In a recent newsletter, President Cyril Ramaphosa said that South Africa knows what needs to be done to be removed from the greylist and that the fundamentals are in place. Eight areas of strategic deficiency have been identified by the Financial Action Task Force (FATF) which Government needs to urgently address in order to get off the greylist. But it remains questionable whether South Africa can meet its self-imposed 2024 deadline.
This is according to Candice Dookran, Product Manager and Compliance Expert at RelyComply, an AI-driven end-to-end anti-money laundering (AML) platform that automates and streamlines AML compliance. She says that, although the FATF has indicated that South Africa has made significant progress in recent months, unfortunately, these efforts fell short of what was needed to avoid greylisting. “I do believe, however, that given all that needs to be done to satisfy the FATF regarding the country’s financial crime prevention strategies, including the eight areas highlighted by the taskforce, this will most likely be achieved by the end of 2026.”
No time to waste
“Considering the impact that being greylisted has on the country, it is vital for Government to swiftly accomplish its action plan”, explains Dookran. “Historically, greylisting has led to a substantial decline in capital inflows and foreign direct investment, resulting in a subsequently stagnating economy. This will likely be the case in South Africa, an economy which is already stagnating and where further job losses cannot be afforded.”
“Furthermore, Government and state-owned companies will find it harder to borrow money and obtain additional financing from global banks and bodies such as the International Monetary Fund (IMF), the World Bank and the European Bank for Construction and Development,” she warns. “Greylisting could also lead to currency degradation, inflation and trade deficits. Moreover, there is the possibility that South Africa could face sanctions. While the FATF itself does not impose sanctions, other countries, or bodies and organisations such as the European Union (EU), might impose economic sanctions on a particular country in response to an unfavourable FATF review report.”
“Generally, it takes one to three years for countries to address the necessary deficiencies to be removed from the greylist. This transpires after a final, on-site assessment when both the FATF and the relevant country believe that all elements of the action plan have been largely or fully addressed,” notes Dookran.
SA’s eight-point action plan checklist
She points out that, although the president mentioned that the country has been putting measures in place since 2021 – addressing 59 of the 67 recommended actions emanating from the FATF’s mutual evaluation – the following needs to be accomplished expeditiously to minimise the impact on the country’s financial future:
Demonstrate a sustained increase in outbound Mutual Legal Assistance (MLA) requests that help facilitate AML and/or counter-terrorist financing (CTF) investigations and confiscations of various types of assets in line with the country’s risk profile;
- Improve risk-based supervision of Designated Non-Financial Businesses and Professions (DNFBPs) and show that all AML/CTF supervisors apply effective and proportionate sanctions for noncompliance;
- Ensure that competent authorities have timely access to accurate and up-to-date beneficial ownership (BO) information on legal persons and arrangements and that sanctions for breaches or violations by legal persons to BO obligations are suitably applied;
- Illustrate a sustained increase in law enforcement agencies’ requests for financial intelligence from the Financial Intelligence Centre (FIC) for AML/CTF investigations;
- Exhibit a sustained increase in investigations and prosecutions of serious and complex money laundering and the full range of terrorist funding activities in line with the country’s risk profile;
- Enhance the identification, seizure and confiscation of proceeds and instrumentalities of a wider range of predicate crimes (i.e.,crimes that form part of larger crimes), in accordance with the country’s risk profile;
- Update the country’s Terrorist Financing Risk Assessment to inform the implementation of a comprehensive national counter-terror financing strategy; and
- Ensure the effective implementation of targeted financial sanctions and demonstrate a practical mechanism for identifying individuals and entities that meet the criteria for domestic designation.
“The need for implementing powerful AML/CTF compliance measures across the board is now more certain than ever before. Financial institutions have a part to play in rebuilding the country’s financial risk profile and technology will be key in bringing certainty to AML practices, where accountability, efficiency and rigour are of the utmost necessity,” concludes Dookran.