SA stays on greylist due to its remaining strategic deficiencies

South Africa will remain on the Financial Action Task Force’s greylist due to its enduring strategic deficiencies, despite government’s optimism that the country would be taken off the list by this year.

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. 

The greylist

Jurisdictions under increased monitoring actively work 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 resolve the identified strategic deficiencies within agreed timeframes and is subject to increased monitoring. This list is often externally referred to as the “greylist”.

According to the outcomes of the FATF Plenary held in Singapore for the past three days, South Africa made a high-level political commitment in February last year to work with the FATF and the Eastern and Southern Africa Anti-Money Laundering Group to strengthen the effectiveness of its anti-money laundering/combating the financing of terrorism regime.

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Steps South Africa has taken so far and remaining deficiencies

The FATF said in a statement after the Plenary that South Africa has taken steps towards:

• improving its anti-money laundering/combating the financing of terrorism regime, which includes implementing and updating its supervisory risk assessment tools for designated non-financial businesses and professions
• updating its terrorism financing risk assessment and
• enhancing the capacity of relevant counter terrorism financing authorities.

President Cyril Ramaphosa wrote in one of his newsletters at the beginning of 2023 that South Africa knows what government must do to be removed from the greylist and that the fundamentals are in place to get the country off the list by 2024.

However, the FATF now says South Africa should continue to implement its action plan to address its remaining strategic deficiencies, which includes:

• Demonstrating a sustained increase in outbound mutual legal assistance requests that help facilitate money laundering and terrorism financing investigations and confiscations of different types of assets in line with its risk profile
• Demonstrating that all anti-money laundering and combating the financing of terrorism supervisors apply effective, proportionate and effective sanctions for non-compliance
• Ensuring that competent authorities have timely access to accurate and up-to-date beneficial ownership information on legal persons and arrangements and applying sanctions for breaches of violation by legal persons to beneficial ownership obligations
• Demonstrating a sustained increase in investigations and prosecutions of serious and complex money laundering and the full range of terrorism financing activities in line with its risk profile
• Enhancing its identification, seizure and confiscation of proceeds and instrumentalities of a wider range of predicate crimes, in line with its risk profile
• Ensuring the effective implementation of targeted financial sanctions and demonstrating an effective mechanism to identify individuals and entities that meet the criteria for domestic designation.

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The consequences of greylisting

Candice Dookran, product manager and compliance expert at RelyComply said last year that greylisting leads to a substantial decline in capital inflows and foreign direct investment, resulting in a subsequently stagnating economy.

She also pointed out that government and state-owned companies will find it harder to borrow money and obtain additional financing from global banks and bodies such as the International Monetary Fund (IMF), the World Bank and the European Bank for Construction and Development.

“Greylisting could also lead to currency degradation, inflation and trade deficits and there is the possibility that South Africa could face sanctions.

“While the FATF itself does not impose sanctions, other countries, or bodies and organisations, such as the European Union (EU), might impose economic sanctions on a particular country in response to an unfavourable FATF review report.”

ALSO READ: Here’s how ANC government dropped the ball with greylisting

Plenary in Singapore

Delegates from the FATF’s Global Network of over 200 jurisdictions and observers from international organisations participated in three days of discussions on key money laundering, terrorism financing and proliferation financing issues in Singapore.

The FATF removed two countries, Jamaica and Türkiye from the greylist after they made significant progress in addressing their previously identified strategic deficiencies and completed their Action Plans within agreed timeframes.

However, building on its statements over the past decade, the FATF reiterated its concerns over the Democratic People’s Republic of Korea’s (DPRK/North Korea) continued failure to address the significant deficiencies in its anti-money laundering and combating the financing of terrorism regime, as well as the serious threats posed by its illicit activities related to the proliferation of weapons of mass destruction and its financing.

In particular, the FATF noted that the DPRK has increased connectivity with the international financial system, which raises proliferation financing risks. Therefore, the FATF calls for greater vigilance and renewed implementation and enforcement of countermeasures against the DPRK.

In addition, delegates discussed and adopted the joint assessment of India and Kuwait. Members also approved the Priorities of the FATF under the incoming Mexican presidency, which include a focus on financial inclusion, ensuring a successful start to the new round of assessments, strengthening cohesion of the Global Network, supporting effective implementation of revised FATF Standards with a focus on asset recovery, beneficial ownership and virtual assets and continued efforts to combat terrorist and proliferation financing.

ALSO READ: Lack of prosecutions hurts SA’s chances of being removed from greylist

Russia remains suspended

The suspension of the membership of the Russian Federation continues to stand. Following the statements issued since March 2022, the FATF reiterates that all jurisdictions should be vigilant to current and emerging risks from the circumvention of measures taken against the Russian Federation in order to protect the international financial system.

At this Plenary, the FATF added Monaco and Venezuela to the list of jurisdictions subject to increased monitoring. When the FATF places a jurisdiction under increased monitoring, it means the country has committed to implement an Action Plan to resolve the identified strategic deficiencies within agreed timeframes.

The FATF identifies additional jurisdictions, on an on-going basis, which have strategic deficiencies in their regimes to counter money laundering, terrorist financing, and proliferation financing. A number of jurisdictions have not yet been reviewed by the FATF or their FSRBs but will be in due course.

The FATF provides some flexibility to jurisdictions not facing immediate deadlines to report progress on a voluntary basis. Countries that had their progress reviewed by the FATF since February 2024 include Bulgaria, Burkina Faso, Cameroon, Croatia, Democratic Republic of Congo, Haiti, Jamaica, Mali, Mozambique, Nigeria, Philippines, Senegal, South Africa, South Sudan, Tanzania, Türkiye and Vietnam.

Kenya, Namibia, Syria and Yemen chose to defer reporting.