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FINANCIAL CRIME MEASURES

SA faces another year on the Financial Action Task Force grey list

SA faces another year on the Financial Action Task Force grey list
From left: Financial Action Task Force. (Image : YouTube) | South African currency. (Photo: Nadine Hutton / Bloomberg) | National Treasury. (Photo: Supplied)

This month marks a year since South Africa was greylisted by the Financial Action Task Force. Though South Africa has demonstrated progress in reforming its anti-money laundering and financial crimes measures, the country is set to be on the grey list for another year.

The National Treasury expects South Africa to be on the grey list for another year, saying there are still requirements for the government to reform the country’s measures aimed at combating money laundering, terrorist financing and other financial crimes.

The Treasury said South Africa needed to address at least “five outstanding technical deficiencies” out of 22 that were raised by the Financial Action Task Force (FATF) about the country’s lax anti-money laundering and financial crime measures. The FATF is a Paris-based intergovernmental body that assesses countries’ ability to combat illicit financial activity.

The government intends to address these deficiencies by the end of October, the Treasury said in a review of the financial sector that accompanied 2024 budget documents. The Treasury’s estimation infers that South Africa will still be greylisted for most of 2024, marking the second year in which the country has been deemed by the FATF as having weak measures in place to combat financial crimes.

On 24 February 2023, South Africa was greylisted by the FATF, which was a reputational blow, as in the eyes of the developed world the country was seen as not being serious about preventing financial crimes or having proactive measures in place to prevent such crimes from occurring.

South Africa was placed on the grey list because it didn’t comply with most of the FATF’s benchmark recommendations to combat illicit financial activity. The organisation found that SA’s lax anti-money laundering measures allowed wrongdoers to move money without alarm bells being set off by financial institutions. Such money flows could potentially finance terrorist activity.

The FATF also took umbrage with the failure of law enforcement agencies to demonstrate that they were serious about prosecuting individuals linked to the State Capture project.

Grey list impact

Some businesses in South Africa (mainly commercial banks) have reported that the greylisting has increased their cost of doing business. The businesses have had to heighten their due diligence process to probe the source of funds from their clients, ensuring that they are not proceeds from financial crimes. Some businesses have encountered difficulties with securing loans, especially when participating in cross-border transactions.

February 2025 is when South Africa’s progress in addressing the deficiencies raised by FATF will next be assessed. The Treasury said getting out of the grey list would be no easy feat.

“Addressing all the remaining actions and demonstrating that improvements are sustainable by February 2025 will require a significant effort from all the relevant South African authorities,” reads the Treasury’s budget documents. From then, or the middle of 2025, Treasury officials expect South Africa to exit the grey list.

FATF meeting in Paris

A delegation of government officials, including from the Treasury, attended the FATF’s plenary meeting in Paris last week, at which the progress of South Africa and other countries on the grey list was assessed.

The FATF acknowledged South Africa’s work to address the deficiencies raised by the watchdog, including increasing the use of financial intelligence from the Financial Intelligence Centre in ongoing investigations and increasing the financial resources of bodies tasked with fighting money laundering and terrorist financing.

The Treasury also introduced in Parliament a range of amendments to existing laws aimed at strengthening South Africa’s commitment to fighting financial crimes.

Read more in Daily Maverick: National Treasury moves to avoid greylisting, but knows it’s an uphill battle

However, South Africa still has its work cut out as the FATF recommended areas in which the country had to improve. These include:

  • Heightening the supervision of professions and professionals, such as lawyers, accountants, owners of casinos and estate agents, and ensuring that they are not beneficiaries of the illicit flow of funds when doing business.
  • Bolstering the investigative and prosecutorial capacity of “serious and complex money-laundering [cases] and the full range of terrorism financing activities in line with its risk profile”.
  • Increasing collaboration with other jurisdictions to help SA with its investigations and confiscations of assets obtained through questionable means.
  • Demonstrating that the country can investigate and successfully prosecute entities accused of financial crimes.
  • Improving the ability to use targeted economic sanctions against wrongdoers.
  • Putting in place measures to swiftly identify and confiscate the proceeds of crime.
  • Implementing “a comprehensive national counter financing of terrorism strategy”.

The FATF did not provide a timeline for when South Africa would exit the grey list. DM

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