General Laws (Anti-Money Laundering and Combating Terrorism Financing) Amendment Bill: National Treasury response to public submissions

Meeting report

National Treasury and FIC responses to submissions on General Laws Amendment Bill

Mr Vukile Davidson, Chief Director: Financial Sector Policy, National Treasury (NT), and Ms Jeannine Bednar-Giyose, Director: Fiscal and Intergovernmental Legislation, NT, presented to the Committee on the responses to the General Laws (Anti-Money Laundering and Combating of Terrorism Financing Amendment Bill) by the NT and the Financial Intelligence Centre (FIC).

(Please refer to attached for details)

The Chairperson said the Committee would look at some of the slides when it did the clause-by-clause consideration.

Legal advice on constitutionality issues raised in public hearings

Adv Frank Jenkins, Senior Parliamentary Legal Adviser, presented the legal opinion and said two issues had been prominent in the public hearings. These were public participation and the constitutionality of certain clauses that affected the non-governmental organisation (NGO) sector.

He said he was not there to argue a certain narrative to the Committee, but was there to assist it.

Public involvement/participation

On public involvement/participation, he referred to paragraph 4, and said there must be facilitation of public involvement in its various forms. There must be a reasonable opportunity for all interested parties to know the issues in the Bill and have adequate input.

Paragraph 5 dealt with a reasonable opportunity for people to participate properly, and to empower people, such as giving them copies of the Bill in the language they wanted, and then checking the interest and impact on a defined group. For example, the South African Veterinary Association (SAVA) case had a bill which created certain obligations for medical practitioners and certain medicines used by veterinarians. They had not had an opportunity to contribute, rendering the Bill unconstitutional.

There was another case -- Matatiele Municipality versus the President of South Africa -- where public hearings were hot held.

There had been vibrant discussion, which had resulted in the B version of the Bill currently before the Committee. The public participation exercise was not unreasonable, as there had been meaningful dialogue to come up with the B bill. The public participation process was not lacking; in his view, quite sufficient public participation had taken place. The process was not unreasonable and no one was prevented from participating or making submissions.

Constitutionality

The Rex vs Oaks case started with a two-step approach, looking at whether there was a constitutional limitation and if this was justifiable and reasonable, and justifiable in an open and democratic society. Stakeholders had focused on the last two issues in Section 36, which was on the balance of issues and proportionality.

The B version addresses the deeming provision once an NPO applies to be registered. One was deemed to be registered upon application. The other issue related to the B bill allowing the directorate to delegate administrative functions to another organisation to assist it.

Adv Jenkins concluded that he did not share the view that the Bill was unconstitutional. The argument that it was unconstitutional could be scaled down, as the Committee could have allowed more time for public hearings. He could not answer whether it would have changed the quality of the input.

He agreed with the opinion submitted by National Treasury that the Bill was constitutional.

The Chairperson emphasised that no one was biased in the support staff, and that independent ethics were involved. Adv Jenkins, the Content Advisor and the Research Unit were not political functionaries, and the organisations could disagree with their opinion.

Summary of General Laws Amendment Bill

The Chairperson took the Committee through a brief summary of the proposals outlined in the GLAB, and the key issues emanating from public hearings.

(See document for details).

The issues were that the Bill was not sufficiently clear on:

• The definition of beneficial ownership and making beneficial ownership registers available to the public;
• The inappropriateness of the Department of Social Development (DSD) to accommodate the non-profit directorate;
• Lack of public participation in the legislative process;
• The constitutionality of the amendments to the Non-Profit Organisations (NPO) Act;
• The irreconcilability between the General Laws Amendment Bill and the Draft NPO Amendment Bill; and
• The administrative capacity of the DSD.

Civil Society stakeholders' comments

NPO Working Group

Ms Nicole Copley, NPO Working Group, submitted to the Committee that the detail in Treasury’s constraints was simply modifying. There was a need for separate registration of NPOs that were at risk. She suggested that there should be a separate identification marker for NPOs who were thought to be at risk so that there was separate and specific surveillance. This was because many of these NPOs may already be registered.

Ms Ann Bown, also from the NPO Working Group, said her concern was the capacity of DSD.

Helen Suzman Foundation

Mr Anton van Dalsen, Counsellor, Helen Suzman Foundation, was concerned about whether the registration requirements and its mechanism to regulate NPOs would be able to perform their intended function, given the lack of resources of the DSD. The comment in the Financial Action Task Force (FATF) report from October 2021 stated that South Africa did not have the capacity to monitor NPOs that were identified to be at risk of terrorist financing abuse. The Foundation wished to support the proposal made to use FICA as a mechanism by requiring the relevant NPOs to be reporting institutions to FICA. It was not best to have two different departments regulating NPOs, but it was important to note that the FIC did not regulate institutions, but it was there to step into an area fraught with many issues. For example, banks were not regulated by the FIC, but rather by the Banks Act and the Reserve Bank. To say that the FIC could not be looking at specific aspects of NPOs did not hold any water at all. Should the FIC not only be a regulating Department, but also be given the powers to step in where necessary?

