20 January 2016 The Chairperson of the Standing Committee on Finance c/o The Committee Secretary Mr Allen Wicomb 3 rd floor 90 Plein Street CAPE TOWN 8000 Doc Ref: Your ref: Direct : (011) 645 6704 E- : casc@banking.org.za Attention: Allen Wicomb awicomb@parliament.gov.za Dear Mr Carrim SUBMISSIONS ON THE CONSTITUTIONALITY OF SECTION 45B(1C) OF FINANCIAL INTELLIGENCE CENTRE AMENDMENT BILL [B 33B 2015] ON WARRANTLESS SEARCHES INTRODUCTION 1 On 15 December 2016, the Standing Committee on Finance of the National Assembly ( the Committee ) published a notice inviting stakeholders and interested parties to submit written submissions on the President s referral back to the National Assembly of section 45B(1C) of the Financial Intelligence Centre Amendment Bill [B 33B 2015] ( the FIC Amendment Bill ) on warrantless searches. 2 One of the critical mandates of The Banking Association of South Africa ( BASA ) is contribute to the enablement of a conducive banking environment, of which combatting public and private sector corruption, money laundering and terrorism is an essential part. This Bill also has as its critical objective the combatting private and public sector corruption, money laundering and terrorism. It also facilitates the implementation of international agreements. BASA thus has a clear interest in the application of the FIC Amendment Bill, and its expeditious signing into law. Registration Number : 1992/001350/08 A non-profit company under the Companies Act 2008 Directors : Ms M Ramos (Chairman), C Coovadia (Managing), MWT Brown, JP Burger, GM Fourie, M Ismail, S Koseff, KR Kumbier, SK Tshabalala, VSK Khandelwal (Indian) Company Secretary : Ms BM Reyneke
Page 2 BASA thanks the Committee for the opportunity to make submissions on the President s referral back to the National Assembly of section 45B (1C) of the FIC Amendment Bill on warrantless searches. 3 In the notice, the Committee states that the submissions must be limited to the issue raised by the President in his letter referring the FIC Amendment Bill back to Parliament, namely that the section 45B(1C) dealing with warrantless searches is, in the President s view, unconstitutional. The notice also requires interested parties who have obtained legal opinion on this issue to submit the legal opinion to the Committee, together with that party s written submission. 4 Accordingly, these submissions only deal with the constitutionality of section 45B (1C) of the FIC Amendment Bill. 5 BASA obtained a legal opinion from Advocate Gilbert Marcus SC and Advocate Mkhululi Stubbs. As requested, a copy of this opinion is attached. BASA accepts the legal opinion from counsel. 6 BASA is of the view that section 45B (1C) is a proportionate and constitutionally valid provision. It therefore respectfully disagrees with the view expressed by the President regarding the constitutionality of section 45B (1C) of the Bill. 7 Our submission is structured as follows: 7.1 Background; 7.2 Substantive response to the constitutionality of section 45B (1C) of the FIC Amendment Bill; and 7.3 Conclusion. BACKGROUND 8 The FIC Amendment Bill was published and introduced to the National Assembly on 27 October 2015. The briefing on the FIC Amendment Bill was held in Parliament on 6 November 2015. Various interested parties and stakeholders made written submissions on the FIC Amendment Bill, which were submitted to Parliament. Public participation on the FIC Amendment Bill took place before the Committee on 11 November 2015, 2 and 3 February 2016 and 9 March 2016.
