Banking Council South Africa

With reference to the draft Prevention of Organised Crime Bill sent to us for comment under Department of Justice letter 8/6/Straf/1(WA), of 31 July 1998, we would make the following general and specific comments for consideration in improving the Bill and making it more workable.

1. General Comments:
1.1 We welcome the Bill as another in the process of fighting crime, and in particular of reinforcing the maxim that "crime does not pay."

1.2 Similarly, we welcome the amendments to the Proceeds of Crime Act, to improve the scope and implementation of the Act.

1.3 The specific comments below do not highlight spelling or grammatical errors, unless the error has contextual implications.

2. Specific Comments:
2.1 Introduction to the Bill:
The first paragraph of the introduction of the Bill (page 2) refers to "the civil forfeiture of criminal assets". However, 2 headings in Chapter 2 refer to "Criminal forfeiture". Clarity is required.

2.2 Section 1 Definitions:
The definition for "proceeds of unlawful activities" is very wide covering "any unlawful activity". This should cover deficiencies in the Proceeds of Crime Act where, for example, tax evasion cannot easily be addressed. However, it is unclear whether this will be prosecutable, given section 2(3)(b) which specifies that it must be "an organised crime" which is currently undefined.

2.3 Section 2(1):
As currently worded this section states that "any person who –
receives or retains any property…….
knows or ought reasonably to have known….
uses or invests……"

property "from a pattern of illegal conduct" is guilty of an offence.

This could easily apply to the normal commercial activities of a bank. The question is what should the bank do under these circumstances? Stop the transactions which would warn the criminals? Repay deposits?

It is recommended that, similar to equivalent provisions in the Proceeds of Crime Act, Section 2(1) be amended by including the following section:

"(iv) Where this section relates to the normal commercial activities of a bank registered in terms of the Banks Act 1990, it shall be a defence to a charge that the accused had reported the facts and suspicions as required under section 31 of the Proceeds of Crime Act 1996."

2.4 Section 2(3)(b)(ii):
There is no definition in the Bill for "organised crime." Given the key significance of this concept in the triggering of prosecutions under this Bill, it is recommended that an appropriate definition be included.

2.5 Section 5(4):
This section makes provision for serving of summons according to the procedure used for civil action in a Magistrate's court. Given the focus of this Bill on "organised" crime, and in particular gang activities, this section could pose certain challenges for messengers of the court. Provision should therefore be made to permit summons to be served by a policeman if the circumstances warrant it.

2.6 Section 18(4):
The constitutionality of this section needs to be considered. As it stands, it allows for a forfeiture order to survive the overturning of the conviction (presumably by a higher court) which presumably underpins it. This could constitute "legal theft" by the state.

2.7 Section 20 (1):
It generally takes 2 weeks (14 days) for posted Government Gazettes to reach parties. The section only provides for a 30 day period within which to apply to the court. It is recommended that the "30" be deleted and replaced with "60" to allow affected innocent parties sufficient time to act to protect their interests.

2.8 Section 23(1):
It would appear that the reference should be to "section 19(2)" and not "19(2)(a)", which would be unduly prejudicial to innocent parties.

2.9 Section 26(1):
Presumably this section should read "or any person authorised by them in writing for this purpose" to ensure that proper procedures are adhered to.

2.10 Section 26(2):
It is unclear exactly what this section refers to. Clarity is required as to the scope of its content.

2.11 Section 26(4)(a):
Presumably this should refer to "without the written permission of the National Director."

2.12 Section 28 (Sharing of Information):
It is recommended that the words "notwithstanding the provisions of section 4 of the Income Tax Act and with regard to any other secrecy provisions in similar fiscal legislation" be added to the end of this section. This would then cover other Acts such as the VAT Act, etc., administered by the South African Revenue Services.

2.13 Section 28 (Application of Chapter to deceased persons):
The numbering of the Bill is faulty in that there are 2 sections 28's.

Section 36:
This section imposes impossible conflicts of interest on the board in terms of disbursing monies from the Fund. How does the board decide between requests from law enforcement agencies (section 36(b)) which are chronically under-funded, victims (section 36(c)) who are financially disadvantaged or counselling organisations (section 36(d))?

It is recommended that subsections (c) and (d) be deleted, and that the Fund only be utilised by law enforcement agencies in the fight against crime. This has the added benefit of reinforcing the positive behaviour of these agencies – i.e. the more proceeds of crime they identify and confiscate, the more funds they get to identify, prosecute and confiscate more proceeds of crime/criminal activities.

