Greylisting could be the wake-up call South Africa needs

While no country would ever want to be on the Financial Action Task Force’s (FATF) ‘grey list’, falling foul of the group could kick-start and accelerate much-needed reforms to counter fraud, corruption and terrorism financing in South Africa.

James George, compliance manager at professional services group Compli-Serve SA, said that this is one of the more positive outcomes of falling onto the grey list, adding that these sweeping changes were seen in Mauritius, which was able to get off the list in under two years.

“Looking at how Mauritius managed its grey time provides some good insight into what needs to be done to improve South Africa’s anti-money laundering and terrorist financing measures,” he said.

“Going grey was a good thing for Mauritius and could be for South Africa as well – enhancing defences against financial fraud in the process. There can be a positive outcome if we don’t make it, and if we look to the likes of Mauritius in dealing with the same grey reality.”

Mauritius was initially grey-listed in February 2020 for several reasons, including a lack of effective risk-based supervision, limited access to beneficial ownership information, and insufficient oversight of non-profit organisations that may be subject to terrorist financing. There was also a general ineffectiveness in conducting money laundering investigations, George said.

With South Africa, from state capture to Steinhoff, the country is no stranger to its own issues and has been under FATF observation since October 2021. It now has until February 2023 year to show improvements in financial crime prevention, or else the grey list is an inevitable consequence.

“We might not be as lucky as Mauritius was to get off the grey list so quickly – as countries tend to spend several years on the list tackling legal amendments – but it is possible. It has taken a concerted effort to pull off this grey list exit, but Mauritius is now largely or fully compliant with 39 of the 40 FATF recommendations,” he said.

Mauritius has its FATF-approved objectives set out across core strategies such as:

• Strengthening AML/CFT (Anti-Money Laundering / Counter Financing Terrorism) Legal and Regulatory Frameworks to meet international standards, effective in mitigating risks.
• Implementing a comprehensive risk-based supervision framework is another strategy to monitor financial institutions and designated non-financial businesses, such as real estate brokers, banking and securities, and jewellery stores.
• Improving the process of detecting threats of fraud, prosecuting criminals, and confiscating illegal proceeds.
• Enhancing the transparency of legal persons and enlisted national coordination, as well as regional and international cooperation, which means authorities are working closely together to combat money laundering and financial crime.
• Increasing training and capacity and raising awareness to ensure all stakeholders are working in accordance with AML/CFT obligations.
• Implementing an AML/CFT data collection system, which aims to continuously improve risk detection.

“These are all very good steps that have gone a long way for Mauritius, and South Africa would do well to take note,” George said.

Not sitting still

Reaction from South Africa to possibly being added to the grey list has ranged from it being “already priced in” to it being “worse than a credit downgrade“. The national government, however, is doing what it can to not find out.

The South African government is tabling a flurry of amendment bills between now and the end of November in a bid to prove to global financial bodies that it is capable of fighting money laundering and other forms of corruption.

Reiterating the government’s commitment to nip illicit money flows, finance minister Enoch Godongwana has tabled in Parliament the Anti-Money Laundering and Combating Terrorism Financing Amendment Bill.

This comes after Cabinet approved the tabling of the bill in parliament at its meeting on 17 August 2022.  An additional bill is also planned for the coming months, namely, the Protection of Constitutional Democracy against Terrorist and Related Activities Amendment Bill, 2022.

In a statement, the National Treasury said the approval is a demonstration of the government’s commitment to fighting corruption, money laundering and terror financing.

“This signifies a significant step towards addressing the deficiencies identified by the Financial Action Task Force’s (FATF’s) Mutual Evaluation Report (MER) of South Africa, published by the FATF in October 2021,” the Treasury said in a statement.

When enacted into law, it will improve the country’s adherence to international best practices in combating financial crimes and corruption.

Read: Massive changes on the cards for South Africa’s finance laws as greylisting draws near