Rushed legislation to strengthen financial oversight and avoid greylisting betrays a weakened law-making regime

There has been a flurry of activity in the last two months, as parliamentary committees requested and considered submissions on amendment bills introduced in a desperate attempt to avoid greylisting from the Financial Action Task Force (FATF). 

The FATF is an international organisation tasked with developing policies to combat money laundering and terrorism financing. The FATF maintains a black list and a grey list which have led financial institutions to shift resources and services away from the listed countries, and thereby motivated governments to introduce regulations that are compliant.

South Africa faces greylisting because of its weak anti-corruption and anti-money laundering efforts – hence the rush to introduce new legislation.

The bills – the Protection of Constitutional Democracy from Terrorism and Related Activities Amendment Bill and the General Laws (Anti-money Laundering and Terrorism Financing) Amendment Bill – were sent to the legislature on 19 July and 29 August 2022, respectively.

Both the Standing Committees on Finance and Police were told that the bills should be passed by November 2022 in order to meet a deadline imposed by the FATF. For those who have worked on parliamentary bill processes in the past, this was a fantastical timeframe.

The chairperson of the Standing Committee on Finance, Joe Maswanganyi, voiced his displeasure at the short period in which his committee was given to examine the bill. He said: “Don’t bring bills to Parliament that you want processed in one month. Parliament is a legislative body, not a department.”

But what are the causes and the effects of this rushed process? 

amaBhungane prepared submissions on both bills, so we have been privy to the way the public participation portion of the process has been conducted. That experience, and the research that informed our submissions, has given us a picture of an under-resourced law-making process concerned only with meeting the bare minimum requirements for legitimacy.

https://www.dailymaverick.co.za/article/2022-10-12-with-85-chance-of-greylisting-sa-needs-determined-political-will-report/

The first report from the FATF, which detailed South Africa’s severe failings in preventing money laundering and terrorist financing, was published in October 2021. 

The FATF describes itself as “an independent, intergovernmental body that develops and promotes policies to protect the global financial systems against money laundering, terrorist financing and the financing of proliferation of weapons of mass destruction”. 

The FATF has 40 recommendations against which it evaluates countries. It found South Africa to be compliant with three recommendations, largely compliant with 17, partially compliant with 15 and non-compliant with five. 

Should South Africa not demonstrate progress in correcting those areas of poor compliance, the FATF will place the country on its “grey list” – countries under “increased monitoring” by the FATF. 

The executive was tasked with implementing measures to resolve the weaknesses identified by the FATF and avoid greylisting. The economic and financial risks of a failure to do so were well known. 

Business Leadership South Africa (BLSA) released a report last month describing the reputational damage greylisting would cause, and explaining that the enhanced due diligence and monitoring required for South African companies may disincentivise foreign financial firms from doing business in South Africa. 

The BLSA estimated the impact of greylisting on the country’s GDP at anywhere between one and 3%. 

The timeline to demonstrate meaningful progress was short: South Africa was required to provide the FATF with a progress report at the end of October 2022; in January 2023, South Africa and other FATF countries will meet to discuss the progress made; and in February 2023, the FATF’s plenary session will determine whether South Africa will be moved to the “increased monitoring” category.