South Africa’s roadmap from grey to green

The National Treasury plans to get South Africa off the Financial Action Task Force (FATF) greylist by January 2025.

South Africa was placed on the FATF’s list of countries under increased monitoring for failing to comply with eight deficiencies relating to the country’s ability to combat financial crimes such as money laundering and terror financing.

Business Leadership South Africa (BLSA) said being greylisted would increase transaction costs for cross-border payments and cause reputational damage to the country.

Importantly, the FATF does not require international authorities to implement enhanced due diligence measures but rather advocates for “the application of a risk-based approach” when transacting with greylisted countries.

Despite the FATF not enforcing increased oversight measures, Treasury said that “selected institutions are expected to undertake more enhanced monitoring, for their own business reasons, or as may be required by their own laws”.

It means that organisations in a greylisted country that engage in cross-border trade “may be subject to higher levels of customer due diligence by financial institutions outside of that country”.

The researchers who produced the BLSA report estimated that greylisting would reduce South Africa’s GDP by under 1% if the country works diligently with the FATF to combat deficiencies in combating financial crime.

They forecast a 3% hit to GDP if the country is slow and unwilling to meet the standards set out by the FATF.

“However, if a country has demonstrated that it has taken strong and credible steps to prevent or get out of greylisting, the costs of greylisting will likely be reduced,” said Treasury.

South Africa has made significant progress in complying with all of the FATFs standards but will need to address the following eight issues to get off of the greylist:

1. Demonstrate a sustained increase in outbound mutual legal assistance requests that help facilitate money laundering/terrorism financing 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 and demonstrate that all anti-money laundering/counter-terrorism financing 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 apply 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 money laundering/terrorism financing investigations.
5. Demonstrate a sustained increase in investigations and prosecutions of serious and complex money laundering and the full range of terror financing 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 terror financing risk assessment to inform the implementation of a comprehensive national counter-financing of terrorism strategy.
8. Ensure the effective implementation of targeted financial sanctions and demonstrate an effective mechanism to identify individuals and entities that meet the criteria for domestic designation.

South Africa expects to address all eight deficiencies by January 2025 but hopes to do so sooner – possibly in 2024. 

Compliance with the FATF criteria forms part of a wider government objective for regulating the financial sector, said Treasury.