South Africa’s national treasury has released a useful fact sheet on the background to and implications of the country’s recent greylisting by the Financial Action Task Force (FATF).
Titled What does FATF greylisting mean for a country?, the six-page document explains the role of the FATF and the mutual evaluations all FATF members are required to undergo. These peer reviews are aimed at assessing members’ compliance with FATF’s 40 recommendations, which are internationally agreed standards according to which members work to enhance their anti-money laundering and combating the financing of terrorism (AML/CFT) laws, as well as those relating to the financing of the proliferation of weapons of mass destruction.
The mutual evaluation also includes an assessment of the effectiveness of a country’s implementation of the standards through 11 immediate outcomes – thus it identifies deficiencies in a country’s legal framework. “Countries strengthen their financial systems by addressing these, thereby enhancing the integrity of the country and global financial system,” said Treasury in the fact sheet.
The document then goes into the details of the grey list, the reasons why South Africa has now found itself on that list, the implications for a greylisted country, and how long it might take that country to be removed from the list. It further gives details of the eight strategic deficiencies which South Africa needs to address, and what happens next.
Download the grey list fact sheet here.
Jurisdiction under increased monitoring
The FATF maintains two versions of its grey list:
- jurisdictions under “increased monitoring” that are actively working with the FATF to address strategic deficiencies in their regimes” and
- “high-risk jurisdictions subject to a call for action” that are not actively engaging with the FATF to address these deficiencies.
South Africa falls into the former group. While the FATF does recognise the significant and positive progress the country has made in reducing the 67 recommended actions or deficiencies highlighted in the 2021 mutual evaluation review to the current eight, it is still not completely satisfied that all possible progress has been made.
These eight deficiencies require South Africa to:
- 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;
- 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 non-compliance;
- 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;
- demonstrate a sustained increase in law enforcement agencies’ requests for financial intelligence from the Financial Intelligence Centre for its ML/TF investigations;
- 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;
- enhance its identification, seizure and confiscation of proceeds and instrumentalities of a wider range of predicate crimes, in line with its risk profile;
- update its TF Risk Assessment to inform the implementation of a comprehensive national counter financing of terrorism strategy; and
- 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.
South Africa’s Cabinet has “committed to actively work with the FATF and the Eastern and Southern Africa Anti-Money Laundering Group to swiftly and effectively address all outstanding deficiencies and strengthen the effectiveness of its AML/CFT regime”, said Treasury in a statement.
“The government has already demonstrated its commitment to implementing the recommended actions, including the speedy enactment of two major pieces of legislation affecting six parliamentary acts – the General Laws (Anti-Money Laundering and the Combating the Financing of Terrorism) Amendment Act and the Protection of Constitutional Democracy Against Terrorism and Related Activities Amendment Act.”
However, this same speedy enactment rang alarm bells with civil society.
CSOs’ concerns about hastily amended legislation
Back in October 2022, in a comprehensive joint submission to Parliament’s Standing Committee on Finance, Corruption Watch and AmaBhungane expressed concern that the haste with which the General Laws amendment bill was developed may have compromised its effectiveness.
The bill was prepared in mere months after the FATF released the 2021 mutual evaluation review containing details of the 67 problems. South Africa was found to be only partially compliant with recommendations 8, 24 and 25, which deal with non-profit organisations, the transparency and beneficial ownership of legal persons, and the transparency and beneficial ownership of legal arrangements, respectively.
The two organisations appreciated the importance of responding swiftly and comprehensively to the FATF report, but were concerned at the impact this haste had on the content of the bill and on the short time frame for public participation. They further expressed disappointment that “the Ministry of Finance, Parliament and the public have not been given the time to grapple fully with these issues”.
The joint submission aimed to flag the gaps identified in the bill, and to advocate for a more robust and sustainable approach to implementing these reforms in South Africa.
Next steps
The next few years will involve a concerted effort to address the deficiencies. Generally, it takes countries about three years to reach the stage where they are removed from the grey list. This will happen after a final on-site assessment where both FATF and the relevant country will agree that all elements of the action plan have been largely or fully addressed.
“South Africa is expected to address the eight (8) areas of strategic deficiencies identified by the FATF, by no later than the end of January 2025. However, Government hopes to address them sooner, possibly in 2024,” said Treasury.
The next and fifth round of mutual evaluations will also begin in 2024, and South Africa will be most likely evaluated again in that round during 2027/28.
