Xolisile Khanyile, director of the Financial Intelligence Centre, says in spite of speculation to the contrary, SA is going to be greylisted because it hasn't met the requirements of the Financial Action Task Force for combating money laundering and terrorism financing.
“I don't see us escaping greylisting at all, and that's not a good experience. Once you are greylisted the repercussions are dire.”
It will be a major blow to President Cyril Ramaphosa's hope of attracting investment, she says.
“Investors won't go to a country that has been listed as a high-risk jurisdiction. Once you're greylisted it means you are a high-risk jurisdiction.”
She believes SA will suffer this fate when the FATF plenary meets in February 2023.
“We will be discussing everything with the FATF in February, but we are definitely going there, there is no other option.”
SA was assessed by the FATF in 2019 and found seriously wanting.
“Since then we have seen a lot of improvement, but this doesn't mean we'll be able to produce evidence that we've got the necessary laws and that we're effective”, says Khanyile, who has been front and centre of efforts to ensure the country complies with international anti-money laundering and terrorist financing standards since becoming FIC director in January 2018.
“We have failed to deal with corruption and state capture, we've failed to even recover the assets that are the proceeds of crime and that have left the country due to state capture.”
Though the National Prosecuting Agency's investigative directorate is starting to bring people to court, and collaboration between different law-enforcement entities is improving, they're still badly under-capacitated, she says.
“If you want to be effective in fighting financial crime you have to be capacitated.”
The country needs police officers who are proactive and understand financial crimes.
“You need prosecutors who work closely with the FIC so that when we send them reports they're able to convert those reports into an investigation.
What is critical now is that we come back from greylisting as quickly as possible
“These are things we should have prioritised years ago: to have financial investigators, financial analysts, data specialists, forensic accounting skills, investigators who understand how cyber criminals operate.”
Though there is “at least now the political will to beef up the NPA and the Hawks with the right skills”, improvements have been too little and too late.
“What is critical now is that we come back from greylisting as quickly as possible.”
Does the FIC have the capacity to lead a quick recovery?
“This is not an FIC issue, it's a country issue. The FATF wants to see that we've got money laundering investigations and prosecutions, and that we're doing asset recovery.”
It starts with the banks picking up suspicious transactions and reporting them, she says. But a lot of money laundering and terrorist financing is facilitated by non-financial entities like estate agents, casinos and attorneys who have been shown to be among the most vulnerable to such crimes.
Legislation is in the pipeline to allow the FIC to regulate and monitor these entities but she admits they don't have the capacity to do the job.
“We have a commitment from the National Treasury to get additional resources for this.
“But we need to move first with money laundering investigations, prosecutions and asset recovery, more particularly when it comes to state capture cases.”
The Independent Directorate is making progress, but too slowly.
The second issue that needs to be tackled urgently is terrorist financing.
“When the FATF assessors came in 2019 we had only one case that we'd done seven years before. But we have people in the country who are financing terrorism and we need to be prosecuting them.
“The FATF wants to see that this is prioritised, and that we've got strong policies that deal with it.”
She finds it “embarrassing” that SA will be the most sophisticated economy ever grey-listed.
“It's embarrassing if you're a FATF member, not a regional body, and you've committed to these recommendations and you're falling short.”
Shouldn't a first-world financial sector like SA's have procedures to deal with the risks of money laundering and terrorist financing?
“We do, but banks need to report. If they don't report we can't fight financial crime. But we mustn't only focus on the big banks. State capture happened in small banks, like VBS Mutual Bank.”
A public-private partnership, the South African Anti-Money Laundering Integrated Task Force, has been formed, under the umbrella of which information about a suspicious client can be shared.
“Before, if I went to a bank and transacted in cash they would report it. But that wouldn't be enough to understand what money laundering or criminal activities I'm busy with. Now, you're not only getting a report on one transaction, you're getting a scenic view of this client's activities.”
Khanyile says she's confident SA will be off the greylist in less than two years.
“We've seen Mauritius doing it in 20 months and we can do it as well.”
It's embarrassing if you're a FATF member, not a regional body, and you've committed to these recommendations and you're falling short
That was thanks to a co-ordinated national effort led from the top. Has the South African government shown the same level of commitment?
She points to an interministerial body led by the Treasury, which meets every week.
“We're all collaborating, we all understand what needs to be done. Everyone is busy with legislative amendments.”
She concedes that it's the implementation of these new laws the country has to demonstrate.
“Every critical player in the value chain needs to understand the risks the country is facing.”
Did ministers understand the risks of being greylisted when warned about them, as she says they were?
“That's a good question. You might say things only to find it goes in this ear and comes out the other, and people are not listening.
“Every meeting we've had with stakeholders, as the FIC, we've said to each and every department, these are the things you need to be doing.
“Some departments moved, some have been very, very slow.”
She names the department of social development, which has failed to regulate and monitor non-profit organisations.
“Those are things we need to be working on, because NPOs are vulnerable and can be used for terrorist financing. We've seen it in a number of cases, where terrorist financiers open NPOs to fund terrorist activity.”
The FIC was established precisely to prevent money laundering and terrorist financing, so why didn't it?
“We don't have eyes everywhere,” says Khanyile, a former NPA prosecutor. “If banks, attorneys and estate agents are not reporting these crimes you can't blame the FIC.”
Would you like to comment on this article?
Sign up (it's quick and free) or sign in now.
Please read our Comment Policy before commenting.