How is SA progressing in getting off the greylist?

When the Financial Action Task Force (FATF) greylisted South Africa in February last year, it was a blow to the nation’s confidence.

SA was greylisted for failing to meet international standards on anti-money laundering, countering the financing of terrorism and proliferation financing.

“Just like the news that our sovereign credit rating had been downgraded to junk status three years before, it hurt to know that other countries would now be wary of investing in our assets or doing business with us,” Hawken McEwan, director of risk and compliance at DocFox, says.

“Of course, we knew for a while that there were chinks in our armour. The Financial Action Task Force warned us in a 2019 inspection that there were problems, but our efforts were arguably too little, too late, with proposed changes coming into effect literally weeks before the final review in 2023.”

The FATF highlighted that SA had to take a more risk-based approach to fighting financial crime and really understand who it was doing business with through more robust due diligence.

The watchdog also found gaps in intelligence that required more cooperation with other financial intelligence units and investigative authorities globally and expanding the reach of oversight across a broader base of nonfinancial businesses.

McEwan says the biggest cost has been reputational damage.

“The rest of the world now sees South Africa as below par in countering financial crimes such as corruption, money laundering, terrorism financing and proliferation financing.”

The FATF says proliferation financing facilitates the movement and development of proliferation-sensitive items and can contribute to global instability and potentially catastrophic loss of life if weapons of mass destruction are developed and deployed.

As set out in the Proliferation Finance Typology report, proliferators operate globally and mask their acquisitions as legitimate trade. They exploit global commerce by operating in countries with weak export controls or using free trade zones where their illicit procurements and shipments are more likely to escape scrutiny. McEwan says the public proclamation of the flaws in our financial systems means other countries are going to be more cautious about engaging with us.

“The greylisting means local individuals and businesses will be subject to more scrutiny regarding their source of funds, counterparties and reasons for transactions before international companies will do business with them,” he adds.

This additional due diligence will come at a cost, which will be passed on to consumers, whether it is through administration fees, reduced rates or increased prices. So, compliance-related costs will increase and international deals may be delayed due to more red tape, he says.

Along with the news that SA received its worst score yet in the recent Corruption Perceptions Index by Transparency International, the greylisting has compounded SA’s already reduced economic prospects and slow pace of job creation, adds McEwan.

SA accepted the FATF’s report and has made progress in addressing its recommendations.

These include broadening the types of businesses that must now comply with the Financial Intelligence Centre Act such as credit providers, high-value goods dealers and companies that help others set up businesses and trusts.

McEwan says the idea is to put controls around industries outside the direct financial markets that money launderers can use in their schemes.

“However, while these new categories have been announced, much work must still be done to educate these sectors about the potential risk their businesses carry and how to implement appropriate controls and reporting processes.”

The introduction of the requirement for centralised beneficial ownership registers is another positive development, says McEwan.