Greylisting by FATF is a real threat for South Africa

South Africa is on the verge of being greylisted by the Financial Action Task Force (FATF). FATF is the global money-laundering and terrorist financing watchdog, responsible to set international standards and assess technical compliance. It also assesses the effectiveness of frameworks put in place, for instance, whether prosecutions have taken place for money laundering or terrorism financing. 

Greylisting by FATF – what would it mean?

Greylisting would raise SA’s risk profile, place a question mark over its financial regulatory bodies and attach a higher risk premium to corresponding relationships between SA banks and international financial institutions. At worst, corresponding banking relationships could be cancelled. 

The possibility of South Africa being greylisted by the Financial Action Task Force (FATF) could make doing business with the country even tougher. In effect the country would become a ‘high-risk jurisdiction to transact’, requiring anyone wanting to do business with South Africa to jump through an additional layer of compliance hoops.

Poor evaluation results

South Africa is a member of the Financial Action Task Force (FATF). It is therefore required to have measure to prevent the misuse of legal persons for money laundering or terrorist financing and must ensure that there is adequate, accurate and up-to-date information on the beneficial ownership and control of legal persons.

South Africa is currently under review by FATF after a mutual evaluation during 2021 with very poor results. The worst score received was on “arrangements around legal persons” due to:

• Poor or no information and transparency around the beneficial ownership of companies and trusts;
• Weak ability of both private parties and authorities to determine the involvement of people in money laundering; and
• The absence of a reliable system to identify politically exposed people. 

SA also got the lowest possible score on the prevention, monitoring and prosecution on terrorism finance. 

Our government’s response

It is the responsibility of National Treasury oversee the necessary legislative and technical remediation work that must be undertaken if South Africa is to avoid being greylisted.

To address 14 out of 20 legislative deficiencies found by the mutual evaluation report and bring South Africa more in line with international measures of combating money laundering and financing of terrorism the Minister of Finance tabled the General Laws (Anti-Money Laundering and Combating Terrorism Financing) Amendment Bill on 29 August. The bill amends the following Acts:

• Financial Intelligence Centre Act;
• Nonprofit Organisations Act;
• Trust Property Control Act;
• Companies Act and the Financial Sector Regulations Act.

How does this impact us?

The amendments will bring new rules, for example, about how companies keep records of people who own and control the firm, and bar people who are convicted of offences relating to money laundering and terrorist financing from registering as company directors as well as trustees.

It also empowers the Financial Intelligence Centre by giving it new powers, including access to records of a range of institutions.

It will require additional record keeping and disclosure by 2 000 000 Trusts, NPOs and Companies. You can read the draft Bill here.

What is SAIBA doing for you?

In coming weeks SAIBA will be hosting a webinar explaining the changes proposed in the Bill. Watch this space for more information on this important event to be communicated shortly!