In its latest update on South Africa’s progress in addressing shortcomings in its anti-money laundering/counter financing of terrorism (AML/CFT) regime, the Financial Action Task Force (FATF) noted that the country had taken steps to correct the deficiencies, though the work is not yet complete.
The organisation published the update on 23 February 2024, after the February 2024 FATF plenary meetings had wrapped up. It was at the plenary of February 2023 that the FATF announced that South Africa would be added to the grey list for “Jurisdictions under Increased Monitoring”.
FATF noted that: “South Africa has taken steps towards improving its AML/CFT regime including by addressing technical deficiencies in its targeted financial sanction regime related to terrorism financing, increasing the use of financial intelligence from FIC to support ML/TF investigations, and increasing the resources of AML/CFT supervisors.”
However, the organisation said, South Africa should continue to work on implementing its action plan to address its strategic deficiencies, including by:
- demonstrating a sustained increase in outbound mutual legal assistance (MLA) requests that help facilitate ML/TF investigations and confiscations of different types of assets in line with its risk profile;
- improving risk-based supervision of DNFBPs and demonstrating that all AML/CFT supervisors apply effective, proportionate, and effective sanctions for non-compliance;
- ensuring that competent authorities have timely access to accurate and up-to-date 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 investigations and prosecutions of serious and complex money laundering and the full range of TF activities in line with its risk profile;
- enhancing its identification, seizure and confiscation of proceeds and instrumentalities of a wider range of predicate crimes, in line with its risk profile;
- updating its TF Risk Assessment to inform the implementation of a comprehensive national counter financing of terrorism strategy; and
- ensuring the effective implementation of targeted financial sanctions and demonstrating an effective mechanism to identify individuals and entities that meet the criteria for domestic designation.
Plan of action
In 2023 South Africa and FATF adopted a jointly agreed action plan which listed 22 action items linked to the strategic deficiencies identified in the country’s (AML/CFT) regime – South Africa must address and resolve all 22 before it can exit the grey list.
“The deadlines for addressing the action items fall between January 2024 to January 2025,” said National Treasury (NT) in a statement issued on 29 February. “Should South Africa be assessed to have largely addressed all 22 action items in February 2025, the FATF will schedule an on-site visit in April/May 2025, to confirm that assessment and make a recommendation to the June 2025 FATF plenary.”
As it now stands, five of the 22 action items are now addressed or largely addressed. “These relate to the legal provisions criminalising terrorist financing and underpinning South Africa’s targeted financial sanction regimes related to terrorism financing and proliferation financing, increasing the use of financial intelligence from the Financial Intelligence Centre to support money laundering investigations, and increasing the resources of AML/CFT supervisors.”
The FATF noted that other action items that were previously not addressed, have now been partly addressed, while three remain unaddressed.
“The deadline for South Africa to address (or at least largely address) four of the outstanding action items in the action plan, is May 2024. The FATF will consider South Africa’s progress on these action items at its plenary meeting in June 2024.”
A further eight action items are due in September 2024, noted NT, while the final five items are due in January 2025.
It will be a “tough challenge”, said NT, to address the 17 remaining action items by February 2025.
Grey-listed
The grey list addition was not an unexpected development, as South Africa had to scramble to plug holes in its AML/CFT framework after a FATF mutual evaluation, conducted in the second half of 2021, found “significant shortcomings implementing an effective system, including a failure to pursue serious cases, especially those linked to so-called ‘state capture’.”
The result was the General Laws (Anti-Money Laundering and Combating Terrorism Financing) Amendment Act, which commenced in the early months of 2023. The act proposed a sweeping range of integrated reforms to five pieces of legislation which regulated vastly different areas of concern – trusts; non-profit organisations; companies; and matters concerning the Financial Intelligence Centre.
Amended legislation included the Trust Property Control Act; the Non-profit Organisations Act; the Financial Intelligence Centre Act; the Companies Act; and the Financial Sector Regulation Act.
However, after the FATF’s first plenary of 2023, the organisation announced that South Africa’s efforts were not good enough to avoid an unwelcome debut on the grey list.
“When the FATF places a jurisdiction under increased monitoring, it means the country has committed to resolve swiftly the identified strategic deficiencies within agreed time frames and is subject to increased monitoring,” said FATF.
South Africa was to take begin with remedial steps within 18 months to address the deficiencies identified.
Civil society organisations, meanwhile, noted that the General Laws (AML/CFT) Amendment Act may have been rushed through Parliament without fully exploring ways to make it as effective as possible.
In a comprehensive joint submission to Parliament’s Standing Committee on Finance, non-profit organisations Corruption Watch and amaBhungane (amaB) expressed concern that the haste with which the General Laws (AML/CTF) Amendment Bill was developed may have compromised its effectiveness.
The organisations appreciated the importance of responding swiftly and comprehensively to the FATF report, but were concerned at the impact such haste had on the content of the bill and on the short time frame for public participation.
“Our concern went further than the content of the bill,” wrote amaB’s Caroline James. “Through our engagement with the drafting process it became clear that the process itself demonstrates the worrying extent of our country’s dysfunction.”
