South Africa’s greylisting: what it means

The risk of money laundering and terrorist financing comprise only two reasons for blacklisting South Africa.

Another reason is that SA “has suffered from a sustained period of state capture, which helped to generate substantial corruption proceeds and undermined key agencies with roles to combat such activity”.

The Zondo commission report detailed the racketeering, corruption, money laundering and theft that took place at, among others, SA Airways, SA Airways Technical, SA Express, Eskom, Transnet, Denel, the Passenger Rail Agency of SA and Alexkor.

Government departments fared no better. The Special Investigating Unit issued a report on the investigation of the national department into the contract between the department of health and Digital Vibes, detailing the corrupt deals that took place. No-one has been held accountable.

Another example is the department of cooperative governance and traditional affairs (Cogta) under Dr Nkosazana Dlamini-Zuma, which by 31 March, 2022 had incurred R500 million irregular expenditure. Cogta received its first qualified audit report from the Auditor-General for the year ended 31 March, 2016 and this continued.

The reason for the qualified audit opinions mainly related to insufficient audit evidence for payments made for project management fees and to consultants, business and advisory services.

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Asiphe Funda of Corruption Watch told The Citizen the greylisting of SA by the Financial Action Task Force (FATF) “denotes that the legislative steps taken failed in the endeavours to avoid the greylisting”.

“The weaknesses in the legislative framework are, however, not the only issue that has affected South Africa’s compliance with FATF standards.

“Compliance was found to be deficient on several fronts, including slow action by law enforcement to prevent and tackle financial crimes and issues in respect of beneficial ownership transparency.”

One of SA’s main issues lies in enforcement. The main weaknesses consist of inadequate resources; political interference in enforcement and a lack of independence; the decentralised organisation of enforcement; a lack of coordination between investigation and prosecution; the lack of training in investigating this kind of offence and the inadequacy of complaints mechanisms and whistle-blower protection.

“These are issues that must be addressed urgently.

“This shouldn’t have come as a surprise. The government has had ample warning over the years that it is losing its grip on curtailing and eradicating criminality.”

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The lack of consequence management and holding responsible officials accountable for misdeeds, and the absence of political will was raised by Mkhuleko Hlengwa, chair of the Standing Committee on Public Accounts, at a panel discussion hosted by the South African Institute of Chartered Accountants and the Auditor-General South Africa in February 2022.

The rise of zombie state-owned entities (SOE) with escalating irregular expenditure and procurement fraud under government appointed boards and executives, with government as the major shareholder, is evidence enough of the incompetence and disregard of governance.

During the state capture years SOEs poured more than R49 billion into criminal enterprises.

Some SOEs have completely disregarded the requirement to publish annual reports. For example, the 2021-22 audit of Alexkor, the state diamond miner, has not been finalised.

It received a qualified audit report for 2021 and a disclaimer for 2020 and 2019.