SA may have lengthy, perilous road to navigate in order to escape greylisting

How is it that Africa’s most sophisticated, if not always largest, economy is still battling to get off the Financial Action Task Force’s (FATF) grey list because of its failures to combat money laundering and terrorist financing? Yet other African countries like Botswana, Mauritius, Morocco, and Zimbabwe have managed to get off the list.

Is it perhaps more about political will than anything else? Plus the fact that South Africa is the continent’s most prominent financial hub?

FATF is the intergovernmental body that assesses countries’ ability to combat illicit financial activity. When South Africa was put on its grey list a year ago, government leaders predicted it would get off in just over 12 months. Analysts said more like two to five.

Recently, the country’s Treasury acknowledged that although South Africa had reformed its anti-money laundering and financial crimes measures, it would stay on for at least another year. Treasury disclosed that the “five outstanding technical deficiencies” out of 22 raised by FATF would be addressed by the end of October. Some analysts still forecast South Africa won’t be removed from the list until 2026.

Read more in Daily Maverick: SA faces another year on the Financial Action Task Force grey list

The warning signs became clear by the end of 2022, but despite urgent legislation introduced to avoid greylisting, it happened in February 2023. The listing was a reputational blow and economic setback that could deter foreign investment and increase business costs.

FATF said lax anti-money laundering measures allowed wrongdoers to move money without financial institutions setting off alarm bells. Such flows could potentially finance terrorist activity. FATF also criticised South Africa’s failure to show serious commitment to prosecuting individuals linked to State Capture.

The country’s progress in addressing the deficiencies will be assessed again in February 2025. Treasury acknowledged that getting off the grey list wouldn’t be easy. “Addressing all the remaining actions and demonstrating that improvements are sustainable by February 2025 will require a significant effort from all the relevant South African authorities,” Treasury said.

Terrorism funding concerns

At FATF’s plenary in Paris last month, the body acknowledged some progress, but said South Africa needed stronger supervision of professionals such as lawyers and accountants, to ensure they weren’t benefitting from illicit financial flows. Other areas for improvement were collaboration with countries in investigations and confiscations of assets, targeted economic sanctions against wrongdoers, and implementing “a comprehensive national counter financing of terrorism strategy”.

It’s clear that countering terrorism financing remains a key deficiency for South Africa. In 2021, FATF gave the country one of its lowest scores for countering terrorist financing. In 2022, the United States slapped sanctions on four people for financing Islamic State in Africa — but South Africa did nothing against them.

Meanwhile, Zimbabwe was greylisted in 2019 and removed in 2022; Botswana was listed in 2018 and delisted in 2021; Morocco was listed in February 2021 and delisted in February 2023; and Mauritius was listed in January 2020 and removed in 2021.

South Africa’s struggle to get off the greylist could partly be attributed to the government’s ideological resistance to acting against terrorism on its own soil — which some officials see as a Western obsession not justified by any real threat.

Finance spokesperson for the opposition Democratic Alliance, Dion George, told ISS Today that South Africa’s financial regulations were largely in place, and the problem lay more on the judicial side. “South Africa is considered a conduit for illicit funds … a route for terrorist financing … but there’s no political will to interdict anybody who is behaving inappropriately.” He suggested this was because people in the government and ruling party were getting funds from “the wrong friends”.

Read more in Daily Maverick: After the Bell: The link between greylisting and getting our money back from the Guptas

Other African countries that have delisted simply showed greater commitment to the fight against money laundering and terrorist financing, some said. James George, Compliance Manager at Compli-Serve, told ISS Today that some smaller countries received development aid in the form of assistance in anti-money laundering, counter-financing of terrorism, and counter-proliferation financing. This could expedite their removal from the list — ‘provided there is sufficient political will.’

Credible prosecutions lacking

He believed the structural damage State Capture inflicted on law enforcement agencies hampered South Africa’s ability to demonstrate progress in prosecuting money laundering as required by the FATF. “Showing a consistent improvement in these areas may require more than one or two years, indicating that South Africa is likely to remain on the grey list for some time,” he said.

Martin Ewi, Regional Coordinator for Southern Africa at the Institute for Security Studies’ Eact organised crime project, said he thought South Africa was doing all it could to get off the grey list. But doing so would take some successful prosecutions under terrorist legislation.

FATF has used the grey list to catapult the issue of terrorist financing to the fore in Africa, says Ewi, with 12 of the 21 countries currently listed being in Africa. South Africa has become a highly contested ground for terrorist financing, and getting off the greylist will require expedited investigations and prosecutions of current cases.

Ewi also noted that one positive outcome of the greylisting was strengthening collaboration between the government, corporate sector, and civil society in the fight against terrorism and terrorist financing.

Peter Attard Montalto, Economic Analyst at Krutham, told ISS Today he didn’t think ideological resistance was a significant factor in getting South Africa delisted. The essential problem was that, “South Africa has not had a proper top-down all-in push to get off the list. National Treasury has done its best, but more leadership is needed. This should have been driven by the president personally and his office, as happened in other countries”.

Montalto said Treasury and the South African Reserve Bank, which were ostensibly in charge of getting the country off the list, didn’t have the power to ensure other departments complied. So it was unlikely South Africa would be delisted in February 2025. George agreed. “Do not be surprised if we are not removed in 2025. Our innings may stretch into 2026.” DM

Peter Fabricius, Consultant, Institute for Security Studies (ISS) Pretoria.

First published by ISS Today.