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Grey clouds for now and not a downpour – South Africa’s attempts to stave off proposed grey listing

By Rashaad Carrim, Partner at Webber Wentzel

Rashaad Carrim – WW

Fears that South Africa’s place on the Financial Action Task Force (FATF) grey list was cemented as a consequence of its inadequate controls to counter money-laundering and financing of terrorism activities may well now be less certain following the galvanising action taken by government departments.

In its last oversight visit, the FATF highlighted 20 of its 40 recommendations that South Africa fell short on and in respect of which South African authorities were required to take steps to address by February 2023 to appease the FATF or face being placed on the list of jurisdictions under increased monitoring (the so called “grey list”).

As would be expected, this news brought about major anxiety from South Africa’s financial community, which was of course compounded by certain sensationalism in media reporting. Faced with what was then an inevitable fait accompli government set about tackling the deficiencies flagged by the FATF and heeded the wakeup call for better oversight. Lessons from some of the other 23 countries on the grey list were taken, including studying how our neighbour Mauritius steered themselves off the grey list in some two years.

As a start, two pieces of key legislation (the General Laws (Anti-Money Laundering and Combating Terrorism Financing) Amendment Act and Protection of Constitutional Democracy Against Terrorist and Related Activities Amendment) have been enacted in record time along with a sense of urgency to remediate the other weaknesses identified. At last count South Africa has addressed 15 of the 20 gaps identified by the FATF and in the past few weeks National Treasury has led a delegation of some 14 South African government departments and agencies to Rabat, Morocco to have a face-to-face with the FATF to engage and respond to possible further queries that the FATF may have. It seems that the vigour that SA has far surpasses that of Mauritius, who industry experts tell us only really began taking proper action to fix the gaps that caused it to be grey listed after they were placed on the list. South Africa is, by all accounts ahead on all scores, however, the key missing ingredient, to date, is private sector activism.

The ability for South Africa to stay off the grey list can never be achieved by government interventions alone and the private sector has to play its part now by starting to develop its internal compliance activities which includes ensuring stakeholder training and buy in. The shocking news of the precarious position South Africa found itself in following the October 2021 visit by the FATF cannot be allowed to render us impotent, especially when we factor that the “so-called” increased oversight required is in fact just good governance.

While it remains uncertain whether this will all be sufficient to stave off grey listing when the FATF holds its plenary meetings towards end of February, the markers for the financial community in South Africa to become increasingly positive that the right steps are being taken are evident. Even if the country is put on the grey list, South Africa will be able to continue functioning (albeit at an increased cost) until the appropriate protocols are in place, which is likely to happen fairly quickly, if the current momentum is maintained.