2.14 Section 42(1):
The references should read 41(1)(a)(b)(c)(d) or (e):

2.15 Schedule 4 Section 13(a) and (b):
This section amends section 31(1) of the Proceeds of Crime Act. The following points need to be noted.

2.15.1 It retains the restrictive and unclear wording "Any person who carries on a business or is in charge of a business….." This excludes most people from an obligation to identify and then report suspicious transactions. It is again recommended that the words "carries on a business or is in charge of a business undertaking who" be deleted.

2.15.2 The proposed amendment introduces a requirement that the suspicion and "all available information concerning the grounds on which it rests" be reported. New subsection 1(A) specifies that copies must be submitted and new subsections 1(B) and 1(C) provide for additional information and/or copies to be made available. This information could comprise a considerable number of copies, requiring considerable work by the reporting institution. Who is liable for these costs?

It is recommended that a new subsection 1(D) be added:

"1(D) A reasonable charge may be made by the reporting institution or person to recoup the costs associated with providing the information and copies required under this section."

2.16 Schedule 4 Section 13(e):
The inclusion of new section 31(4) into the Proceeds of Crime Act is essential to allow the normal flow of commercial transactions to take place. The emphasis is on criminal intelligence gained from the analysis of suspicious reports. Where the authorities wish a transaction to be halted and assets frozen they have the powers in terms of both the Proceeds of Crime Act and the proposed Prevention of Organised Crime Bill to give those instructions and impose restraining orders.

This amendment brings the Act more into line with equivalent legislation in foreign jurisdictions.

2.17 Schedule 4 Section 15:
This new section 32A of the Proceeds of Crime Act is an attempt by the drafters to introduce greater "certainty" into the legislation concerning the "knows or ought reasonably to have known" requirements. However, several practical problems associated with this section need to be considered:

2.17.1 Section 32A(1)(b)(ii):
This subsection introduces the condition whereby a person with a reasonable suspicion about a fact "fails to obtain information to confirm the existence of that fact". This has the danger of being seen to enforce a legislated obligation on a person to carry out an investigation to confirm (or deny) a suspicion. This could "tip" the criminal or money launderer off, and scare him or her into flight. It can also not be expected that the person with the suspicion do any investigation beyond the reasonable requirements of his or her business transactions (e.g. verifying identity).

In order to further enhance the clarity being sought by the introduction of section 32A, it is recommended that subsection 32(A)(1)(b)(ii) be amended by the addition of the following words:

"(ii) he or she fails to obtain information within the normal reasonable course of his or her business transactions to confirm the existence of that fact."

2.17.2 Section 32(A)(2):
This subsection attempts to clarify how a person reaches conclusions, based on "a reasonably diligent and vigilant person having both -

"(a) the general knowledge, skill, training and experience that may reasonably be expected of a person in his or her position, and

"(b) the general knowledge, skill, training and experience that he or she in fact has."

This introduces subjective and objective tests, and is to be welcomed. A concern, however, (and one which is based on long experience in the banking sector where the courts have imposed a high expectation and standard of care on, in particular, counter staff such as cashiers) is a wide difference between these two requirements. Expectations are invariably considerably higher than the reality, especially given the legacy of the South African education and training system.

Money laundering is a particularly complex financial process, and all staff, at all levels of an organisation, require extensive and ongoing training to sensitise them to identifying suspicious transactions. However, this investment in training (development of the training material, training of hundreds of thousands of employees on an ongoing basis) can only be done
once final money laundering control legislation and regulation is in place.

It is therefore recommended that the implementation of this section be done with care.

2.18 Schedule 4 Section 15:
We welcome the introduction of new section 32 B into the Proceeds of Crime Act, as it brings the Act more into line with international equivalents. This will allow for the normal flow of commercial transactions, prevent the "tipping off" of launderers or criminals by the stopping of their transactions, and focus the authorities on intelligence gathering and analysis. Where the authorities wish to stop a transaction or freeze certain assets, they have the power to do so.

2.19 Schedule 4:
Given the long delays in processing current court cases, we believe that a new section be added to the Proceeds of Crime Act identical to section 30 of the Prevention of Organised Crime Bill, titled "Expedition of actions." This section would allow prioritisation of court actions under the Proceeds of Crime Act as well.

We welcome this Bill, and in particular the improvements to the Proceeds of Crime Act. We trust that the comments above will assist in making the two pieces of legislation even more workable "on the ground", and are available to discuss any of the issues raised in person should this be necessary.

General Manager
31 August 1998