The measures South Africa is putting in place in response to the Financial Action Task Force’s recommendations will affect all industries and all employees.
South Africa is “greylisted” or not by the Financial Action Task Force (FATF) when the FATF next meets in February 2023, the country has received a sharp reminder to take more proactive measures against money laundering and terror financing activities.
Speakers at a recent Webber Wentzel client event to unpack the implications of greylisting agreed that taking measures to counter money laundering, terror financing and financing of weapons of mass destruction is not only the responsibility of the country’s law enforcement agencies, or its financial institutions. The responsibility extends to all companies and their employees.
In October 2021, the FATF identified various deficiencies in South Africa’s financial regulatory system that, if not addressed, would result in the country being placed on the “grey list” of countries that are subject to increased monitoring by the FATF. Countries that are greylisted (23 countries currently in this position) are required to address those deficiencies within a specific timeframe, or they will be subjected to further stringent measures.
The economic impact for South Africa of being placed on the grey list would be negative, but not a “Doomsday” scenario. It would primarily affect international transactions, entailing increased due diligence, higher costs, greater complexity, possible limitations and even prohibitions of certain transactions. The effect would be staged, not immediate, and depends on how South Africa’s international counterparts respond to a greylisting.
Speakers at the seminar pointed out that since the 2021 FATF report, South Africa has taken several steps to address some of the identified deficiencies, and it is by no means certain that it will move onto the grey list.
In April 2022, the Investigating Directorate (ID) was established as a temporary directorate within the National Prosecuting Authority to pursue those involved in state capture. Since then, it has enrolled nine seminal prosecutions. In October 2022, President Cyril Ramaphosa announced the ID would become a permanent entity, and the enabling legislation is expected to be enacted shortly.
In addition, South Africa has submitted various reports to the FATF, prosecuted various money laundering offenders and used extradition applications to pursue those who have fled the country. Two actions that still need to be evident are to bring prosecutions in instances of terrorism financing and enact the necessary legislation to close the loopholes identified by the FATF.
National Treasury is moving quickly to put the necessary legislation in place. Two of these laws are the General Laws Amendment Bill, which still requires public consultation, and the Omnibus Bill, which will address weaknesses in, among other areas, the Terrorism Act and beneficial ownership rules.
South African entities must not wait for greylisting to happen or for the relevant legislation to be enacted but start taking action now. They need to consider whether they are taking a risk-based approach to money laundering, have internal compliance policies in place, and are not merely adopting a “tick box” attitude to this issue. All these measures take time. Internal policies have to be drafted and circulated for comment, staff need to be trained, and systems to report suspicious transactions to the authorities need to be in place and fully understood. Companies should be prepared for visits by the authorities to check whether their systems are in place. If they fall short, penalties could range from administrative fines to criminal prosecution.
The responsibility for implementing these measures has to penetrate every area of an organisation, across all industries, from the board of directors to employees in the front office. In their everyday dealings with clients, employees should be alert to the risks of money laundering and the need to take effective “know your client” measures beyond simply asking for an identity document. Everyone in an organisation needs to understand that money laundering is a serious risk to the sustainability of the business.
A member of the audience questioned how South African authorities can give more effective protection to whistleblowers, some of whom have suffered terrible consequences for coming forward with information. Speakers agreed that although South Africa has adequate legal protection in place, more practical measures are needed to safeguard genuine whistleblowers.
To read insights about the General Laws (Anti-Money Laundering and Combating Terrorism Financing) Amendment Bill, 2022 as well as the Omnibus Bill, click