South Africa inching closer to FATF watchlist

During a November 2019 site visit, the Financial Action Task Force (FATF) and the Eastern and Southern Africa Anti-Money Laundering Group evaluated South Africa's anti-money laundering/countering the funding of terrorism (AML/CFT) regime. Following the "state capture" story, which saw unprecedented levels of kleptocracy and corruption thrive in the country, South Africa was in a vulnerable position.

The subsequent mutual evaluation report was an exhaustive analysis of the efficiency of South Africa's AML/CFT controls and its degree of compliance with FATF recommendations. At its June 2021 plenary, the FATF approved the report.

FATF findings

The analysis concluded that while South Africa has a sound legal framework to combat money laundering and terrorism funding, its AML/CFT regime contains substantial flaws. Twenty of FATF's forty recommendations were not met in full by the country. Therefore, South Africa was asked to take corrective measures by October 2022 to rectify the inadequacies noted in the FATF report.

If South Africa is deemed to have failed to comply by February 2023, the FATF will take action and place the nation on its "grey list."

A country placed on the list could experience severe economic repercussions. The list indicates that the designated country either does not have the legal and regulatory frameworks in place to prevent criminality (such as money laundering) within its financial system or is not utilising the legislation it has available to help prevent it.

The South African Treasury has responded by introducing legislative reforms that will result in:

Important amendments to the Financial Intelligence Centre Act, South Africa's key AML/CFT statute. The modifications will expand the number of accountable institutions required to comply with AML/CFT regulations. This includes, but is not limited to, virtual asset service providers and high-value products sellers.

The Trust Property Control Act and Nonprofit Organisations Act will be amended to require compliance with AML/CFT requirements by trusts and nonprofit organisations.

Amendments to the Companies Act to provide for beneficial ownership transparency and reporting.

In addition to these revisions, South Africa must dispel the worldwide and domestic perception that it is unwilling or unable of proceeding against individuals who disregard compliance with financial crime regulations. The criminal justice system must demonstrate progress in the enforcement of its laws and prosecution of offenders.

Institutions required to comply with AML/CFT regulations have taken corrective action to address the inadequacies highlighted in the FATF's assessment and continue to enhance the sufficiency and efficacy of their internal control environment.

In November 2022, South Africa is expected to submit a progress report to the FATF, which will be evaluated and reviewed accordingly. Three months later, the decision about whether South Africa would be placed on the grey list is likely to be notified.

Sholane Sathu is a global compliance consultant, trainer, and project manager who collaborates with institutions across jurisdictions to enhance their compliance and control environment. The International Compliance Association is Compliance Week's sibling organisation. Both organisations fall under Wilmington plc's umbrella.

By fLEXI tEAM