Anti-terrorism measures in South Africa: Suspicious transaction reporting and human rights

2.1 Overview

Measures to protect human rights are a culmination of efforts by leaders around the globe. These measures particularly espouse and promote the idea of peace and security. Peace and security are essential for the ‘survival of man (or woman)’.19 In addition, they are relevant to20 preconditions for] survival, namely with an order worthy of the designation ‘peace’ [and security] not only because it guarantees the prevention of war but also because it makes it possible the development of human dignity and basic rights.

The association of peace and security with human dignity and basic rights is indispensable to the general UN framework for human rights protection. For example, the failure of the League of Nations to achieve one of its mandates, that is, to promote international peace and security, resulted in efforts to restore stability and peace in the world. The UN Atlantic Charter of 1941 is but one such an effort. This Charter sought to ensure, amongst others, that ‘all men in all lands may live their lives in freedom from fear and want’.21 This freedom from fear and want was to be achieved by guaranteeing the free movement of civilians and abandoning the use of force.22 These efforts, furthermore, were followed by the introduction of the UN Charter of Rights. The UN Charter provides, amongst others:23

[We] the peoples of the United Nations, [are] determined to reaffirm faith in fundamental human rights, in the dignity and the worth of the human person, in the equal rights of men and women and of the nations large and small.

The issue related to the ‘dignity and the worth of the human person’ requires some elaboration. It is indeed true that human dignity is the precondition for or the basis of peace and security.24 It is not an extra benefit which is ‘conferred upon a person by social contract or positive law’.25 Rather, it is inherent in a person26 and granted to the latter at birth.27 In the former sense, human dignity is the starting point for ‘humanness’.28 In other words, it guarantees the worth of a human person or a fundamental human significance.29 In addition, human dignity is a specific ‘cultural understanding of the inner moral worth of the human person and his or her political relations with society’.30 With this in mind, the UN Charter enjoins UN member states to undertake particular tasks. These tasks are designed to preserve the dignity and/or the worth of the human person. They relate to a practice of tolerance and of living together as good neighbours; unity of strength in order to maintain international peace and security; ensuring that armed forces are not used, save in the common interest; and to employ international machinery for the promotion of the economic and social advancement of all peoples.31

It is important to note that the UN human rights measures were prepared immediately after World War II. Accordingly, initially these measures had particular relevance to the prevention of war or the use of armed forces. In the recent past, the measures have become more important in the fight against other wrongs. Examples of these wrongs include terrorism, terrorist financing and money laundering.32

2.2 Fundamental human rights and anti-terrorism measures

3.1 Overview

Transaction reporting is possible in environments where, inter alia, a suitable transaction recording procedure exists.64 Transaction recording is an old phenomenon, developed as early as 3200 BC. This method was used to account for or calculate animals and other goods. With this method, a simplified representation of the animal or goods was drawn on the bulges of drenched terracotta. Afterwards, a resembling mark was made for the number counted and recorded. The terracotta would then be allowed to swelter in the sun and would thus become an enduring document.65 Eventually, ancient Egypt and Rome developed their own methods of recording. In ancient Egypt, recording was carried out by a particular influential faction (the scribes). The scribes used raised edges of capsules or tablets for recording purposes. In Rome, a method of recording, referred to as shorthand, was used. Shorthand developed as a result of the necessity to keep up with the speed of spoken words. It relied on notes and symbols as equivalents for phrases or sentences. Swiftness and precision were the fundamental features of this system of recording.66

