The Financial Action Task Force (FATF), along with the Eastern and Southern Africa Anti-Money Laundering Group, assessed South Africa’s anti-money laundering/countering the financing of terrorism (AML/CFT) regime during an onsite visit in November 2019. At the time, South Africa was in a precarious position, following the “state capture” saga that saw unprecedented levels of kleptocracy and corruption flourish within the country.

ICA

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The mutual evaluation report that followed was a comprehensive review of the effectiveness of South Africa’s AML/CFT measures and the degree to which it was compliant with the FATF’s recommendations. The FATF adopted the report at its June 2021 plenary.

FATF findings

The report revealed while South Africa has a solid legal framework to fight money laundering and terrorist financing, there existed significant weaknesses in parts of the country’s AML/CFT regime. The country failed to fully meet 20 of the 40 FATF’s recommendations. Consequently, South Africa was expected to take remedial steps by October 2022 to address the deficiencies identified in the FATF’s report.

If it is judged South Africa failed to do this by February 2023, the FATF will take action and place the country on its “grey list.”

A country placed on the list could suffer profound economic consequences. The list acts as a signifier that the jurisdiction designated either does not have the legal and regulatory structures in place to prevent criminality (like money laundering) within its financial system or is not using the legislation it has at its disposal to help prevent it.

South Africa’s Treasury has reacted by introducing changes to legislation that will see:

  1. Vital updates to the Financial Intelligence Centre Act, which is South Africa’s primary legislation on AML/CFT. The amendments will result in an increase in the list of accountable institutions required to comply with AML/CFT laws. This will include but not be limited to virtual asset service providers and dealers in high-value goods.
  2. Modifications to the Trust Property Control Act and Nonprofit Organisations Act, which will place an obligation on trusts and nonprofit organizations to comply with AML/CFT laws.
  3. Updates to the Companies Act to allow for transparency and reporting on beneficial ownership.

In addition to these amendments, South Africa needs to shrug off a commonly held view—not only internationally but locally—that it is reluctant or incapable of acting against those who flout compliance with financial crime legislation. The criminal justice system needs to illustrate practical progress in enforcing its laws and prosecuting offenders.

Institutions required to comply with AML/CFT laws have undertaken remedial action to address the deficiencies highlighted in the FATF’s report and continue to improve the adequacy and effectiveness of their internal control environment.

South Africa is expected to provide a progress report to the FATF in November 2022, which will be assessed and reviewed accordingly. The decision as to whether South Africa will be placed on the grey list is expected to be communicated three months later.

Sholane Sathu is an international compliance consultant, trainer, and project manager working with institutions across jurisdictions to improve their level of compliance and control environment. The International Compliance Association is a sister company to Compliance Week. Both organizations are under the umbrella of Wilmington plc.

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