Getting off the greylist

Initially sanctioned for failing to comply with international standards around money laundering and more, SA is making good progress towards removal from the greylist.

Johannesburg, 05 Apr 2024
Vincent Gaudel, Financial Compliance Crime Expert, LexisNexis Risk Solutions.
Vincent Gaudel, Financial Compliance Crime Expert, LexisNexis Risk Solutions.

Just over a year after South Africa’s greylisting by global financial crime watchdog, the Financial Action Task Force (FATF), the country has significantly improved its anti-money laundering and countering the financing of terrorism (AML/CFT) framework. However, there remains much still to do before the country is removed from the greylist.

Initially censured for not fully complying with international standards around the prevention of money laundering, terrorist financing and proliferation financing, the FATF assessors recently noted that SA had "addressed most of the technical compliance deficiencies" in its AML/CFT framework.

According to Vincent Gaudel, Financial Crime and Compliance Expert at LexisNexis Risk Solutions, SA’s ratings were upgraded for 17 recommendations, with the country now rated as either ‘compliant’ or ‘largely compliant’ with 34 of the FATF’s 40 recommendations.

“It is clear that technical progress is undeniable and this has been acknowledged by the FATF. This positive trend needs to continue and translate into tangible outcomes, for South Africa to be removed from the greylist,” he says.

“The 2022 amendments to the Financial Intelligence Centre Act (FICA) will greatly improve financial monitoring and compliance from accountable institutions. It should level the playing field regarding compliance expectations, fill the technical gaps raised by the FATF report, and equip the centre with the appropriate powers and responsibilities.”

These amendments, he notes, are far-reaching and are directly intended to address some of the weaknesses highlighted by the FATF assessment. One of the key areas of change is the improved sectoral coverage, extending the scope of professions subject to the FIC’s supervision.

“Amendments are also brought to the definition of key terms such as ‘beneficial owners’, ‘prominent influential persons’, ‘politically exposed persons’, as well as clarification on the expectations on risk management, compliance programmes and due diligence measures, to be applied by accountable institutions.

“Another important dimension of the 2022 amendments to the FICA are the additional powers and responsibilities for the centre. Through improved access to information held by other state bodies or accountable institutions, and through the possibility to renew a direction not to proceed with a transaction, the centre will be able to better monitor and disrupt illicit financial flows. These new powers go hand in hand with its amended functions and objectives – it is now tasked with providing forensic information.”

Gaudel points to a recent IMF study, which found that the economic impact of being placed on the FATF greylist could translate into a yearly contraction of 7.6% of GDP in capital inflows. It is probably too soon to quantify the impacts in the case of South Africa, but there remains a clear takeaway: it’s safer not to remain on the greylist for too long.

“In the longer term, being removed from the FATF greylist and continuing to improve the national measures against money laundering and terrorism financing brings significant benefits. After all, a financial system that operates with integrity and transparency forms the backbone of a striving economy,” he states.

“Finally, with competent authorities gaining resources, powers and skills to effectively investigate, prosecute and confiscate proceeds and instrumentalities of all predicate criminal activities – including corruption – one can expect positive impacts on public services and, in turn, more broadly on South African society.”

It is also imperative that accountable institutions remain critical gatekeepers to the integrity of the financial system and of the broader economy, he suggests, adding that such companies must implement state-of-the-art AML/CFT and sanctions controls, to do their part.

“As a business, AML/CFT is not merely about regulatory compliance with the FICA or other applicable regulations, but rather about effectively understanding your own exposure to money laundering and terrorism financing risks, so that those risks can be detected and managed.

“Lastly, financial crime compliance technology is today essential to combine effective and efficient controls, and thus inform a robust risk-based approach. SA’s AML/CFT framework is building up fast, and supervision will only grow tighter on the private sector. It is therefore important for businesses to take a proactive stance towards building up their internal compliance programme, and to be ready to demonstrate impeccable AML/CFT controls,” concludes Gaudel.