The success of record keeping in the periods mentioned above contributed to the adoption of this system in anti-terrorism schemes. The importance hereof specifically led to transaction recording being adopted to support anti-terrorism paradigms. In anti-terrorism schemes, transaction recording supports the undertaking of transaction reporting schemes. Specifically, they guarantee that ‘a transaction, or a series of transactions, can be reconstructed during an investigation, clearly indicating not only what had transpired, but also who was ‘involved’ in it.67 In addition, they are performed as part of the customer due diligence (CDD) or know-your-customer (KYC) process. The meaning of CDD becomes clearer when reference is made to the terms ‘due’ and ‘diligence’. On the one hand, the notion of ‘due’ denotes something that is definite or expected.68 On the other, the concept of ‘diligence’ connotes a vigilant and methodical work or exertion.69 Within the context of anti-terrorism, ‘due diligence’ means a sensible and methodical process of appraising personal information70 or data71 in order to classify divergent risks to an anticipated relationship or relationships.72 In other words, it facilitates a process of identifying whether a transaction or transactions is or are in keeping with the required policies, procedures or methodologies or not.73 The CDD or KYC process is performed by establishing and verifying the identity of a person.74 Firstly, the establishment practice is satisfied by the furnishing or disclosing of sensitive or personal information to a financial institution.75 The information to be furnished or disclosed to a financial institution includes a person’s full names, date of birth, identity number, income tax registration number (if applicable) and residential address.76 The furnishing or disclosing of information should enable such an institution to make an informed decision on whether to accept a person to its business or not.77 The Financial Intelligence Centre Act (FICA) does not provide a definition of the term ‘business’ for anti-terrorism purposes. For that reason, its meaning has to be sought outside of FICA. In Standard General Insurance Company v Hennop, the court stated that ‘anything which occupies the time and attention and labour of a man for the purpose of profit is [a] business’.78 This ‘anything’ can be a commercial activity or any other institution.79 In addition, the disclosure of information may be made by the person himself or herself or on his or her behalf by his or her agent or guardian.80 Exceptions are made in respect of minors, the mentally disabled, prodigals and insolvent persons.81 Secondly, the verification process implies comparing the information disclosed during the establishment process to other documents serving the verification process.82 For example, a person’s income tax registration number may be compared to the number appearing in a document issued by the South African Reserve Bank.83 Furthermore, a person’s full names, date of birth and identity number may be compared to a person’s official identification document (ID),84 alternatively to a valid, current and unexpired document,85 for example a valid driver’s licence or an official passport.86

The discussion above indicates that transaction reporting follow transaction recording. Transaction recording is an old phenomenon used to compute certain information or particulars. It also illustrates that transaction recording facilitates a process of reporting transactions. Therefore, the achievements that it has enjoyed in computing information have led to it being adopted in order to assist in the fight against terrorism. As a consequence, countries around the globe have realised the need to establish measures related to transaction reporting. In this article, the South African approach to transaction reporting is examined. South Africa follows frameworks to transaction reporting developed internationally. Of particular interest is the model created by the FATF and some provisions of the United Kingdom’s Terrorism Act87 and UK Regulations.

3.2 South African approach

The measures that South Africa adopts in order to deter terrorism can be traced back to as far as 1950, embodied in legislation such as the Suppression of Communism Act,88 the Unlawful Organisation Act,89 the General Law Amendment Act,90 the Terrorism Act91 and the Internal Security Act.92 They relied on the principle of salus reipublicae suprema lex. This principle was based on the premise that the safety and wellbeing of the state was the supreme or highest law.93 For purposes of anti-terrorism, the salus reipublicae suprema lex principle afforded the state the power to, mainly, disregard the ordinary safeguards of human rights,94 relying on the fact that the ‘highest or supreme law’ demands such curtailment.95 However, this position changed when the first democratic South African Constitution was adopted in 1994, establishing the supremacy of the Constitution,96 leading to the abandonment of the salus reipublicae suprema lex principle. The Constitution, 1996 restricts the powers of government, and promotes adherence to different sets of rules regarding the protection of human rights.97 The Constitution further encourages meaningful obedience to particular democratic values, including human dignity, the achievement of equality and the advancement of human rights and freedoms.98 The coming into effect of the Constitution compelled the legislature to model its laws, including laws that restrain terrorism,99 to be in line with the Constitution.100