Page 3 9 As an interested party representing the banking sector, BASA made detailed written submissions to the Committee and participated in the public hearings before the Committee. 10 The Committee deliberated on the FIC Amendment Bill on 9 and 23 February 2016, 15 and 16 March 2016 and on 20 April 2016. The Committee adopted the FIC Amendment Bill on 26 April 2016. It was referred to the National Council of Provinces ( the NCOP ) on 18 May 2016. The NCOP adopted the Bill on 25 May 2016. 11 On 13 June 2016 the National Assembly submitted the FIC Amendment Bill to the President for assenting and signing. 12 Once a Bill, such as the FIC Amendment Bill, has been submitted to the President, section 79 of the Constitution permits him an election. He may both assent to and sign the Bill into law or he may refer it back to the National Assembly if he has reservations about the constitutionality of the Bill. 13 In this instance the President did not act for several months. This inaction resulted is significant uncertainty, including amongst critical global organisations, of which SA is a member, overseeing anti money laundering and terrorist funding regulation. An outcome of this was that the Council for the Advancement of the South African Constitution ( CASAC ) launched an application in the Constitutional Court, in which it sought: 13.1 a declaration that the President s failure to act constituted a failure to perform his constitutional obligations; and 13.2 an order that the President assent to and sign the FIC Amendment Bill within 10 days of the date of the Court s order; 13.3 alternatively, an order that, if the Court is satisfied that the President has reservations regarding the constitutionality of the Bill, refer the Bill back to Parliament within 10 days of the date of Court s order for reconsideration on the specific reservations. 14 On 28 November 2016, a day before he was required to deliver his answering affidavit in CASAC s application, the President made an election in terms of section 79(1) of the Constitution and chose not to assent to the FIC Amendment Bill.
Page 4 Instead he referred it back to the National Assembly for reconsideration on the basis that section 45B (1C) of the FIC Amendment Bill was overbroad and for that reason was likely to be unconstitutional. 15 The President, in his letter to the Speaker of the National Assembly referring the FIC Amendment Bill back to the National Assembly for reconsideration, expressed the view that the Bill was impermissibly overbroad and, for that reason, was likely to be unconstitutional. 1 In his letter, the President raises the following constitutional concerns: 15.1 he believes that section 45B (1C) of the FIC Amendment Bill is impermissibly overbroad; and 15.2 he believes that section 45B (1C) of the FIC Amendment Bill unjustifiably violates the right to privacy under section 14 of the Constitution. 16 We respectfully disagree with the view expressed by the President. To this end, we record our submissions below. Provisions of section 45B of the FIC Amendment Bill 17 While the President s central focus in his letter referring the FIC Amendment Bill back to the National Assembly is section 45B (1C), BASA believes that it is important to read the proposed section 45B (1C) within the context of the provision where the it is located i.e. section 45B, so that the interpretation of section 45B (1C) can be properly contextualised. 18 The proposed section 45B of the FIC Amendment Bill provides: (1A) An inspector appointed in terms of section 45A may, for the purpose of determining compliance with this Act or any order, determination or directive made in terms of this Act, and on the authority of a warrant issued under subsection (1B), enter (a) a private residence; or (b) any premises other than premises contemplated in subsection (1), if the Centre or, when acting in terms of section 45(1), the supervisory body, as the case may be, reasonably believes that the residence or premises are used for a business to which the provisions of this Act apply. 1 Paragraph 7 of the President s Letter of Referral
