SA’s legal practitioners keeping country on greylist

South Africa’s legal practitioners are keeping the country on the greylist of the Financial Action Task Force, with 40% of them failing to fill in the required forms. If all the casinos in the country can submit their forms, why are other sectors lagging behind?

The Financial Intelligence Centre (FIC) says in a statement that it identified business sectors wilfully standing in the way of South Africa exiting the greylist and legal practitioners top the list.

“Certain designated non-financial businesses and professions (DNFBPs) are continuing to ignore FIC directives aimed at helping South Africa exit the greylist,” Christopher Malan, executive manager for compliance and prevention at the FIC, says.

The Financial Action Task Force (FATF) is an intergovernmental body established in 1989 by the ministers of its member jurisdictions to protect financial systems and the broader economy from threats of money laundering and the financing of terrorism and proliferation, thereby strengthening financial sector integrity and contributing to safety and security.

When the FATF places a jurisdiction under increased monitoring, it means the country has committed to resolve the identified strategic deficiencies within agreed timeframes and is subject to increased monitoring. This list is often externally referred to as the “greylist”.

Remaining on the greylist will lead to a stagnating economy as well as the degradation of the rand and make it harder to borrow money.

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FIC reported to FATF on getting off greylist in June

At the Financial Action Task Force (FATF) plenary in June, South Africa reported on how it addressed the deficiencies found in its measures for combating money laundering and terrorist financing. FATF acknowledged that the FIC made progress in understanding the risk levels of DNFBPs, following the introduction of the risk and compliance return (RCR) questionnaire.

However, FATF remained concerned about the low rates of RCR submission to the FIC by DNFBPs and emphasised that these accountable institutions needed to increase their response rates.

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The RCR is a questionnaire which assists businesses to identify the risks they face of money laundering and terrorist financing abuse. Once received, the FIC uses its risk and compliance assessment analysis tool to evaluate the RCRs, identifying higher risk DNFBPs. This informs the FIC’s supervisory approach, which includes inspections on high-risk entities.

The FIC issued Directive 6 in March last year, calling on legal practitioners, estate agents, trust service providers, company service providers and casinos to complete and submit their RCRs online, via the FIC website. The due date for these RCRs submissions was 31 May 2023, which is over a year ago.

These sectors are keeping SA on greylist

The FIC says the average RCR submission rate to date of this release across affected Directive 6 sectors is 63%. Individual sector submission rates are:

• Legal practitioners: 60%
• Estate agents: 66%
• Trust service providers: 74%
• Company service providers: 76%
• Casinos: 100%.

Malan says it notified these sectors, except the casinos, that by not submitting their RCRs they are in a state of non-compliance and can have administrative fines imposed on their businesses.

“The current low response levels mean that the country is unable to show sufficient progress in fully addressing the FATF-identified deficiency that DNFBPs are unable to identify their risks money laundering and terrorist financing abuse risks. With these levels of non-compliance, the FIC has already embarked upon issuing of notices of intention to sanction and fine.”

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The FIC also issued Directive 7 instructing dealers in precious stones, dealers in precious metals, including Krugerrand dealers, credit providers and crypto asset service providers to submit RCRs by 31 July 2023 in March last year. These sectors also still have outstanding RCR submissions.

“The continued disregard of compliance with requirements of Directives 6 and 7 remains a major stumbling block to South Africa making any meaningful headway toward exiting the greylist, despite these business sectors being identified as the most vulnerable to money laundering and terrorist financing abuse.”

Is it wilful non-compliance?

Malan says there appears to be wilful non-compliance by businesses in these sectors, despite repeated calls and appeals for them to complete and submit their long outstanding RCRs to the FIC.

“Institutions that still fail to submit their RCRs are considered delinquent institutions and are automatically deemed to be at high risk of being used for money laundering and terrorist financing purposes. These institutions now face targeted inspections or targeted sanctions their non-compliance.”

In addition, he points out, these businesses are dismantling and disrupting South Africa’s efforts to exit the greylist and improve the country’s standing in the world economy. “Remaining on the greylist can impact the lives of ordinary citizens, let alone a broad range of business and the economic future of the country as a whole.”

The FIC has already embarked upon issuing notices of intention to sanction, aimed at remediation and payment of fines as admission of non-compliance. Institutions that elect not to comply and pay the financial penalty, are processed through a formal adjudication process, Malan says.

In these cases, the resulting financial penalty may be increased due to the wilful non-compliance by these institutions.