Its official — South Africa fails to avoid greylisting

Source: Daily Maverick

Its official — South Africa fails to avoid greylisting

 Illustrative image | sources: South African flag (Wikipedia) / South African currency (Adobestock)

By Tim Cohen


24 Feb 2023  5

SA has been placed on the Financial Action Task Force’s ‘greylist’ which means it has shortcomings in tackling illicit financial flow, which may raise costs for banks and asset managers. 

Despite an energetic attempt by SA to avoid being greylisted, the task force wanted more evidence that SA was in a position to police two sets of new laws it has implemented to bring the country into line with international best practice. 

Finance minister Enoch Godongwana hinted during his budget speech this week that greylisting was likely, despite saying last year he was “hopeful” SA could avoid being placed on the list. Nigeria was also added to the list.

In what constitutes a kind of backhanded compliment, FATF said when it places a jurisdiction under increased monitoring, “it means the country has committed to resolve swiftly the identified strategic deficiencies within agreed time frames,” FATF said in a statement on Friday following a February 20-24 plenary meeting. “New jurisdictions subject to increased monitoring are SA and Nigeria.” 

The move constitutes a blow to SA’s international financial standing around the world, and the Reserve Bank has warned that greylisting could have wide-reaching consequences for SA’s financial system.

Although the bank has warned of capital and currency outflows, the more immediate problem is that it increases transactional, administrative and funding costs for the banking sector. 

Read more in Daily Maverick here:  State capture could be the nail in SA’s greylisting coffin, experts agree

The decision puts SA in the dog box internationally; it means SA is on par with countries like Syria, DRC, South Sudan, Burkina Faso and Haiti, to name just a few. 

In December, President Cyril Ramaphosa signed two key pieces of legislation, the General Laws (Anti-Money Laundering and Combating Terrorism Financing) Amendment Act and the Protection of Constitutional Democracy Against Terrorism and Related Activities Amendment Act in an effort to avoid greylisting. But FAFT clearly wants to see whether SA has the will and the ability to manage the structures it has now put in place.

Godongwana said in a written response to the announcement that he had informed the FATF President, Mr Raja Kumar, that the South African Cabinet has considered the Action Plan and committed to “swiftly and effectively address all outstanding deficiencies and strengthen the effectiveness” of its anti-money laundering regime.

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He noted there were eight areas of strategic deficiencies identified by the FATF require South Africa to:

(1) demonstrate a sustained increase in outbound Mutual Legal Assistance requests that help facilitate money laundering/terrorism financing (ML/TF) investigations and confiscations of different types of assets in line with its risk profile;

(2) improve risk-based supervision of Designated Non-Financial Businesses and Professions (DNFBPs) and demonstrating that all AML/CFT supervisors apply effective, proportionate, and effective sanctions for noncompliance;

(3) ensure that competent authorities have timely access to accurate and up-to-date Beneficial Ownership (BO) information on legal persons and arrangements and applying sanctions for breaches of violation by legal persons to BO obligations;

(4) demonstrate a sustained increase in law enforcement agencies’ requests for financial intelligence from the Financial Intelligence Centre for its ML/TF investigations;

(5) demonstrate a sustained increase in investigations and prosecutions of serious and complex money laundering and the full range of TF activities in line with its risk profile;

(6) enhance its identification, seizure and confiscation of proceeds and instrumentalities of a wider range of predicate crimes, in line with its risk profile;

(7) update its TF Risk Assessment to inform the implementation of a comprehensive national counter-financing of terrorism strategy; and

(8) ensure the effective implementation of targeted financial sanctions and demonstrating an effective mechanism to identify individuals and entities that meet the criteria for domestic designation.

“National Treasury notes that there are no items on the action plan that relate directly to the preventive measures in respect of the financial sector. This reflects the significant progress in the application of a risk-based approach to the supervision of banks and insurers. 

“National Treasury, therefore, expects that the increased monitoring will have limited impact on financial stability and costs of doing business with South Africa”, he said.