Later this month, Parliament will hold public hearings on various amendments to the Financial Intelligence Center Act (Fica), bringing the country one step closer to avoiding the dreaded “grey list”.
Amendments needed to bring South Africa up to international anti-money laundering standards were the subject of a panicked meeting of parliament’s standing committee on finance in June.
At a June meeting, Treasury Acting Director-General Ismail Mamaniat explained that his department and the Financial Intelligence Center (FIC) were very concerned about the prospect of South Africa being blacklisted. “Given the gray list we’re facing, the sooner we do something, the better,” he said.
One expert who spoke with Mail and guardian of possible graylisting confirmed what some, including the Treasury, seem to have feared: South Africa is facing difficulty in its efforts to avoid condemnation by the Financial Action Task Force (FATF).
If a country is on the gray list, it means that it is under the enhanced supervision of the FATF. When a country is graylisted, it means that the FATF has identified strategic weaknesses in its systems to fight financial crime.
In October last year, the FATF published an assessment of South Africa’s anti-money laundering measures, which identified gaps in the country’s policies and efforts to combat money laundering and terrorist financing, despite the fact that its financial system is highly vulnerable to these crimes.
The FATF recommended that the South African authorities develop policies to address these high risks of money laundering and terrorist financing. He also suggested that politicians give the Major Crimes Bureau (Hawks) more staff, especially financial investigators and forensic accountants.
As a result, the Treasury and the Financial Intelligence Center launched a review of South Africa’s anti-money laundering and anti-terrorist financing legislation. The amendments to Fica will expand its scope to include more categories of institutions and businesses that must report suspicious transactions.
South Africa’s biggest banks, which facilitate trillions of rand in international money transfers, are at high risk of being used for illicit financial flows.
This risk was highlighted in a recent report by the Prudential Authority, which found that one of the country’s largest banks revealed that it had 8,388 customers of unknown nationality. One bank noted that it has 1,782 customers without a known country of registration.
In June, Mamaniat admitted that South African authorities were “laggards” when it came to fighting financial crime. “Our anti-money laundering system is really far behind international standards in its scope … Other countries have gone further, a long time ago.”
South Africa must address all the weaknesses identified by the FATF by October 2022 — two months away. Failure to do so would result in the dreaded blacklisting, which, Mamaniat explained, could have dire consequences for the country.
Being blacklisted would damage the integrity of South Africa’s banking system and jeopardize the country’s relationship with foreign banks. Regulators of some of South Africa’s major trading partners, such as the US, UK, China and Japan, may prohibit their banks from transacting with the country’s banks.
In addition, bribery, fraud, corruption, cybercrime, tax evasion, illegal investment schemes and other related crimes can have a detrimental effect on the integrity of the banking sector and the South African economy as a whole.
“I think we’ve noted that we have to do whatever it takes to prevent graylisting,” Mamaniat said.
“And I think we worked very hard behind the scenes with all the regulators. It is not just the regulators but also agencies like the NPA [National Prosecuting Authority], Hawks. They will all have a role to play in making sure we take some of the recommended steps to address the weaknesses identified in the peer review report.”
He noted that avoiding the “grey list” will be very difficult and “a miracle.”
Olwetu Majola, a lawyer specializing in financial crime mitigation, said South Africa’s anti-money laundering legal and policy framework is robust. However, where the country’s authorities and banks fail, it is in implementation.
“South Africa hasn’t really looked at the scale and vulnerability of financial crime and the channels through which that money moves… But I think the main problem is state capture and the fact that little has been done to hold people accountable “, said Mayola.
“It’s a set of issues, but mostly they boil down to implementation. Our base is good. Our legislation is there. But they are not used. This means that now everyone who brings money into the country risks facing all these problems.”
Like Mamaniat, Majola was wary of how much South Africa would need to avoid being greylisted.
“If we don’t work on those issues, there’s a good chance we’ll end up there, especially because there are a lot of players involved. This is the state and what they need to do. It’s the financial institutions and what they have to do … So I think it doesn’t look good. And I don’t think we can say, “Oh, it’s just a threat and it might not happen.” I think we are very much moving in that direction.”
