Godongwana says estimating cost of illicit financial flows is challenging, as SA works to get off FAFT greylist

Finance Minister Enoch Godongwana has highlighted the difficulty in accurately quantifying the economic losses South Africa incurs due to illicit financial flows (IFFs).

South Africa was placed on the Financial Action Task Force (FATF) greylist in early 2023, with the global watchdog citing insufficient efforts to curb IFFs such as money laundering and terror financing.

The greylisting has subjected the country to heightened scrutiny.

Godongwana on illicit financial flows losses

In response to a parliamentary question from African Transformation Movement (ATM) MP Vuyo Zungula regarding annual losses from IFFs, Godongwana said it was difficult to determine a definitive figure.

“Due to the illicit nature of illicit flows, as well as tax evasion, putting an accurate amount on how much is lost to the fiscus or the economy is difficult, and estimates therefore vary greatly,” he said.

The minister explained that the Inter-Agency Working Group, established in 2017, is implementing measures to address IFFs.

These include making cash declarations at border posts mandatory and tightening border controls to combat cash smuggling.

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He also identified several sectors as particularly vulnerable to IFFs, including gambling, property practitioners, legal practitioners, high-value dealers, money remittance businesses, and informal cash-based networks.

Godongwana pointed out the risks associated with township economies, which rely heavily on cash transactions.

However, he stated that no specific case studies or reports link these economies directly to criminal IFFs.

“It is acknowledged that township economies do generally have a large reliance on cash, which may create opportunities for IFFs,” the minister said.

Progress in addressing greylisting

In a separate parliamentary reply, Godongwana outlined efforts by the Interdepartmental Committee on Anti-Money Laundering and the Combating of the Financing of Terrorism (IDC-AML/CFT) to meet FATF requirements and get South Africa removed from the greylist.

“Cabinet has been continually updated and is closely monitoring progress made by the IDC-AML/CFT and government departments and agencies against the items in the action plan.

“This gives Cabinet the opportunity to direct relevant members to push agencies that fall under their executive authorities to urgently address any identified bottlenecks,” the minister continued.

READ MORE: South Africa making more progress to get off FATF grey list

He revealed that as of October 2024, South Africa had addressed an additional eight of the action items recommended by FATF.

Six of the original action items remain, with a deadline to resolve them by January 2025.

“South Africa is now left with one reporting cycle to address the remaining six action items,” Godongwana said.

Three of these items involve increasing investigations and prosecutions for complex money laundering, terror financing, and unlicensed cross-border money transfer services.

The remaining three focus on ensuring access to beneficial ownership information for companies and trusts and enforcing penalties for non-compliance with anti-money laundering (AML) and counter-terrorism financing (CFT) regulations.

South Africa’s path to delisting

If South Africa addresses all outstanding items by January 2025, an onsite visit by the FATF Africa Joint Group could occur in May 2025.

“If the onsite assessment results in a positive outcome, the FATF Africa Joint Group will recommend to the June 2025 FATF Plenary that South Africa be delisted from the FATF greylist,” Godongwana explained.

However, if the country fails to meet the FATF requirements, it will have to continue reporting every four months until compliance is achieved.

READ MORE: Expert ‘cautiously sceptical’ of SA’s exit from FATF greylist

Previously, National Treasury stated that the greylisting exit could be delayed until October 2025 or later.

Meanwhile, Godongwana added that Treasury has not received any estimates regarding the impact of South Africa’s greylisting on foreign direct investment or domestic investment.

“However, some jurisdictions like EU [European Union] and the UK [United Kingdom] have taken unilateral steps requiring enhanced due diligence over transactions with South Africa, imposing higher costs for entities.”