Ms Chelsea Ramsden, Legal Researcher, Helen Suzman Foundation, said she was concerned about the deeming provision and that it would not achieve its purpose of monitoring and investigating NPOs. This would not force NPOs to become compliant.

Cause for Justice

Ms Liesl Pretorius, Legal Adviser, Cause for Justice, said the organisation had noted the Parliamentary Legal Services' opinion, and that it was not ignorant of the opportunity for participation that had been provided to the organisation. She said the organisation raised three concerns relating to the appropriateness, constitutional feasibility on risk, and the capacity of the directorate for identifying and regulating money laundering and terrorism financing. It also questioned what the prescribed minimum sanctions would entail. It had noted the response from the Committee and the National Treasury, and would consider this carefully. The organisation emphasised the importance of the entity which would oversee compliance, to do so effectively. The entity recognised strides made in the Bill.

COSATU

Mr Matthew Parks, Parliamentary Liaison Officer,   Congress of South African Trade Unions (COSATU), said it supported the Bill in the context of "state capture" and the private organisations which had been allowed to get away with murder. COSATU’s critical concerns were around business ownership, the definitions, and the access of the public to information and politically influential persons. It was pleased with the responses, but emphasised the concern about public access to information. The law must be enforced and not be good only on paper.

COSATU supported the Bill’s passage, but the timeframes for public participation were not ideal. However, he thought this had been made up for with the amendments. The interest of the public must be protected and safeguarded against corruption.
Discussion

Mr D Ryder (DA, Gauteng) said he wanted to be a bit critical of Treasury. He had raised the proposal on reporting and accountable institutions, and the difference between them. He said this had been lost in the presentation. He did not think there had been a good response to this. Therefore, Mr Van Dalsen’s example of the FIC having oversight was important, as it had been a heavy-handed knee-jerk reaction. There had been a big drop from over 250 000 registered NPOs in SA, and 10 000 would be under the microscope. The DSD did not have the capacity to monitor and register 10 000 entities, given the paperwork required. The process would set South Africa up for failure, and the Bill would be counter-productive -- there were still too many hurdles to jump through. There were 250 000 interested and affected parties, and there was such a short space of time which was problematic, as there was no umbrella body or official spokesperson for NPOs in South Africa. He said it had been a great presentation and a job well done today, but he remained concerned.

The Chairperson said the Committee deeply regretted the limited space of time for civil society to participate, and had expressed its unhappiness with National Treasury.

The Chairperson said he read Jeremy Gauntlett’s input, and looking at the Mutual Evaluation Report, five different departments and entities had been consulted on this. There was more openness on this Bill, and one should be more understanding. A former Member of Parliament (MP) had contacted him to reflect more on public participation issues. The Bill was necessary, public participation was important, and the context needed to be considered, as well as how Parliament processed the Bill.

He said stakeholders were free to attend all the Committee’s meetings on the Bill. He asked whether civil society wanted to have more engagement on the legal issues surrounding the Bill, or on public participation. He believed civil society had had a very huge influence on the Bill, based on the pressure from them. It could be put in the report that the Bill had to be reviewed in a year, with input from civil society, as well as to check whether the capacity of the state had been implemented. He thought civil society had been quite conciliatory, and people could still write to the Committee on the Bill. He said civil society had to take to the streets and use their power to mobilise on social media. It had to express collective power. Civil society was saying South Africa was a very weak state.

He reminded the Committee that there needed to be a programme of action. He said the Committee was also concerned about NPOs being able to register, as well as the capacity of the DSD. He was not convinced about the conflict, but recommended that National Treasury ensure that the contradictions between the current and previous Bill be addressed, and that it report back to the Committee. Civil society would also be informed of this.

The Chairperson asked National Treasury to explain how onerous registration was, and if the NPOs could be fined so that smaller NPOs did not have to bear a huge administrative financial burden. What would this financial burden be? He asked if it was true that the religious sector made the most contributions, given the issues surrounding combatting terrorism and the distribution of funds to organisations hell-bent on destroying democratic societies. He asked for clarity on the role of the FIC.

He asked for a one-page report, with bullet points on the changes that civil society would like to see, and for the stakeholders in the meeting to collaborate on this for the Committee’s consideration. He asked for a collective report, or separate reports, on issues still of concern to stakeholders.

National Treasury's response

Mr Davidson said he agreed with the Chairperson’s assessment -- the engagements had been constructive and empowering. He welcomed the additional oversight for implementing the law effectively. The process did not rely simply on the passage of the law, but the outcomes must be met. Additional detail would be provided on transparency and sharing information to allow the public to engage effectively and have a meaningful understanding of beneficial ownership in South Africa. Regarding the capacity of National Treasury, he said it had been in close engagement with the DSD. The Department was also engaging on budgets, and ensuring that there was alignment.