FICA was promulgated with a view to responding to the scourge of terrorism. Sections 28, 28A and 29 of FICA specifically regulate transaction reporting under the new constitutional order. It would appear that the approach to transaction reporting in terms of these sections differs in a number of respects. For example, section 28 deals with the reporting of cash transactions which are above a certain prescribed limit (R24 999,99).101 For purposes of section 28, the term ‘cash’ has a specific meaning. Cash excludes negotiable instruments, the transfer of funds by means of a bank cheque or bank draft, an electronic funds transfer, wire transfer or any other non-physical transfer of cash.102 Section 28A covers the reporting of property which is associated with terrorism or terrorism-related activities. This ‘property’ may be in the form of ‘money or any other movable, immovable, corporeal or incorporeal thing and includes any rights, privileges, claims and securities and any interest therein and all proceeds thereof’.103 However, section 29 provides a broad framework for transaction reporting. Essentially, it follows the same approach as article 18 of the UN Anti-Terrorism Convention. This Convention specifically encourages financial institutions to design special identification measures to unusual, suspicious, complex and unusually large transactions.104 As soon as this identification process has been completed, a description of these transactions must be reported or furnished to the competent authorities.105 Also, transaction reporting in terms of section 29 of FICA is required to be made to the Financial Intelligence Centre (FIC).106 Various persons are enjoined to report transactions. These persons are individuals who carry on a business, individuals in charge of a business, individuals who manage a business or individuals employed by a business.107 The persons mentioned must know or suspect the existence of certain facts.

The terms ‘know’ and ‘suspect’ for purposes of transaction reporting require additional elaboration. Firstly, the term ‘know’ means the presence of definite awareness. In particular, a person has knowledge of a fact if such a person has a genuine understanding of that fact, or if it is proved that such a person believes that there is a reasonable possibility of the existence of a fact, and that person fails to obtain information to confirm or refute the existence of such a fact.108 The requisite knowledge is not only confined to the ‘mental state of awareness [that is] produced by personal participation’ of a person in a crime or terrorism,109 neither is it only associated with any ‘information derived’ from such a person.110 However, it encompasses an assurance or conviction that a particular circumstance, that is, a suspicious transaction, exists.111 The latter may be gleaned from examining the mental state (mens rea) of a person at the time the crime (terrorism) was committed.112 Secondly, a suspicion is formed or established without the existence of clearly-defined or definable grounds.113 It particularly means ‘a state of conjecture or surmise where proof is lacking; I suspect but I cannot prove’.114 It arises or ensues ‘at or near the starting point of an investigation of which [the] obtaining of prima facie proof is the end’.115 However, it is required that a degree of satisfaction, which extends beyond a mere speculation, should exist to justify or support the suspicion.116 In cases where knowledge or a suspicion cannot readily be ascertained, some form of awareness of the facts is extrapolated. Accordingly, a three-stage analysis is generally undertaken to establish the existence of the requisite knowledge or suspicion. This analysis relates to whether or not a person is actually aware of something; where circumstances arise wherein a person can reasonably be expected to be aware of something; or where circumstances arise wherein a person can reasonably be expected to suspect the existences of something.117

