South Africa’s previous president broke institutions and forced the country onto the greylist

The hollowing out of law enforcement agencies and prosecuting authorities during the era of state capture was one of the primary reasons why South Africa was placed on the Financial Action Task Force’s (FATF) greylist. 

This is feedback from the former Director-General of the National Treasury, Ismail Momoniat, who explained that it was a shock for South Africa to be placed on the list. 

“It was not expected at the time. But, looking back, we should have expected to be placed on the list after the era of state capture. I think it was a clear result of state capture and the weakening of our institutions,” Momoniat told BizNews.

South Africa was placed on FATF’s greylist in February 2023 after the organisation issued several warnings regarding the country’s anti-money laundering and counter-terrorism financing regime. 

In 2021, FATF had already highlighted significant gaps in South Africa’s ability to investigate and prosecute money laundering, corruption, and terrorism financing. 

The regulatory body pointed to weak enforcement of existing laws and limited convictions in high-profile corruption cases, particularly those linked to state capture, as key concerns for South Africa.

Momoniat explained some of the challenges that the National Treasury faced during the era of state capture to tighten the country’s legislation regarding financial crime. 

“Even back in 2015 and 2016, we tried to get the FICA Amendment Bill passed, and President Zuma had great objections over that bill,” Momoniat said. 

The bill was repeatedly held up in Cabinet for over a year, and when it passed through Parliament to Zuma’s desk to sign, it was referred back to Parliament for further discussion. 

“Zuma claimed there were constitutional deficiencies that we were able to address, but there was big resistance to the concept of politically-exposed persons being formalised in that bill,” Momoniat said. 

This concept was eventually watered down to politically influential persons and was just one example of resistance against increased scrutiny of political individuals to tackle money laundering. 

Momoniat said this resistance was a direct contributor to the country failing to meet 20 of FATF’s 40 legislative recommendations during the country’s mutual evaluation in 2021. 

It was an even larger factor behind FATF determining that South Africa failed on all 11 measures of effectiveness, which deal with the implementation of existing laws. 

The country was then placed into a one-year observation period by FATF to give it time to address the outcomes of the evaluation. 

South Africa managed to satisfy FATF’s demands for improved legislative measures to tackle money laundering and terror financing, but failed to prove its effectiveness in investigating and prosecuting these crimes. 

This was a direct result of the hollowing out of South Africa’s law enforcement agencies and prosecuting authorities during the period of state capture. 

“On implementation, I think we got there directly as a result of state capture and the reluctance of the former President and Cabinet of the time to update South Africa’s laws,” Momoniat said. 

The impact of state capture

South Africa has greatly improved the capacity of its law enforcement agencies and prosecuting agencies since the end of state capture to address FATF’s demands. 

However, the impact of state capture extends far beyond capacity, with one of the FATF’s key actionable items being the sustained investigation and prosecution of serious financial crimes. 

“Remember, state capture was about the deliberate weakening of the police, of the Hawks, of the National Prosecuting Authority, and SARS,” Momoniat said. 

“And so, we were actually lousy at implementing and enforcing the laws that applied to financial crimes in South Africa.” 

In this sense, Momoniat said that being placed on the greylist has been beneficial for South Africa, by forcing the government to take action. 

“In retrospect, it has been good for South Africa because it got us to do what we needed to do for our own sake, not for FATF’s sake, to deal with financial crimes,” he said. 

However, Momoniat warned that being removed from the greylist does not mean that the country’s problems are solved, and it can move on. 

“As we know, there are still criminals out there who, somewhere along the line, managed to escape justice.”

“Investigations are taking too long, and there are problems with getting them prosecuted. Certainly, in our judicial system, there appear to be challenges in dealing with these sophisticated financial crimes.” 

The most strenuous action items listed by FATF were those demanding a sustained increase in investigations and prosecutions for financial crime. 

“The fact that we have passed that test simply means that we have put in place a system where we can deal with such crimes,” Momoniat said. 

These actionable items merely focused on having sufficient resources and expertise to enforce the laws in effect in South Africa. This does not necessarily mean that criminals are being prosecuted. 

“The worst lesson to take out from this would be to say, ‘Everything is hunkey dorey and we are all good’. It actually requires us to now build on what has been developed up until this stage.” 

Momoniat said that the country will really know if it is on the right track during its next FATF mutual evaluation next year, with the organisation publishing that outcome in 2026. 

“We have obviously got to avoid being greylisted again. But, more importantly, we have to display that our system is functioning.” 

“I think there will be healthy pressure on us to build from the base that we have established over the past few years.”