SA could find itself at risk of being slapped with a grey rating

Described as moderate by international standards, South Africa could find itself at risk of being slapped with a grey rating by the Financial Action Task Force (FATF) due to weak measures on money laundering and terrorism financing.

This is a grave prospect, which could see billions in investments being wiped off and present a challenge in dealing with foreign financial institutions, parliament heard yesterday.

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Addressing the finance portfolio committee, National Treasury tax and financial sector head Ismail Momoniat said South Africa had been given eight months to assure FATF and the Eastern and Southern Africa Anti-Money Laundering Group it had taken remedial action to tighten procedures, closing loopholes being used to launder money.

Among 40 FATF recommendations, SA has been ordered to:

• Pursue money laundering and terrorist financing as criminal offences
• Develop policies and domestic cooperation to mitigate risks
• Apply preventive measures for financial and nonfinancial institutions
• Provide transparency for ownership and control of legal persons and arrangements
• Promote international cooperation
• Use FATF’s 40 recommendations as the benchmark for the mutual evaluation

The two organisations last year assessed SA for compliance on its implementation of legal and operational measures in combating money laundering and terrorist financing.

In sharing the key deficiencies, National Treasury and Financial Intelligence Centre officials said SA proactively pursued confiscation of criminal proceeds and instrumentalities as a policy objective.

Some good results had been achieved by the Asset Forfeiture Unit (AFU) and National Prosecuting Authority (NPA).

Efforts for recovery of assets from state capture which had been moved to other countries had been less successful – “in part due to resource constraints”.

“South Africa has not positively demonstrated that confiscation of falsely declared cross-border movement of currency is being addressed and applied as an effective, proportionate and dissuasive sanction ,” said Momoniat.

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“Use of cash is prevalent and it has been assessed as high risk from a money laundering and terrorist financing perspective, including cross-border movement.”

On terrorism, he said: “Authorities take a conservative approach to classifying acts carried out in SA as terrorism, unless a high evidential threshold is met, linked to a particular terrorist act.

“This approach indirectly impacts on their ability to investigate and prosecute potential terrorist financing, including identifying financing networks and other financing activities.

“South Africa has failed to demonstrate they are effectively identifying the specific roles played by terrorist financiers.”

The investigation of terrorism financing was “not properly integrated into national counterterrorism strategies”.

“SA’s counter-terrorism strategy does not identify the pursuit of terrorist financiers as an operational mitigant in the fight against terrorism.

Neither does it identify the designation of terrorists, organisations and support networks as a tool to counterterrorism or its financing,” he added.

Cabinet established the interdepartmental committee on anti-money laundering in 2018.