Two sectors to blame for keeping South Africa on the grey list – now fines and sanctions are coming
South Africa’s quest to get off the Financial Action Task Force’s (FATF’s) grey list is constantly being held up by non-compliance by institutions across various sectors – particularly legal practitioners and estate agents.
The FATF added South Africa to the grey list in early 2023 due to the country’s shortcomings in tackling illicit financial flows and combating terror financing.
After a year of rapid changes and concerted efforts from the government to address these issues, the country’s path off the list is still murky – with claims that certain sectors are ‘wilfully’ frustrating the process.
The Financial Intelligence Centre (FIC) says that certain designated non-financial businesses and professions (DNFBPs) are continuing to ignore directives to help get the country off the grey list.
At the FATF’s plenary in June, South Africa reported on how it has addressed the deficiencies
found in its measures for combating money laundering (ML) and terrorist financing (TF).
The FATF acknowledged that the FIC had made progress in understanding the risk levels of DNFBPs following the introduction of the risk and compliance return (RCR) questionnaire.
That said, the FATF was still concerned about DNFBPs’ low rates of RCR submissions to the FIC and emphasised that these accountable institutions needed to increase their response rates.
The RCR questionnaire assists institutions in identifying the risks that they face for ML and TF abuse.
The FIC uses its Risk and Compliance Assessment Analysis tool to evaluate the RCRs, identifying higher-risk DNFBPs.
In March 2023, the FIC issued Directive 6, which called on legal practitioners, estate agents, trust
service providers, company service providers, and casinos to complete and submit their RCRs.
The due date for these RCRs was 31 May 2023, but the average RCR submission rate to date remains at just:
- Legal practitioners – 60%
- Estate agents – 66%
- Trust service providers – 74%
- Company service providers – 76%
- Casinos – 100%
The FIC said that businesses in these sectors, apart from casinos, are in a state of non-compliance by not submitting their RCRs.
“They are, therefore, positioning themselves to have administrative sanctions being imposed on their businesses,” said the FIC.
“The current low response levels mean that the country is unable to show sufficient progress in fully addressing the FATF-identified deficiency, and DNFBPs are unable to identify their risks ML and TF abuse risks.”
“With these levels of non-compliance, the FIC has already embarked upon issuing notices of intention to sanction, sanctions and fines.”
Moreover, in March 2023, the FIC issued Directive 7, instructing dealers in precious stones, dealers in
precious metals (including Krugerrand dealers), credit providers and crypto asset service providers to submit RCRs by 31 July 2023.
However, many RCR submissions are still outstanding.
The non-compliance with Directives 6 and 7 remains a major stumbling block exiting the grey list.
“There appears to be willful non-compliance by businesses in these sectors, despite repeated
calls and appeals for them to complete and submit their long outstanding RCRs to the FIC,” said
Christopher Malan, executive manager for compliance and prevention at the FIC.
“Institutions that have still not submitted their RCRs, are considered delinquent institutions and
are automatically deemed to be at high risk of being used for money laundering and terrorist
financing purposes.
“These institutions now face targeted inspections or targeted sanctions for their non-compliance.”
“Over and above this, these businesses are dismantling and disrupting South Africa’s efforts to
exit the grey list and improve the country’s standing in the world economy.”
The FIC has already started issuing a notice of intention to sanction, which is aimed at remediation and payment of fines as an admission of non-compliance.
Institutions that elect not to comply and instead pay the financial penalty are processed through a formal adjudication process. The resulting financial penalty can then be increased due to the willful non-compliance from these institutions.
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