Page 5 (1B) A magistrate or judge may issue a warrant contemplated in subsection (1A)- (a) on written application by the Centre or a supervisory body setting out under oath or affirmation why it is necessary for an inspector to have access to the premises; and (b) if it appears to the magistrate or judge from the information under oath or affirmation that- (i) (ii) (iii) there are reasonable grounds for suspecting that an act of noncompliance has occurred; entry to the residence or premises is likely to yield information pertaining to the non-compliance; and entry to the residence or premises is reasonably necessary for the purposes of this Act. (1C) An inspector otherwise required to obtain a warrant under subsection (1B) may enter any premises without a warrant- (a) with the consent of the owner or a person apparently in physical control of the premises after that owner or person was informed that he or she is under no obligation to admit the inspector in the absence of a warrant; or (b) if the inspector on reasonable grounds believes that- (i) (ii) a warrant will be issued under subsection (1B) if the inspector applied for it; and the delay in obtaining the warrant is likely to defeat the purpose for which the inspector seeks to enter the premises. (1D) Where an inspector enters premises without a warrant, he or she must do so- (a) at a reasonable time; (b) on reasonable notice, where appropriate; and (c) with strict regard to decency and good order, including to a person s right to- (i) (ii) (iii) respect for and the protection of dignity freedom and security; and personal privacy. (Our emphasis) 19 Properly contextualised, the salient features of the regime contemplated under section 45B of the FIC Amendment Bill are as follows: 19.1 An inspector appointed in terms of section 45A must obtain a warrant to enter a private residence or any premise other than a private residence. A warrant will only be issued by a magistrate or judge where it appears from the information under oath or affirmation that the following requirements are satisfied:
Page 6 19.1.1 there are reasonable grounds for suspecting that an act of non- compliance has occurred; 19.1.2 entry to the residence or premises is likely to yield information pertaining to the non-compliance; and 19.1.3 entry to the residence or premises is reasonably necessary for the purposes of the Act. 19.2 An inspector may only enter premises without a warrant where one of two alternatives is satisfied: 19.2.1 an owner consents to a search, after he or she is informed that there is no obligation to admit the inspector in the absence of a warrant; or 19.2.2 the inspector on reasonable grounds believes that a warrant will be issued if applied for and that the delay in obtaining the warrant would likely defeat the purpose for which the inspector seeks to enter the premises. 19.3 In addition to these stringent requirements, the searches must be conducted- 19.3.1 at a reasonable time; 19.3.2 on reasonable notice, where appropriate; and 19.3.3 with strict regard to decency and good order, including to a person s right to 19.3.3.1. respect for and the protection of dignity; 19.3.3.2. freedom and security and 19.3.3.3. personal privacy.
Page 7 20 Therefore, when determining whether or not the section 45B (1C) is constitutional, the entire framework for searches created by section 45B must be taken into account. 21 This proposed amendment of section 45B is as a result of the decision of the Constitutional Court in Estate Agency Affairs Board v Auction Alliance (Pty) Ltd 2 where the Constitutional Court held that: in starting from the premise that no searches need warrants, section 45B goes too far. Without modulation, that premise cannot be constitutionally acceptable. The possibility of less restrictive means should be considered. It follows that the High Court s conclusion that the provisions must be declared incompatible with the Constitution and therefore invalid was correct. 22 The Constitutional Court suspended the order of invalidity of section 45B to give Parliament an opportunity to amend the provision, which it did through the FIC Amendment Bill. The Constitutional Court also ordered that during the period of suspension, section 45B (1) of FICA be read as provided in paragraph 6 of the order. The effect of the Court s reading in order is that it provided for circumstances where an inspector could enter and search with a warrant and circumstances where an inspector could enter and search without a warrant in effect confirming that warrantless searches are not per se unconstitutional. SUBSTANTIVE RESPONSE TO THE CONSTITUTIONALITY OF SECTION 45B (1C) 23 BASA submits that the provisions of section 45B (1C) are proportionate and constitutionally valid. Below, we deal with the two concerns raised by the President. The overbreadth concern 24 BASA is of the view that the President does not purport to raise a constitutional concern as to the overbreadth of section 45B (1C) of the FIC Amendment Bill that is self-standing in nature. The President does not appear to contend that the provisions of section 45B (1C) of the FIC Amendment Bill can be declared unconstitutional solely because it is overbroad. However, if BASA is mistaken and the President s concern is that section 45B (1C) is unconstitutional solely on the basis that it is overbroad, BASA submits that such contention is misconceived. 2 2014 (3) SA 106 (CC)
