SA has left it too late to avoid greylisting and should start preparing to implement the lessons learnt by Mauritius on how to get off the list of financially risky countries before too much damage is done.
That is the view of James George, compliance manager at Compli-Serve SA, a provider of advisory and compliance services to financial services firms. The country’s failure to pass key legislation means greylisting is virtually inevitable, he says.
Just last week, a report commissioned by Business Leadership SA (BLSA) said there was an 85% chance the Paris-based Financial Action Task Force (FATF) would add SA to its greylist of countries with poor anti-money laundering (AML) and combating of financing of terrorism (CFT) measures when it makes its final decision on the issue in February 2023.
“I strongly believe it is more like 99% that we are heading to the FATF greylist and eventually to the EU blacklist,” George told Business Day in an interview. “It just seems to me that everything has been left to the last minute.”
At the heart of the problem is SA’s failure to pass three key pieces of legislation: the Protection of Constitutional Democracy against Terrorism and Related Activities Amendment Bill; amendments to schedules 1, 2 and 3 of the Financial Intelligence Centre (FIC) Act; and, the General Laws Amendment Bill, which seeks to strengthen the country’s AML and CFT laws.
FATF gave SA until end-October to come up with a credible plan to tackle shortcomings identified in its ability to prevent financial crimes, failing which it could be greylisted at a review meeting in February 2023. While finance minister Enoch Godongwana has said the government will be filing a report with the FATF later this month and that there is a good chance SA can still avoid the greylist, George is not convinced.
“If we’ve still got three bills outstanding there’s no way FATF can do any kind of assessment in terms of how effective the bills have been because the new legislation hasn’t even been passed yet — that’s the problem,” says George. “I am taken aback at this late hour by the tardiness in bringing these new pieces of legislation to parliament, despite the fact that a greylisting is now imminent.”
Given the high likelihood that SA is greylisted in early 2023, George says all relevant stakeholders — ranging from government institutions to the financial sector and the new entities that will have to comply with the Fica bill once amendments are passed — should begin working on plans to get off the greylist. To do that he says SA must learn from Mauritius, which was added to the greylist in February 2020, but was removed from it in less than two years.
Among the lessons SA needs to learn from its Indian Ocean counterpart is the rapid implementation of a comprehensive risk-based supervision framework to monitor financial and non-financial entities such as real estate brokers and developers, accountants, auditors, dealers in precious metals and co-operative societies. Non-profit organisations also require greater financial oversight though many are pushing back against legislative amendments that will enable this, despite most not having appropriate expertise in risk assessment, terror financing or money laundering.
George also says SA needs to follow Mauritius’s lead in bolstering its detection of fraud, prosecuting criminals and confiscating the proceeds of illicit activity. Mauritius has also implemented an AML and CFT data collection system and has bolstered training for relevant people in the public and private sectors to ensure they are fulfilling their obligations to combat financial crimes.
“It just seems inevitable now that we are going on to the greylist, so we’ve got to turn our attention to getting off it because the longer we’re on there the worse the economic toll and damage may be,” said George.
“We might not be as lucky as Mauritius was to get off the list so quickly, as countries tend to spend several years on the list tackling legal amendments, but it is possible.”
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