FATF grey list – South Africa under increased monitoring

South Africa financial system fell short of internationally recognised standards of due diligence as detected by the Financial Action Task Force (FATF) in October 2021. As a financial hub of prime importance in the region, the failure from the government to implement adequate measures to combat Anti-Money Laundering and Combating the Financing of Terrorism were re-assessed by the IMF which ultimately led to the inclusion of South Africa into the FATF grey list last month on the 24th of February.

The extract below relates to the media statement from the National Treasury of the Republic of South Africa issued on the 24th of February.

“The eight (8) 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.”

Whilst South Africa is known to have a solid regulatory system, these deficiencies as listed above command the reinforcement of risk-based supervision and a national strategy to address the dents recently identified in financial crime, corruption and state capture in the country. The increase monitoring will prevail till the issues are not fixed on a macro-economic level and will subsequently slow down the economy, increasing the regulatory reviews for inbound and outbound clients either in the country or abroad. Likewise, jurisdictions using the financial hub of South Africa will have to exercise increased due diligence for the time it takes until a future delisting.

Source: Media Statement 24th February 2023 – National Treasury S.A