Come September, key players in South Africa’s financial sector could be called upon to prove just how seriously the country is taking its fight against financial crime.
On 13 June, the Financial Action Task Force (FATF) announced that South Africa has largely addressed all 22 action items outlined in the Action Plan it agreed to when it was placed on the organisation’s grey list in February 2023.
The decision, taken during FATF’s plenary in Strasbourg, France, clears the way for an on-site assessment – the penultimate step before South Africa can be officially removed from the grey list.
“South Africa has substantially completed its Action Plan and warrants an on-site assessment to verify that the implementation of AML/CFT [anti-money laundering/counter-terrorism financing] reforms has begun and is being sustained, and that the necessary political commitment remains in place to sustain implementation in the future,” the FATF said.
The 22-item Action Plan was drawn up when the FATF grey-listed South Africa in February 2023.
The 22 items are linked to the eight strategic deficiencies identified in South Africa’s AML/CFT regime. The Action Plan also contains deadlines, linked to reporting cycles, by which South Africa must have fully or largely addressed each of the 22 items.
Following its plenary in February, the FATF announced that South Africa had largely addressed 20 of the 22 action items, leaving two items assessed as being partly addressed. These items required South Africa to demonstrate “a sustained increase” in investigating and prosecuting cases of money laundering (ML) and terrorist financing (TF).
Read: SA won’t get off the grey list in June – Treasury now aiming for October
In a statement on Friday, National Treasury praised the efforts and commitment of law enforcement entities – particularly the Directorate for Priority Crime Investigation, the State Security Agency, and the National Prosecuting Authority – for the sustained increase in investigations and prosecutions of serious and complex ML and TF activities.
“This made it possible for South Africa to secure the upgrades of the last two remaining action items, often considered to be the most difficult, in the current reporting cycle.”
Treasury said the improvements to South Africa’s AML/CFT regime are particularly important because of the legacy of state capture, one element of which was that law enforcement and prosecuting institutions were deliberately weakened.
Improvements in these domains are critical not only for getting off the grey list, but also for strengthening the fight against crime and corruption, and for contributing to the integrity of South Africa’s financial system, it said.
The June plenary also determined that Burkina Faso, Mozambique, and Nigeria have substantially completed their Action Plans.
The FATF said the reforms to South Africa’s AML/CFT regime have included:
- Demonstrating a sustained increase in outbound Mutual Legal Assistance (MLA) requests that help facilitate ML/TF investigations and confiscations of different types of assets in line with its risk profile. “Outbound MLA requests” refer to requests sent by one country to another to seek help in criminal investigations or proceedings. They are formal appeals made by a country’s authorities to a foreign government for assistance in matters related to criminal justice that cross international borders.
- Improving risk-based supervision of designated non-financial businesses and professions (DNFBPs) and demonstrating that all AML/CFT supervisors apply effective, proportionate, and effective sanctions for non-compliance.
- Ensuring that competent authorities have timely access to accurate and up-to-date beneficial ownership (BO) information on legal persons and arrangements and applying sanctions for breaches of violation by legal persons to BO obligations.
- Demonstrating a sustained increase in law enforcement agencies’ requests for financial intelligence from the Financial Intelligence Centre for its ML/TF investigations.
- Demonstrating a sustained increase in investigations and prosecutions of serious and complex ML and the full range of TF activities in line with its risk profile.
- Enhancing its identification, seizure, and confiscation of the proceeds and instrumentalities of a wider range of predicate crimes, in line with its risk profile.
- Updating its TF Risk Assessment to inform the implementation of a comprehensive national CFT strategy.
- Ensuring the effective implementation of targeted financial sanctions and demonstrating an effective mechanism to identify individuals and entities that meet the criteria for domestic designation.
SA must also pass an on-site assessment
Now that South Africa has demonstrated sufficient compliance with all the action items, the plenary has authorised an on-site visit by the Africa Joint Group to confirm its assessment of the progress.
The on-site visit will take place before the next FATF plenary. If the outcome of the visit is positive, the FATF will delist South Africa from the grey list at its next plenary in October.
The visit will involve intensive engagements with public and private sector stakeholders to confirm that the country’s AML/CFT reforms are working in practice.
Institutions that may be selected for these engagements include banks, insurers, auditors, legal professionals, and other financial intermediaries – particularly those exposed to higher ML or TF risk. The FATF assessors will not inspect every institution but will sample those whose operations are deemed systemically important or illustrative of key risk areas.
During on-site visits, the FATF assessors typically conduct face-to-face interviews, request documentation, and test the application of compliance measures. Financial institutions may be asked to demonstrate how they monitor and report suspicious transactions, apply risk-based due diligence, screen clients against sanction lists and cooperate with authorities during investigations.
In short, the assessors will want to see more than policies on paper – they’ll expect evidence of a culture of compliance.
According to Charl Geel, head of FICA supervision at the FSCA, assessors will particularly engage with those that have been sanctioned – to determine whether the sanction had a deterrent effect “to understand did the sanction lead to or was it the sanction dissuasive enough, did you change some of your processes as a result of the sanction?”
Read: AML/CFT | Strict enforcement will be the new normal
The grey list, officially the “list of jurisdictions under increased monitoring”, is a list of countries that are deemed to have deficiencies in their AML/CFT systems and are considered to pose a risk to the international financial system.
When a country is placed on the grey list, it means the FATF has identified certain weaknesses or shortcomings in its framework. These deficiencies could include inadequate laws or regulations, insufficient enforcement measures, or a lack of co-operation with other countries on AML/CFT issues.
The June plenary decided to remove Croatia, Mali, and Tanzania from the grey list, while Bolivia and the British Virgin Islands were added to the list.