FIC

Mr Pieter Alberts, Acting Executive Manager, FIC, said the context of amendments was important for the Act. The FIC worked from the assumption that NPOs were credible and reliable organisations which performed good work and were necessary in our society. The FIC did not approach this, assuming NPOs were positioning themselves in a way to be set up for reviews or as conduits for terrorist organisations. The requirements of a reporting institution on the FIC Act were very narrow. Large cash transactions must be reported between the institution and its customers. This would also apply to NPOs. To enable this type of reporting, institutions must register with the FIC. NPOs did not have customers, thus it must be considered what it would report on.

The FIC's concern was not who donated to NPOs, but rather that the NPO avoided being exploited as a conduit for terrorist organisations and for nefarious purposes, using NPOs as a front. It would be very difficult to apply the reporting paradigm to an NPO. The objective they had to achieve was to have certainty that governance principles would be applied with NPOs, and that they would be managed and governed according to good practices, such as sound financial operations.

On supervision and regulation, the FIC sets expectations and norms through the guidance it issues. Supervisors such as provincial authorities would monitor compliance with these expectations. Sanctions were imposed on banks when they did not comply, so oversight and accountability went hand in hand. There was a supervisor, such as the DSD Directorate for NPOs, so it was inappropriate for the FIC to step in here, as this fell outside of its mandate.

Registration required supplying certain information prescribed in the NPO Act -- supplying its constitution and identifying the persons involved. There were very few discretionary powers, and no financial implications were involved in submitting an application and getting registered. The registered organisation must exercise good practice, report on its financials and generate information on its financial reporting in the form of annual reports. Such transparency and governance principles would protect organisations from exploitation. The purpose of an organisation should be determined by the activity it performs and whether it would be required to be supervised according to the NPO Act.

It was an international phenomenon that an organisation purports to have a religious purpose and uses this as a pretence to raise funds. It was then diverted to terrorist organisations. South Africa did not have the legal capacity to oversee this.

Comments from civil society stakeholders

NPO Working Group

Ms Copley said discussions had taken place in civil society forums on rioting and demonstrations, and many wanted to do this.

The Chairperson said not rioting, but demonstrations.

She said everyone was on the same page, and the NPO sector would be the first and hardest hit by any grey-listing. NPO registration was not appropriate for all NPOs, and would be burdensome. The burden came from the ineffective administration of the DSD, as the registration did not lead to any meaningful oversight and was a tick box, surface-level compliance, and was very easy to fake. There had been confusion about what the governance regulatory framework was trying to achieve.

Helen Suzman Foundation

Mr Van Dalen said that given the circumstances, public participation was not something the organisation wanted to take any further. On the supervisory function, option A was to create a new department in DSD in which they had no experience or expertise, or adjust the legal framework of the FIC to use the reporting institution mechanism to make an appropriate legal adjustment. There were only two clients with the FIC, which were car dealers and Kruger Rand dealers. The issue was that the FIC had to supervise only NPOs who made substantial foreign payments. This was something the FIC had the necessary experience and expertise to work with.

Cause for Justice

Ms Pretorius said Cause for Justice did not have any further comments, and thanked the Committee. It would not take the issue of public participation any further.  

COSATU

Mr Parks said COSATU was concerned about the beneficial ownership, but that it had been a positive process overall. Oversight and accountability must be enhanced, including minimising corruption. COSATU was pleased that National Treasury had addressed these concerns. It was now about getting the Bill passed into law and avoiding grey listing.

Chairperson's concluding remarks

The Chairperson said taking to the streets was not a populist statement, but a strong civil society was needed. NPOs must continue to do their work and hound government when it does the wrong things, but also support it when it does the right things, particularly in service of the poor and disadvantaged. Civil society would help to rescue democracy, as one could not rely on the state or any political party alone. The individuals would bear this burden, and the masses must secure the democracy which the ANC had led them to. There must be a cooperative, competitive and contested relationship between government, Parliament and civil society. Every person, despite their background, had the right to be represented. He said MP’s did not sit in a bubble -- they were also affected when there was load shedding or water cuts. He said MP’s were acutely and excruciatingly aware of the weaknesses of the state.

He asked civil society to respond to the Committee by 5pm on Monday, 28 November, on the issues it wanted to see further consideration on, and to suggest ways to increase the state's capacity on the Bill. The Committee may be able to incorporate these proposals into its recommendations.

The Committee reiterated its view that National Treasury must include a programme of action on the practicalities or feasibility of implementing the Bill. The Committee felt strongly that the Bill must be implemented. If it did not implement this, it would become a farce and it would seem as though they had simply gone through the motions. He implored the National Treasury to implement the Bill and allow the Committee to perform its oversight function.

The Chairperson made brief closing remarks and thanked all present in the meeting.

The Committee would meet again on Tuesday, 29 November.

The meeting was adjourned.