Insight

South Africa edges towards FATF grey list

Written by Sholane Sathu on Tuesday October 25, 2022

The Financial Action Task Force (FATF), alongside the Eastern and Southern Africa Anti-Money Laundering Group (ESAAMLG), assessed South Africa’s AML/CFT regime during an onsite visit in November 2019. At the time, South Africa was in a precarious position, following the State Capture saga which saw unprecedented levels of kleptocracy and corruption flourish within the country.

The mutual evaluation report that followed was a comprehensive review of the effectiveness of South Africa’s AML/CFT measures and the degree to which it was compliant with the FATF Recommendations. FATF adopted this report at its June 2021 Plenary; its contents, to say the least, were eye-opening.

FATF findings

The report revealed that while South Africa has a solid legal framework to fight money laundering and terrorist financing, there existed significant weaknesses in parts of the country’s AML/CFT regime. Indeed, the country failed to fully meet 20 of the 40 FATF Recommendations. As a consequence, South Africa was expected to take remedial steps by October 2022 to address the deficiencies identified in FATF’s report. If it is judged that South Africa has failed to do this by February 2023, then FATF will take action, and place the country on its ‘grey list’.

A country placed on FATF’s grey list would suffer profound economic consequences, as the list acts as a signifier that the jurisdiction listed either does not have the legal and regulatory structures in place to prevent criminality (like money laundering) within its financial system, or is not using the legislation it has at its disposal to help prevent it.

The country’s overall status with the 40 FATF Recommendations is depicted below. The effectiveness level was ranked as moderate to low.

Compliance with FATF Recommendations	Largely compliant with FATF Recommendations	Partial compliance with FATF Recommendations	Non-compliance with FATF Recommendations
3	17	15	5

South Africa’s Treasury has reacted by way of introducing changes to legislation that will see:

vital changes to the Financial Intelligence Centre Act (FICA), which is South Africa’s primary legislation on AML/CFT; the amendments to FICA will result in an increase in the list of accountable institutions required to comply with AML/CFT laws. This includes but is not limited to Virtual Asset Service Providers and dealers in high-value goods
modifications to the Trust Property Control Act and Non-Profit Organisations Act, which will place an obligation on trusts and non-profit organisations to comply with AML/CFT laws, and
adaptations to the Companies Act to allow for transparency and reporting on beneficial ownership.

In addition to these amendments South Africa needs to shrug off a commonly held view (not only internationally but also locally) that it is reluctant or incapable of taking action against those who flout compliance with financial crime legislation. The criminal justice system, therefore, also needs to illustrate practical progress in enforcing its laws and prosecuting offenders.

Institutions required to comply with AML/CFT laws have undertaken remedial action to address the deficiencies highlighted in the FATF’s report, and continue to improve the adequacy and effectiveness of their internal control environment.

South Africa is expected to provide a progress report to FATF in November 2022 which will be assessed and reviewed accordingly. The decision as to whether South Africa will be placed on the grey list is expected to be communicated three months later; it is in February 2023 that we will discover whether South Africa’s remedial measures have been sufficient.

About the author

Sholane Sathu is a seasoned compliance professional with a keen focus on financial crime compliance. She is an international compliance consultant, trainer and project manager working with institutions across jurisdictions to improve their level of compliance and control environment. Sholane is a certified professional and a Fellow of the International Compliance Association.