Page 8 This is because a challenge to legislation on the basis that it is overbroad is in essence a challenge that a legitimate government purpose served by the legislation could be achieved by less restrictive means. In this regard, BASA refers to the Constitutional Court judgment in Savoi and Others v National Director of Public Prosecutions and Another in which the Court held that:3 Placing reliance on the judgment of Mokgoro J in Case, the applicants then contend that the definition of enterprise and section 2(1), to the extent that some offences created by it are pegged on that definition, are unconstitutional. This argument is misconceived. In our constitutional jurisprudence, overbreadth is not a self-standing ground of statutory constitutional invalidity. It comes into the equation in the justification analysis in terms of section 36(1) of the Constitution once a law of general application has been found to limit a right in the Bill of Rights. 4 (Our emphasis) Whether section 45B (1C) of the Bill is unconstitutional 25 BASA submits that section 45B (1C) is not unconstitutional. 26 The power provided for by section 45B(1C) of the FIC Amendment Bill, permitting an inspector to enter a private residence or any other premises for the purpose of determining compliance with FICA, limits the right to privacy protected by section 14 of the Constitution. 27 However, the fact that the impugned provision limits the right to privacy does not, per se, render the provision unconstitutional. Like all rights in the Bill of Rights, the right to privacy is not absolute. The Constitutional Court has repeatedly held that the limitation of a constitutional right may, in appropriate circumstances, be justified, provided that it meets the requirements set out under section 36 of the Constitution. In Magajane, the Constitutional Court held that: The limitation analysis in terms of section 36 involves a proportionality review. A court has to consider an applicant s expectation of privacy and the breadth of the legislation, among other considerations. The expectation of privacy will be more attenuated the more the business is public, closely regulated and potentially hazardous to the public. Legislation may not be so broad as to have the real potential to reach into private homes. In assessing whether legislation could have achieved its desired ends through less damaging means, a court will determine whether the legislation could have required a warrant, and a court will consider whether a warrant requirement would frustrate the state s regulatory objectives and whether in the absence of a warrant the legislation provides sufficient guidance to 3 Savoi and Others v National Director of Public Prosecutions and Another 2014 (5) SA 317 (CC) at para 31. 4 Ibid
Page 9 inspectors as to the limits of the inspections. 5 (Our emphasis) 28 The evaluation of the justification of a limitation under section 36 of the Constitution involves a process of the weighing up of competing values, and ultimately an assessment based on proportionality which calls for the balancing of different interests. 6 In doing so, section 36 of the Constitution enjoins a court to balance the following five factors: 7 28.1 the nature of the right; 28.2 the importance of the purpose of the limitation; 28.3 the nature and extent of the limitation; 28.4 the relation between the limitation and its purpose; and 28.5 whether there are less restrictive means to achieve the stated purpose of the limitation. 8 Importance of the purpose of the limitation 29 In the present instance, the impugned provision, particularly, and the FIC Amendment Bill, generally, are aimed at securing important societal objectives. These are stated in the long title of both the FIC Amendment Bill and its principal Act, Financial Intelligence Centre Act 38 of 2011, and include, inter alia 29.1 ensuring South Africa is brought into line with its international obligations as a member of the Financial Action Task Force; 5 Magajane v Chairperson, North West Gambling Board and other, 2006 (5) SA 252 (CC) at para 50. 6 S v Makwanyane and Another 1995 (3) SA 391 (CC) at para 104; and National Coalition for Gay and Lesbian Equality v Minister of Justice 1999 (1) SA 6 (CC) at para 33. 7 Minister of Police and Others v Kunjana 2016 (9) BCLR 1237 (CC) at para 15. 8 Section 36 of the Constitution reads as follows: (1) The rights in the Bill of Rights may be limited only in terms of law of general application to the extent that the limitation is reasonable and justifiable in an open and democratic society based on human dignity, equality and freedom, taking into account all relevant factors, including (a) the nature of the right; (b) the importance of the purpose of the limitation; (c) the nature and extent of the limitation; (d) the relation between the limitation and its purpose; and less restrictive means to achieve the purpose.
