With South Africa facing possible “grey listing” by the Financial Action Task Force (FATF), as a result of its mutual evaluation report of October 2021 and its 40 recommendations aimed at preventing this, and with the Financial Intelligence Centre and National Treasury urgently conducting meetings to ensure this does not materialise with the deadline of October 2022 looming ever closer, we thought it prudent to explain exactly what this means, why this is happening and why it is important.
Firstly, the FATF is an inter-governmental body that sets international standards aiming to prevent money laundering and terrorist financing and the harm these crimes cause to society.
The “grey list” or “grey listing” is made up of jurisdictions under increased monitoring, which countries are actively working with the FATF to address strategic deficiencies in their regimes to counter money laundering, terrorist financing, and proliferation financing. When the FATF places a jurisdiction under increased monitoring, it means the country has committed to swiftly resolve the identified strategic deficiencies within agreed timeframes. The above mentioned FATF report found several vulnerabilities and gaps in our attempts to combat money laundering and terrorist financing. This has prompted reviews and deep dives into our current legislation and a rethink into other categories of accountable and reporting institutions to include under FICA’s purview.
A potentially major setback for South Africa, should it become a grey listed country, is the detrimental impact on relationships with banks in other strategic jurisdictions such as the United Kingdom, USA and China as regulatory bodies in these countries may prevent or restrict their banks from transacting with South Africa’s banks, which will have an instrumentally negative impact on our economy, investor relationships and reputational damage, leading to a weakened rand and inflationary pressures.
South Africa’s banks are exposed to a wide variety of financial crime risk indicators, including a proliferation of various financial products and services which can be exploited by money launderers, the rapid speed and volume of transactions, digital and non face-to-face onboarding where there is higher susceptibility for anonymous clients, the prevalence of cash with its inherent difficulty in tracing its potentially illicit source/s, complex company structures where beneficial ownership is unclear and used by money launderers to hide the true ownership of an entity as well as prominent and politically exposed clients, where sources of funds for transactions may derive from corruption related scandals and public funds.
Although South Africa’s anti-money laundering and counter financing of terrorism laws are robust, it is in the implementation as well as the policing, prosecuting, and asset forfeiture where grey listing may be inevitable.
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