Treasury cautiously optimistic that SA will brave ‘tough challenge’ to get off FATF greylist

2 Jul 2024

Although South Africa has made progress towards getting off the Financial Action Task Force greylist, there is still work to be done and removal from the greylist is unlikely to happen before June 2025, says National Treasury.

The Financial Action Task Force (FATF) published an update on South Africa’s progress last week, noting that since the country made a high-level political commitment to change in February 2023, significant progress has been made towards improving its anti-money laundering and combating the finance of terrorism (AML/CFT) regime.

These steps have included implementing and updating supervisory risk assessment tools for Designated Non-Financial Businesses and Professions (such as real estate agents), updating its terrorist finance risk assessment, and enhancing the capacity of relevant CFT authorities.

Earlier in 2024, the Financial Intelligence Centre pleaded with law firms and real estate agents to urgently submit their risk and compliance returns. According to the FATF, its assessments show that the real estate sector often has poor understanding of the risk of real estate being used to launder criminal profits and regularly fails to mitigate them.

“The sector needs to take appropriate measures to adequately mitigate these risks. This includes effective customer due diligence measures, such as access to information about the true, beneficial owner(s) of the real estate transaction,” the FATF says.

As part of the changes, the Financial Intelligence Centre granted an 18-month transition period to the end of June 2024. All newly identified accountable institutions must ensure complete adherence to FICA regulations or face potential public reprimand and fines ranging from R10-million to R15-million.

Hawken McEwan, director of compliance at DocFox, says this affects, for example, high-value goods dealers who trade in single physical objects valued at R100,000 or more. Examples include Krugerrands (gold, platinum or silver), vehicles, yachts, electronics, machinery, precious metals, gems, jewellery, antiques and artwork.

“Even for items below the R100,000 threshold, the high-value goods dealer must conduct customer due diligence if they suspect the transaction is unusual or linked to a politically exposed person,” he says.

McEwan says the dealers will have to fulfil FICA requirements that are identical to those already undertaken by banks. “It includes verifying the customer’s identity, establishing the source of funds, assessing any political exposure of the customer, screening against sanction lists and determining if the customer or transaction could be in any way linked to money laundering, terrorism or proliferation financing,” he explains. If any suspicious activities are detected, the protocol mandates reporting both the customer and the transaction or activity to the Financial Intelligence Centre.

What’s left to be done

Work that remains to be done includes:

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;

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 information on legal persons and arrangements and applying sanctions for breaches of violation by legal persons to beneficial ownership obligations;

Demonstrate a sustained increase in investigations and prosecutions of serious and complex money laundering and the full range of terrorist finance activities in line with its risk profile;

Enhancing its identification, seizure and confiscation of proceeds and instrumentalities of a wider range of predicate crimes, in line with its risk profile;

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.

Staggered action deadlines

Treasury points out that the action items have differing deadlines that fall between January 2024 and January 2025. The January 2025 deadline is the earliest by which the country is expected to have addressed all the action items – two years after it was placed on the FATF greylist.

If all the action items have been addressed by January 2025, the FATF joint group is expected to visit South Africa in April or May 2025 to confirm its progress and, if satisfied, will recommend that the country is removed from the greylist. If there are action items still outstanding by 25 January, South Africa will continue reporting to the FATF every four months, until all the deficiencies have been addressed.

The South African Reserve Bank was optimistic about the country’s progress in its latest financial stability review. Sanisha Packirisamy, economist at Momentum Investments, notes that the SARB indicated at its March 2024 interest rate-setting meeting that the bulk of the technical requirements had been addressed and it was optimistic that the country would be removed from the greylist in 2025.

There are two reporting cycles in September 2024 and January 2025. Treasury says many of the 14 outstanding items are due in the past two reporting cycles because South Africa must demonstrate that the improvements made are sustained over successive reporting periods.

In the next reporting cycle, South Africa is required to address nine of the outstanding action items that are due in September 2024. The final five action items are due in January 2025. “While South Africa is on track to address all the outstanding action items, it remains a tough challenge to address all 14 of the remaining action items by February 2025,” Treasury cautioned. DM

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What’s left to be done

Staggered action deadlines