Page 10 29.2 ensuring that South Africa has agile measures that assist it in the implementation of financial sanctions and the administration of resolutions adopted by the Security Council of the United Nations; and 29.3 the effective combatting of money laundering activities and the financing of terrorist and related activities. 30 In Auction Alliance, the Constitutional Court confirmed that these objectives are sufficiently important, at the level of principle, to warrant an intrusion into the right to privacy. 9 Nature and extent of the limitation 31 The provisions of the proposed section 45B of the FIC Amendment Bill differ in material respects to those that the Constitutional Court has previously struck down. On this score, the decisions referred to in the President s Letter of Referral are distinguishable. These decisions are no authority for the proposition that a warrantless search is ipso facto unconstitutional. 32 Our view is that the impugned provision provides inspectors with sufficient guidelines with which to conduct inspections within legal limits. It accords with constitutionally sanctioned safeguards for warrantless searches provided in the Criminal Procedure Act 51 of 1977. 10 Relation between the limitation and its purpose 33 BASA submits that a rational connection exists between the purpose of section 45B (1C) and the limitation imposed. The prevention and combatting of money laundering and financing of terrorist related activities require search and seizure operations of the sort contemplated in the provisions. In operations of this nature, an element of intrusion is intrinsic. 34 BASA is of the view that the framework created by section 45(B) is necessary to achieve the legitimate government purpose of FICA and the FIC Amendment Bill to further combat corruption. 9 Estate Agency Affairs Board v Auction Alliance (Pty) Ltd and others 2014 (3) SA 106 (CC) at para 42 10 Kunjana at para 30
Page 11 Are there less restrictive means to achieve the stated purpose of the limitation? 35 The fundamental reason for the Constitutional Court s decision in Estate Agency Affairs Board, declaring legislative provisions providing for warrantless searches unconstitutional is: their initiating premise: that all searches they authorise require no warrant. The result is that they go too far, in authorising warrantless searches in circumstances where no justification can exist for not requiring the Board to obtain a warrant. 11 36 Section 45B (1C) does not suffer from this defect. On the contrary, it requires, as a general matter, that a warrant should be procured by an inspector. In instances where a warrantless search is to be carried out the provisions are adequately tailored to ensure a constitutionally compliant safeguard in the form of a model espoused in the Criminal Procedure Act, 1955. This model, as noted in Kunjana, is an apt example of the safeguards required when warrantless searches are to be carried out. 37 As discussed above, section 45(B) prescribes the circumstances where a warrant is required and the processes to obtain a warrant, and the circumstances where an inspector may enter premises without a warrant. Broadly, an inspector may only enter premises without a warrant if the owner consents thereto or the inspector on reasonable grounds believes that a warrant will be issued if applied for and the entry cannot be delayed. Section 45B (1C) must be read within the context of section 45B as a whole and BASA submits that the proposed provision is not overbroad. 38 BASA is of the view that the provisions of section 45B (1C) are not disproportionate to the ends that it seeks to achieve. It cannot be said that there are plainly less restrictive measures to achieve FIC Amendment Bill s legitimate ends. CONCLUSION AND RECOMMENDATIONS 39 For the reasons above, BASA is of the view that the balance of the five factors required to be considered under section 36 of the Constitution tips in favour of justification. Therefore, any intrusion imposed by the provisions of section 45B (1C) are reasonable and justifiable under section 36 and is thus not unlawful. 11 Estate Agency Affairs Board at para 40
Page 12 40 BASA respectfully submits that the President s concern, that section 45B (1C) of the FIC Amendment Bill is unconstitutional, is without basis. 41 BASA confirms that it participated extensively in the consultation process hosted by the National Treasury and National Assembly on the FIC Amendment Bill and it is satisfied with the current version of the FIC Amendment Bill. Finalising the FIC Amendment Bill will bring the necessary certainty for the implementation, by the banking sector, of the risk based approach introduced by this very important legislation. 43 BASA submits that failure to assent to this Bill as a matter of urgency will cause South Africa to be in violation of Financial Action Task Force requirements, which will then have adverse implications for the country. BASA therefore requests that all measures be taken to ensure speedy assent of this Bill. Yours sincerely CAS COOVADIA MANAGING DIRECTOR