Finance minister Enoch Godongwana has warned SA to prepare to join the ranks of Albania, South Sudan and Yemen, countries deemed to have inadequate antimoney laundering and terrorist financing (AML/CFT) controls.
The Financial Action Task Force (FATF), a Paris-based body that monitors countries’ efforts to comply with global AML/CFT standards, is set to decide on Friday evening whether SA will be placed on a list of countries it subjects to increased monitoring. Being added to FATF’s greylist will relegate SA to the ranks of the 23 jurisdictions it regards as having deficiencies in their regimes to counter illicit financial activity.
“We should be prepared for that possibility,” Godongwana said in his February 2023 budget speech, in which he unveiled additional financial allocations to help SA fight rampant crime and corruption.
“We recognise the need to be more effective in implementing our laws particularly in fighting organised and sophisticated crimes,” he said. “Addressing the FATF issues is part of the broader fight against corruption, crime, state capture and the deliberate weakening of the institutions of law and order in our country.”
Being added to FATF’s greylist is likely to see SA companies, state-owned entities and government face increased regulatory scrutiny as well as more onerous administrative requirements when doing business internationally or transferring money across borders. The increased compliance burden would likely also raise the cost of doing business overseas and could also see local banks and corporates face higher international borrowing costs to account for SA’s higher perceived risk.
Though President Cyril Ramaphosa signed into law two acts on December 30 in a hasty effort to improve SA’s standing with FATF the organisation is still widely expected to add the country to its greylist on Friday. Compli-Serve, an independent compliance advisory, told Business Day earlier this month that it sees a 60% likelihood of SA being greylisted while Intellidex director Peter Attard Montalto said the designation was a “done deal.”
Nevertheless, Godongwana thanked parliamentarians for the speed with which they passed the two critical pieces of legislation at the end of 2022: the Protection of Constitutional Democracy against Terrorist and Related Activities Amendment Act and the General Law Amendment Act.
“Were it not for that speed we would probably still be struggling in arguing our case to FATF,” said Godongwana.
The finance minister said the two acts addressed 15 of 20 legislative deficiencies identified by FATF while the remaining five shortcomings would be remedied through regulations and non-legislative measures.
The 2023 Budget Review said the remaining deficiencies SA still needed to address to placate FATF included weak implementation of new beneficial ownership legislative requirements for legal entities such as companies, trusts and non-profit organisations. SA was also seen by FATF to have poor anti-money laundering controls in nonfinancial sectors such as the legal profession, estate agents, crypto asset service providers and trust services providers.
Another shortcoming was SA’s poor track record in conducting investigations, prosecutions and asset forfeitures related to money laundering and terror financing. That is probably why Godongwana allocated R14bn to SA’s security and prosecuting agencies to help fight crime and corruption over the medium term.
Yet despite these efforts it appears that the government sees SA’s greylisting as more or less inevitable. In perhaps the clearest sign that the country will be greylisted, the Budget Review revealed that the government has already asked FATF to formally reassess SA’s compliance during its June 2023 plenary.
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