In late February 2023, the Financial Action Task Force (FATF) Plenary officially “greylisted” South Africa when it concluded that it would adopt the Report on South African Anti-Money Laundering and Counter Terrorist Financing Measures. Being greylisted brandishes a country as being financially unsafe, in that it has inadequate safeguards against money laundering and terrorist financing. Countries and organizations shy away from, or increase their own compliance requirements for dealing with countries that may be unable to prevent these crimes. Although dispiriting, the greylisting may yet present South Africa with opportunities for change. If South Africa can remove itself from the greylist, the country will do so with a revived approach to financial crimes, and a healthier financial environment.
On 24 February 2023, the FATF Plenary concluded that it would adopt the Report on South African Anti-money Laundering and Counter Terrorist Financing Measures and officially “greylist” South Africa.
The FATF published its Report on South African Anti-money Laundering and Counter Terrorist Financing Measures in October 2021. FATF routinely conducts these evaluations to determine the extent of a country’s technical compliance with global anti-money laundering and counter-terrorist financing (AML/CTF) laws.
The FATF evaluation is a searching one, assessing a country against 40 Recommendations, which set out a comprehensive framework that countries should strive towards to combat money laundering and terrorist financing. Different countries have vastly different legislative and administrative systems, so the Recommendations are an aspirational framework and not a strict laundry list. FATF evaluates a country and ultimately makes a value judgement on its technical compliance with the Recommendations.
The South African Report concluded that South Africa is partially compliant with 17 of the FATF technical Recommendations, and totally non-compliant with three of them, painting a dire picture of the country’s ability to ensure safeguards in accordance with international standards for AML/CTF.
Greylisting is not a process akin to international judicial proceedings, and FATF does not impose penalties or sanctions on a greylisted country. Instead, being greylisted brandishes a country as being financially unsafe, in that it has inadequate AML/CTF safeguards. The financial and political costs associated with money laundering and terrorist financing are severe, and countries and organizations shy away from, or increase their own compliance requirements for dealing with countries that may be unable to prevent these crimes.
The decision to greylist South Africa follows the enactment of the General Laws (Anti-Money Laundering and Combating Terrorism Financing) Amendment Act, 2022 and the Protection of Constitutional Democracy Against Terrorist and Related Activities Amendment Act, 2022. These Acts sought to cure some of the deficiencies in South Africa’s financial schema identified by FATF. However, legislative amendments are not enough to overhaul the AML/CTF framework and detailed regulations, which give effect to these laws, must also be consistently implemented.
FATF concluded in its October 2021 Report that South Africa has a “solid legal framework for combating money laundering, “but that country needed to implement this system more effectively, through greater policing by financial authorities, and international cooperation with other FATF style regional bodies. The Report specifically referred to the erosion of financial criminal prosecution and corruption, which has plagued the implementation of South Africa’s AML/CTF laws.
Although dispiriting, the greylisting by FATF may yet present South Africa with opportunities for change. South Africa has applied for a re-assessment of our AML/CTF laws by the FATF Plenary in June 2023. It is possible that we could see the rapid mobilization of financial criminal action in this time, especially considering that the South African Minister of Finance announced that the Financial Intelligence Centre will receive ZAR 265.3 million over the next three years to update the country’s AML/CTF infrastructure. If South Africa successfully climbs out of the FATF greylist, the country will do so with a revived approach to financial crimes, and a healthier financial environment for investors and South Africans alike.
This article was written by Gabriel Rybko, Candidate Attorney and Ashlin Perumall, Partner, Corporate/M&A Practice, Johannesburg.