South Africa’s money laundering hotspots

Gambling, property practitioners, legal practitioners, high-value dealers, and money remittance businesses are among the sectors at the highest risk of money laundering in South Africa.

Finance Minister Enoch Godongwana revealed this in response to a Parliamentary question from ATM MP Vuyolwethu Zungula.

Zungula asked the minister what the estimated annual losses to South Africa’s economy are due to illicit financial flows.

Godongwana explained that estimating the amount lost to the fiscus or the economy is difficult due to the illicit nature of illicit flows and tax evasion, and estimates, therefore, vary greatly. 

In 2023, the South African Revenue Service (SARS) estimated that illicit trade costs the economy R100 billion annually and robs the country of valuable resources.

A report published by Business Unity South Africa (BUSA) said illicit trade is one of the biggest threats to South Africa’s stability and economic growth.

It found South Africa faces challenges from illicit trade in alcohol, cigarettes, fishing, mining, counterfeit electronics, pharmaceuticals, food, and apparel.

SARS Commissioner Edward Kieswetter previously highlighted that illicit trade costs South Africa R250 million daily.

“The need to develop a methodology to more accurately counter all forms of illicit financial flows led the government to create a multi-disciplinary agency as a coordinating forum for the activities of various departments and agencies relating to illicit financial flows in 2017,” Godongwana said.

This inter-agency working group, chaired by the Financial Intelligence Centre, comprises law enforcement authorities, financial sector regulators, and SARS.

In assessing South Africa’s money laundering risks, the government has concluded that the sectors at the highest risk of money laundering, including illicit financial flows, are:

• The gambling sector.
• Property practitioners.
• Legal practitioners.
• High-value dealers.
• Money remittance businesses.
• Informal networks of money transfer services.
• The general use of cash.

Tax Justice South Africa’s Andy Mashaile previously said illicit trade is not a victimless crime.  “Tax dodgers are robbing South Africans of schools, housing, healthcare, and basic safety,” he said.

“The criminals live in luxury using funds that should be used to create jobs and wealth. They do so by stealing the tax they owe to the state purse.”

Greylisting

Tackling South Africa’s illicit financial flows problem is not just important because of its economic impact.

South Africa also faces a looming deadline to address Financial Action Task Force (FATF) requirements and remove itself from the greylist, which could have severe consequences if missed. 

In February 2023, the FATF officially ‘greylisted’ South Africa, meaning the country was identified as a jurisdiction under increased monitoring due to deficiencies in its measures to combat financial crimes.

This came after a 2021 FATF mutual evaluation report highlighted significant gaps in South Africa’s ability to investigate and prosecute money laundering, corruption, and terrorism financing cases.

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.

Since then, the government has made significant progress under Godongwana, reducing non-compliance issues and addressing most of the FATF’s recommendations. 

However, despite these improvements, some key concerns remain, including prosecuting financial crimes and ensuring transparency in beneficial ownership.

Although the government had initially aimed to exit the greylist by mid-2024, this goal was not met. 

The revised FATF deadline is February 2025, but Deputy Finance Minister David Masondo suggests a more realistic timeline is October 2025. 

Failure to exit the greylist by this deadline could lead to escalating negative impacts, including higher compliance costs, restricted access to global financial systems, and increased funding costs, further hindering South Africa’s economic competitiveness.