Legislation drafted in January gives authorities the means to crack down on organised crime
Judith February
A new Bill to combat money laundering, the Financial Intelligence Centre Bill, is a subject of deliberations in the portfolio committees of finance, justice and constitutional development.
The Bill seeks to address administrative and procedural defaults in the The Prevention of Organised Crime Act of 1998 which was introduced as a result of the opening up of South Africa’s borders in the early 1990s, the increasing movement of people and increase in organised crime.
The police and criminal justice system estimate that $20-billion is laundered in South Africa each year. Money laundering is described as “the manipulation of illegally acquired wealth and its conversion to legitimate funds”. This so-called “dirty money” has its origins in smuggling, the drug trade and various other forms of racketeering.
To date it has been difficult for the authorities to control this scourge not a single prosecution has been effected. This has been attributed to a lack of administrative and procedural mechanisms within which the Act can, and should, operate. It therefore became imperative that a separate piece of legislation be introduced to create effective mechanisms within which the 1998 Act would operate.
To this end the minister of finance appointed a task team to review the appropriateness of a draft Bill of the South African Law Commission. The team drew expertise from the South African Reserve Bank, the South African Revenue Service and the South African Police Service. The process culminated in the drafting of the Financial Intelligence Centre Bill, tabled by Minister of Finance Trevor Manuel in January.
The Bill was also informed by the United Nations Convention Against Trans-national Organised Crime held in December last year. South Africa, as a signatory to this convention, was obliged to introduce legislation aimed at combating money laundering.
In the main the Bill seeks to place certain obligations on institutions that may be used as channels for money laundering, and it attempts to create an institutional framework for the effective implementation of legislation. More than that, the Bill complements other legislation, such as the Promotion of Access to Information Act and the Protected Disclosures Act, both of which aim to foster openness, accountability and transparency in the public and private sector.
The Bill requires specific financial institutions to combat money laundering from within their operations. Examples of “accountable institutions” include attorneys, estate agents, banks, investment brokers, public accountants, traders in financial instruments, management companies in terms of the Unit Trusts Control Act and those involved in the long-term or short-term insurance industry.
The obligations imposed on these institutions are threefold:
l The duty to identify clients. This so-called “know your client” duty compels institutions to take reasonable steps to establish the identity of a prospective client. Should the prospective client be acting on behalf of another person, it must be established whether the prospective client has the authority to establish such a business relationship on behalf of another.
l The duty to keep records. Records are to be kept by accountable institutions of the details of the business relationship since its inception, with details of all transactions concluded in terms of that relationship.
l The duty to report cash transactions and suspicious transactions. Accountable institutions will be compelled to report a transaction to the financial intelligence centre should it involve cash above a prescribed amount; or should an accountable institution suspect that as a result of a transaction concluded by it, it has received or is about to receive the proceeds of unlawful activities.
Although the Bill encourages voluntary compliance and self-regulation, there are explicit enforcement provisions backed by penal and administrative sanction. Accountable institutions accused of contravening provisions of the legis- lation are required to submit to an administrative enquiry process in exchange for indemnity from criminal prosecution.
Many institutions already have rules in place to deal with their new obligations. However, those not yet on board will soon be compelled to develop effective internal policies to ensure compliance with the new law.
The Bill also provides for a regulatory framework that allows for the establishment of a money laundering advice council and a financial intelligence centre. The council will advise the finance minister regarding general policy on money laundering. It will draw representation from financial institutions, the Office of the Public Prosecutor, the Ministry of Justice, the police and the revenue services. The Treasury will provide administrative support to the new agency.
The Financial Intelligence Centre, on the other hand, will coordinate policy and efforts to counter money laundering activities. It will not be an investigative body but will supervise compliance with the new legislation. An important feature of the centre is that it seeks to give guidance to institutions to combat money laundering. Funding will be obtained through the national budget.
Judith February is an attorney and legislation monitor at the Political Information and Monitoring Service at the Institute for Democracy in South Africa. She will conduct a workshop on the Financial Intelligence Centre Bill in Cape Town in August. Tel: (021) 461 2559 or e-mail [email protected]