Two sectors holding South Africa back from getting off the grey list – and time is running out

South Africa has hit a bump in its plans to get off the Financial Action Task Force’s (FATF’s)grey list, with two industries in particular to blame.

In February 2022, the FATF added South Africa to the grey list due to the nation’s weaknesses in tackling illicit financial flows and combating terror financing.

On a practical level, the impact is being felt with the European Union adding South Africa to a list of high-risk countries in May.

Speaking at a media roundtable on Wednesday (14 February), Christopher Malan, Executive Manager of Compliance and Prevention at the Financial Intelligence Unit (FIC), said that South Africa’s progress in getting off the grey list has been hindered by two groups – legal practitioners and estate agents.

The FATF flagged these sectors as easy avenues to launder money.

To get off the greylist, South Africa has identified 22 action items that need to be met by set deadlines.

However, two action items of the 22 are facing an uphill battle due to the non-compliance of legal practitioners and estate agents.

Action Item IO3/4 2A (“directive 2A”) sees the FIC identify high-risk entities, while Action Item IO3/4 2B (“directive 2B”) investigates these entities.

However, directive 2A has been hampered by companies not filling their risk and compliance returns (RCRs). This then limits directive 2B as high-risk entities are yet to be identified.

Of the 16,000 legal practitioner offices and branches where business is conducted who have registered with FIC, just over 50% have submitted their RCRs.

The picture is worse for estate agents; of the 9,000 estate agent practitioner offices and branches registered with FIC, only 43% have submitted their RCRs.

This comes despite the FIC hosting webinars and contacting regulatory bodies to ensure greater compliance.

After these entities missed set deadlines and to ensure greater compliance, the FIC started sanctioning them, which included a R50,000 fine.

Malan said that although this is the first time the FIC is asking for an RCR from these sectors, they should be easy to fill in as the FIC is not asking for new information.

Time-sensitive

The issue has become incredibly time-sensitive for the FIC, with it needing to ensure that directive 2A is met by May of this year.

The FIC will meet with a FATF committee made up of African and Middle Eastern nations to discuss its progress and then meet with the Paris-based heads of the FATF in June.

Malan said that if the May deadline is not met, it will mean “near death” for the nation’s ability to get off the grey list by next year, with directive 2B’s deadline of September then also not being able to be met.

He added that those in the legal and real estate sectors would also be harmed if they did not comply, as they would be seen as bad corporate citizens and not committed to fighting money laundering.

As per the FATF’s rules, South Africa will have to ensure that it meets all 22 directives to get off the grey list.

Although the FATF has given South Africa until the end of January 2025 to address its shortcomings, Malan said that all of these actions should be met by November, as December and January will be used for filing a report to the FATF.

Neverthless, despite the immediate issues facing South Africa’s battle to get off the grey list, there is a belief that the country will be able to meet the January 2025 deadline.

Malan said that should the issues with directive 2A be resolved, the FIC and all other relevant stakeholders will be able to meet the deadline for all of the 22 directives.

This article has been updated following clarification from the FIC.

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