South Africa’s troubled journey towards international compliance with anti-money laundering and counter-terrorist financing intensifies as analysts suggest the possibility of a further year on the Financial Action Task Force (FATF) greylist.
The greylisting, which took effect in February 2023, was imposed on South Africa due to its failure to meet international standards related to money laundering, terrorism financing, and proliferation financing.
The task ahead remains formidable, despite ongoing efforts from the National Treasury, as shown in the 3rd enhanced follow-up report and technical compliance re-rating, to address the FATF’s concerns.
Maarten Ackerman, chief economist at wealth management firm Citadel, said yesterday that more still needed to be done by South Africa before it could effectively exit the greylist.
“We believe South Africa’s greylisting will be extended by another year. While South Africa has made good progress in this regard, the final recommendations are not easy to remedy,” said Ackerman.
According to FATF, “deficiency remains” for South Africa in having “mechanisms to allow co-operation and coordination to combat the financing of proliferation of weapons of mass destruction” with the institution adjudging this as “partly” met.
Although “mostly met,” South Africa still has to fully develop coordinated and holistic anti-money-laundering national policies informed by identified risks. This is in addition to another flagged “mostly met” condition involving the lack of cooperation between policy-makers on exchange of information.
During last week’s Medium Term Budget Policy Statement (MTBPS), Finance Minister Enoch Godongwana said that South Africa has successfully addressed 16 out of 22 requirements from the FATF recommendations in order to be removed from the greylist.
However, the challenge for South Africa to be fully compliant with FATF standards and recommendations is in the wording the FATF uses, explained Ackerman.
“The recommendations require that South Africa shows sustainable action in addressing money laundering and the financing of terrorist organisations. Sustainable action will require South Africa to sanction and prosecute offenders on an ongoing basis,” said Ackerman,
Given that the next FATF meeting is less than four months away, in February, Ackerman said this was “unlikely” to be achieved.
Anchor Capital investment analyst Casey Sprake told Business Report that Treasury has acknowledged that addressing these issues by the close of the next reporting cycle in February 2025 will be a difficult challenge.
“Should the FATF determine that South Africa has not adequately resolved the outstanding action items, the country would need to report on its progress every four months. In this case, exiting the grey list by June 2025 would be off the table,” said Sprake.
In that case, the “earliest opportunity for removal from the greylist would then shift to October 2025” and this is “assuming that South Africa addresses all outstanding items” by that review period.
Ackerman noted that local Trusts were one stumbling block that were complicating the removal of SA from the FATF greylist.
Under the greylisting, all South African Trusts are required to submit their Beneficial Ownership Registers (BORs) to the Master of the High Court, with the deadline of this having lapsed in September.
“It seems there has been extremely low compliance in this regard. Compliance with this rule is most probably from trusts that are registered with SARS, but they only make up 30% of the one million trusts in South Africa,” explained Ackerman.
It was the the smaller outdated, forgotten, or family-owned trusts, that make up around 70% of South African trusts “that have not complied” with this ruling, added Ackerman.
After South Africa managed to notch up the three deficiencies to largely compliant and with two outstanding at partially complaint by October 2024 in the fourth round of follow-up, it now goes into a fifth round of follow-up reporting.
Investec chief economist Annabel Bishop said the countries greylisted were expected to “have addressed most, if not all, technical compliance deficiencies” by the end of the third year since adoption of their mutual evaluation reports.
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