South Africa’s anti-money laundering (AML) and combatting financing of terrorism (CFT) mutual evaluation assessment by the Financial Action Task Force (FATF) was conducted in 2019 and the report was adopted in October 2021. The mutual evaluation gave South Africa a poor ratings assessment namely due to having inadequate measures in place to address AML/CFT concerns.
The report concluded that South Africa was partially compliant or non-compliant with 20 of the “Forty Recommendations” which all conforming nations must adhere to. South Africa was found to have a low level of effectiveness in the areas of legal persons and beneficial ownership, the investigation and prosecuting of terrorist financing offences and activities and terrorist financing within the NPO sector.
FATF Recommendations found that South Africa was non-compliant in the areas of targeted financial sanctions related to terrorism & terrorist financing, non-profit organisations, politically exposed persons, new technologies and reliance on third parties.
What is likely to happen?
Business Leadership South Africa (BLSA) commissioned Intellidex (a research and consulting firm) to prepare a report on South Africa’s probability of being greylisted. According to the report there is a high probability that South Africa will be greylisted by the FATF in February 2023, this is due to the undermining of institutions in the criminal justice system during the state capture era. South Africa is further perceived as not doing enough to swiftly address the FATF’s concerns that were raised during the last mutual evaluation report.
South Africa has taken significant steps to avoid greylisting by the recent tabling of the General Laws (Anti-Money Laundering and Combating Terrorism Financing) Amendment Bill in August 2022. The bill makes amendments to four key financial Acts (Trust Property Control Act, Non-profit Organisations Act, FICA, and Companies Act), changing wording and responsibilities to better secure South Africa’s financial systems from money laundering and terrorism financing. It also aims to address at least 14 of the 20 “technical” deficiencies identified by the FATF in its Mutual Evaluation Report in October last year.
The Crypto market was also affected, as the FSCA brought Crypto under their jurisdiction by publishing the declaration of Crypto Assets as a financial product under the FAIS Act.
The greylist acts as a risk classification tool and indicates to international markets that the jurisdiction that is listed either doesn’t have a sufficient regulatory framework to prevent AML/CFT, or if a framework is in place, is not employing that framework effectively to prevent AML/CFT.
Should South Africa be greylisted, international relationships/investments could be strained or eventually severed due to an impugned reputation. As a result, private sector companies, financial industry participants and individuals should prepare for the possibility of enhanced due diligence requirements that will follow, if South Africa is greylisted.
By the end of October 2022, South Africa must be able to show that it has made progress in addressing its AML/TF shortcomings. If it fails to do so, it is likely to be added to the greylist when the FATF holds its follow-up review meeting in February 2023.
To listen to Masthead’s interviews regarding the grey listing, click here.