The pertinent facts that must be reported include, inter alia, transactions that facilitate or are likely to facilitate the proceeds of unlawful activities118 or are connected to terrorism or terrorist-related activities; transactions that have no apparent or noticeable business or lawful purpose; transactions that are conducted for the purpose of avoiding or evading reporting duties; transactions that may be relevant to the investigation of an evasion or attempted evasion of a duty to pay tax, duties or levies imposed by legislation; or transactions that relate to an offence which is connected to the financing of terrorism and/or terrorist-related activities.119 Generally, a suspicious and unusual transaction report (STR) has to be compiled.120 The STR sets out the information or facts that should be reported. In particular, it must include the particulars of a person or a business making the report;121 detailed information related to the transactions that are being reported;122 details of the account involved in concluding the transaction;123 the particulars of a person (natural or legal) on whose behalf the transaction is concluded;124 and the particulars of a person (natural or legal) who acts on behalf of another.125 Furthermore, the STR must include detailed information relating to the date and time of the transaction; if a series of transactions, the period over which the transactions were carried out; a description of the type of transaction; the manner in which the transactions were carried out; a description of the type of funds or cash involved in the transactions (if transactions involved funds or cash); a description of the type of property and all identifying characteristics of the property (if transactions involved property); the amount of funds or cash, or the estimated value of the property involved in the transactions; the currency in which the transactions were conducted; the manner in which the funds, cash or property were disposed of; the amount of the disposition of the funds or cash; the value for which the property was disposed of; the currency in which the funds or cash were disposed of and the currency used in the disposition of the property (if funds, cash or property involved in the transactions were disposed of); if another institution or person was involved in the transaction or series of transactions, the name of the other institution and the number of any account at the other institution involved in the transactions; the name and identifying particulars, for instance the address, the exclusive or unique number or code of the branch or office where the transactions were concluded; the purpose of the transactions; and the remarks, comments or explanation made or given by the person concluding the transactions.126 Lastly, the STR must encapsulate details such as the account number; the name and identifying particulars of the branch where the account is held; the account type; the account holder’s name; the date on which the account was opened; in cases where the account had been closed, the date of its closure and the name of the person who gave the instruction for its closure; the highest amount paid into and out of the account; the number of payments made into and out of the account; the balance in the account before concluding the transactions; the balance in the account on the date of drawing up the STR; the status of the account before the reported transactions were concluded; any activity (in the preceding 180 days) that had been considered for reporting; and the reference numbers allocated by the FIC.127

It is important to note that no duty of secrecy or confidentiality or any other restriction is required to be exercised during transaction reporting.128 This means that a financial institution is absolved of its obligations pertaining to the observance of secrecy and confidentiality in these cases.129 Such absolution also excludes the restrictions that are normally accorded to information which is protected by legal professional privilege.130 This relates, amongst others, to the protection which is usually granted to information as between an attorney and client and which is disclosed by such a client for purposes of legal advice or litigation, or between an attorney and third party for purposes of pending, contemplated or already commenced litigation.131

Having considered the above-mentioned, it is submitted that South Africa has adopted an approach to the fight against terrorism which is receptive to the need to protect and promote human rights. The human rights guarantees that are enumerated in the Constitution inadvertently promote the reconciliation of the need to fight terrorism with the necessity to preserve fundamental rights and freedoms. For this reason, it is expected that measures to alleviate terrorism, including the processes relating to STR, will be in keeping with these guarantees. However, it would appear that South Africa sometimes departs from the established human rights culture when dealing with terrorism. For example, the constitutional guarantees of secrecy and confidentiality do not apply during the process of STR.132 In other words, STR seems to disregard or outweighs the ordinary safeguards of human rights, for example, privacy and confidentiality.133 The aforementioned also applies, to a limited extent, to information which is furnished and/or disclosed during the course of an attorney-client relationship.134 Furthermore, there are cases which indicate a separation between what South Africa pronounces as its stance on human rights and that which is actually done in practice. In these cases, South Africa appears to suspend human rights until the act of terrorism has been dealt with. The case of Jeebhai & Others v Minister of Home Affairs & Others135 illustrates the aforementioned. The facts of this case were briefly the following: A Pakistani national by the name of Khalid Rashid was arrested by members of the South African Police Service. The basis for the arrest was that Mr Rashid was suspected of having entered the Republic of South Africa without the necessary or legal documents authorising his stay.136 Subsequent to his arrest, Mr Rashid was deported to Pakistan. The circumstances under which Mr Rashid was deported by South Africa were suspicious. Specifically, his deportation was done in secret and carried out without following the usual procedure of placing the deportee into an approved facility or port of entry designated as such by the Minister of Home Affairs (the Lindela Repatriation Centre) pending deportation. Instead, Mr Rashid was, without informing his friends or family, handed over to the Pakistani law enforcement.137 It transpired later that Mr Rashid was wanted and sought by the Pakistani and British authorities for having links with certain ‘international terrorist networks’.138 Having considered these facts, the court, per Cachalia JA, stated that ‘an act of deportation does not necessarily involve the loss of a deportee’s liberty’.139 The loss of liberty would be justified, the court reasoned, if the act of deportation is made in a manner which safeguards the deportee’s rights, that is, the right to be informed of the decision to deport, the right to appeal the decision, and the right to request that the detention be confirmed by a court warrant within 48 hours. Given the fact that there was no legal justification of the aforementioned operation by South Africa, the court stated that the whole scheme was simply a ‘disguised extradition’.140 Consequently, the court held that the detention and deportation of Mr Rashid were unlawful.141

