Grey(listing) cloud on the horizon
Curbing financial crimes prioritised as corruption-busting institutions get a budget boost, but broader policing allocation disappoints
South Africa should brace itself for possible greylisting, says finance minister Enoch Godongwana.
The decision on greylisting by the Financial Action Task Force (FATF) looms large over the country. It has clearly informed budgetary allocations in Godongwana’s 2023/2024 budget, with increased allocations to key institutions targeting money-laundering and other complex crimes, including corruption and terror financing.
The Financial Intelligence Centre (FIC), Special Investigating Unit, National Prosecuting Authority (NPA) and Investigating Directorate have all received a shot in the arm. This comes after President Cyril Ramaphosa put pressure on corruptionbusting institutions in his newsletter last week, saying he expects to see an increase in cases before the courts.
Greylisting will have a severe impact on the government and its entities’ ability to borrow money and will curtail South Africa’s ability to attract investment and do business with the rest of the world.
Greylisting by the FATF would mean South Africa would be under increased scrutiny, and it would place it on par with countries such as Syria and the Democratic Republic of Congo.
“We should be prepared for that possibility,” Godongwana said in his budget speech. “We recognise the need to be more effective in implementing our laws, particularly in fighting organised and sophisticated crimes.”
The FATF is expected to make its decision known by Friday. The National Treasury has been heavily invested in preventing a negative outcome. It sent a senior team to Morocco last month to provide an update on the measures the country has put in place to curb financial crimes after its ability to combat illicit financial flows was found wanting in an evaluation report in 2021. Ramaphosa had also signed off on a further two key pieces of legislation in January in a bid to stave off the greylisting.
However, more has to be done on the investigation and prosecution front. According to Godongwana, the two laws address 15 legislative deficiencies of the 20 concerns flagged by the FATF. The remaining five, which don’t require further legislative changes, are being addressed.
The Treasury’s acting director-general, Ismail Momoniat, told journalists at the budget briefing that while the government has made “phenomenal progress” in addressing the FATF’s concerns, it is also prepared for the possibility of being greylisted.
Still, the government has asked the FATF for a reassessment of the country’s position in June.
The NPA has been allocated R1.3bn over the medium term to support its work in implementing the recommendations from the state capture commission as well as to assist with the outcomes of the FATF evaluation.
According to the Budget Review, “the funding will be used to, among other things, appoint 120 new employees in the national prosecutions service and the Investigating Directorate, procure specialist prosecution services for complex matters (especially financial crimes), commission contracted forensic auditors and accountants to deal with high-priority asset forfeiture matters, establish a digital forensic data centre, provide close protection services and integrated security systems, and finance increased witness protection operational costs”.
The FIC was allocated an additional R256.3m over the medium term also to implement the recommendations of the state capture commission and the FATF. It will allow it to hire 107 more permanent staff, including forensic accountants, inspectors, strategic analysts and enforcement offices to bolster its capacity.
Less positive was the allocation to peace and security more broadly a cluster that includes the police service, courts, defence and home affairs. Despite a huge spike in crime, its allocation over the medium term has increased from R227.8bn in 2022/2023 to an expected R247.4bn by 2025/2026 an average annual rate of just 2.8%.
“The allocation will also support new hiring and strengthen maritime and ports security,” says the Budget Review. The police have been allocated an additional R7.8bn over the next three years. That will allow the service to “appoint 5,000 police trainees per year and absorb them once they successfully complete their training”.