­quire de­ci­sions based on le­gal opin­ions but on vot­ers’ le­git­i­mate con­cerns based on the con­sti­tu­tion.

In­stead of writ­ing af­fi­davits in sup­port of Gord­han, Naidoo should fo­cus his en­ergy on pro­tect­ing the South African fi­nan­cial sys­tem sim­i­lar to what US and Swiss reg­u­la­tors did in De­cem­ber 2016.

US reg­u­la­tors fined Gold­man Sachs $120 mil­lion for at­tempt­ing to ma­nip­u­late a widely used global in­ter­est rate bench­mark to ben­e­fit its trad­ing po­si­tions. The Swiss Com­pe­ti­tion Com­mis­sion also hit eight large global banks, which in­cluded Bar­clays, Cit­i­group and JPMor­gan Chase, a to­tal fine of nearly $100m for rig­ging in­ter­na­tional rates.

Gov­ern­ment’s first task may be to in­ves­ti­gate the ut­ter­ances of Lau­rie Diepe­naar who pub­licly stated that whether the FIC Amend­ment Bill is en­acted or not, FNB is go­ing to im­ple­ment it.

The FATF’s ple­nary year be­gins in July and ends in June. Korea is cur­rently hold­ing the pres­i­dency dur­ing this ple­nary year. Dur­ing a ple­nary year, the FATF holds three ple­nary meet­ings, a meet­ing of ex­perts on ty­polo­gies and, de­pend­ing on the fo­cus of cur­rent work, in­ter-ses­sional meet­ings and meet­ings of var­i­ous ad hoc groups. The ple­nary meet­ings usu­ally take place in Fe­bru­ary, June and Oc­to­ber of each year.

All of these meet­ings are only open to del­e­ga­tions from FATF mem­bers, observer ju­ris­dic­tions and observer or­gan­i­sa­tions. They are not open to the pub­lic. The ques­tion is who will con­sti­tute the South African del­e­ga­tion and do they in­clude other gov­ern­ment de­part­ments in ad­di­tion to Trea­sury, su­per­vi­sors, law en­force­ment and fi­nan­cial in­sti­tu­tions?

The struc­ture of South Africa’s del­e­ga­tion to the Fe­bru­ary 2017 FATF Ple­nary and the al­lo­ca­tion of roles and re­spon­si­bil­i­ties to sup­port that team, needs rapid res­o­lu­tion. Zuma must en­sure that the work­ing meth­ods, which en­able the team in Trea­sury and other gov­ern­ment de­part­ments to func­tion seam­lessly, must also be strength­ened.

The del­e­ga­tion has enough time to en­gage with FATF be­cause the fourth round mu­tual eval­u­a­tion of South Africa by the joint FATF/ESAAMLG mu­tual eval­u­a­tion of South Africa on­site visit is in Oc­to­ber or Novem­ber 2019 and the ple­nary dis­cus­sion in June 2020.

So what is the hurry?

The FIC Amend­ment Bill… (trans­fers) crim­i­nal in­ves­tiga­tive, pros­e­cu­to­rial and ju­di­cial au­thor­ity… into the hands of bank­ing… in­sti­tu­tions

Sello Rasethaba is chair­man of the Black Busi­ness Coun­cil and serves on the Brics Busi­ness Coun­cil fi­nan­cial ser­vices work­ing group, cur­rently work­ing on the Brics Rat­ings Agency.

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