3.3 Evaluating the STR approach

It is submitted that the approach to transaction reporting, generally, encroaches upon certain fundamental human rights. The most obvious of these rights is a person’s right not to be subjected to arbitrary or unlawful interference with his privacy, home or correspondence, or to unlawful attacks on his honour and reputation.142 Ordinarily, financial institutions owe their customers a duty to ‘maintain confidentiality and secrecy’.143 This responsibility generally is exercised in relation to information or data belonging to those customers or transactions that the customers conclude during the course of the business relationship.144 Sometimes, this duty is described as the naturale of the contract between financial institutions and their customers.145 Thus, an encroachment occurs in cases where disclosure of information or transactions belonging to customers is made to third parties, for example the FIC. However, whether such encroachment preserves human rights is determined by the Constitution, namely, section 36 of the Constitution.146

Section 36 of the Constitution states that 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.147 The requirement of ‘reasonableness’ and ‘justifiability’ does not extend to the impairment of a ‘democratic functioning of society’.148 In other words, it does not necessarily translate into the negation of the rule of law, good governance and human rights. Conversely, it denotes the pursuit of pressing societal objectives and their impact on human rights and freedoms.149 In addition, a reference to law of general application denotes, for purposes of transaction reporting, that the law that limits secrecy and confidentiality should be sufficiently accessible.150 This accessibility must enable persons against whom transaction reporting is made to understand the extent and limits of their rights to secrecy and confidentiality.151 It must also reflect the ‘norms and values of the people which it seeks to bind’.152 Furthermore, section 36 states that the limitation must take into account the nature of the right, the importance of the purpose of the limitation, the nature and extent of the limitation, the relation between the limitation and its purpose, and less restrictive means to achieve the purpose.153

Notwithstanding the aforementioned, it is argued that some of the information used for purposes of transaction reporting may be founded on unreliable data. In one case, the unreliability may stem from information that is a product of an illegal activity or operation. An example of the operation is illegal deportation, as was indicated in the case of Jeebhai.154 Another example relates to information relating to the issuing of a valid television licence. Vendors issue television licences on the basis of information recorded and/or furnished by the applicant on a required form. The information is not verified and/or subjected to a CDD process. Furthermore, the information is not subjected to a rigorous risk-based approach which is necessary in identifying, assessing and evaluating the scale of the risks posed to a financial institution.155 Therefore, the use of such a licence to establish business relationships or to conclude transactions with a customer may suppress or frustrate the entire scheme of reporting transactions. Specifically, this may result in a process of guess work whereby transactions that do not pose a threat or risk to a financial institution are regarded as suspicious and those that pose a grave risk are excluded from the list. In other instances, measures that are related to transaction reporting are open-ended and vague. For example, transaction reporting is done in cases where there is, inter alia, a suspicion that a transaction may be related to or used to finance terrorism. It is conceded that a suspicion is determined by means of subjective conjectures or surmises.156 For this reason, the open-endedness and vagueness of the suspicion generate problems. It particularly distorts the limiting processes or measures and the making of suitable proportionalities between particular fundamental human rights (namely, the right privacy and the duty of confidentiality) and the need to carry out STR.157