The National Treasury has warned of a “tough challenge” required to address all the outstanding action items required by the Financial Action Task Force (FATF) to remove South Africa from what is referred to as the “Grey List”.
This comes after the February 2024 FATF Plenary adopted a report by the Joint Group, which confirmed that only five of the 22 action items have been “addressed or largely addressed”.
The FATF grey listed South Africa exactly a year ago as it was deemed insufficiently compliant in being able to prevent money laundering, terrorist financing and proliferation financing.
South Africa is a full member of the FATF, an inter-governmental organisation charged with developing policies and setting international standards to combat money laundering and terrorism financing.
Before being placed on the Grey List, South Africa underwent its Mutual Evaluation Assessment by the FATF in 2021. This set off a series of events as the country tried to strengthen its Anti-Money Laundering and Combating of the Financing of Terrorism (AML/CFT) systems.
When the FATF instituted the action, a jointly agreed Action Plan was adopted that listed 22 action items linked to the strategic deficiencies identified in the AML/CFT regime.
South Africa is required to address all action items within the deadlines falling between January 2024 to January 2025 in order to exit the FATF list.
Treasury yesterday said the action items addressed related to the legal provisions that criminalise terrorist financing and underpinned South Africa’s targeted financial sanction regimes, related to terrorism financing and proliferation financing.
This also related to increasing the use of financial intelligence from the Financial Intelligence Centre to support money laundering investigations, and increasing the resources of AML/CFT supervisors.
“National Treasury notes that whilst South Africa is on track to address all the outstanding action items, it remains a tough challenge to address all 17 of the remaining action items by February 2025,” it said.
“All relevant agencies and authorities will need to continue to demonstrate significant improvements, and also for such improvements are being sustained.”
If South Africa addresses the action items within the deadline the FATF will schedule an on-site visit in April/May 2025 to verify that assessment and make a recommendation to the June 2025 FATF plenary.
Webber Wentzel partner Gabi Richards-Smith said although the immediate financial impact of the grey listing had not been severe, the long-term consequences could not be ignored.
Richards-Smith said prolonged inclusion on the Grey List could translate into higher risk premiums for businesses, potentially leading to capital outflows and ultimately hindering economic growth.
“Addressing all the remaining FATF recommendations by early 2025 is an ambitious yet achievable goal, fuelling cautious optimism for delisting and a more robust AML system,” she said.
“However, it's crucial to acknowledge the hurdles that remain.”
In this cycle of reporting, that corresponded with the Plenary earlier this month, the FATF also considered that two further action items that were previously not addressed, have now been partly addressed, confirming that 14 of the 17 outstanding action items have now been partly addressed.
However, three action items are yet to be addressed.
The deadline to address, or at least largely address, four of the outstanding action items in the Action Plan is May 2024.
The FATF will consider progress on these action items at its Plenary meeting in June 2024. Progress reports are provided every four months on the action plan.
A further eight action items are due in September 2024, and the final give items are due in January 2025.
In terms of addressing technical compliance deficiencies related to the 40 FATF recommendations, Treasury said South Africa was now deemed to be fully or largely compliant in 35 of the 40 recommendations, including in five of the six core recommendations.
The five areas require full technical compliance are in national and international co-operation, NGOs, targeted financial sanctions related to terrorism and terrorist financing, new technologies and cash couriers.
South Africa will apply for further re-ratings of technical compliance deficiencies for consideration at the October 2024 FATF Plenary.
Investec chief economist Annabel Bishop said the fact that South Africa had addressed most of the technical compliance deficiencies within two years of the publication of its Mutual Evaluation Report was strong progress.
“South Africa has shown marked progress in meeting the requirements to get off the Grey List by February 2025. Once all items are implemented and the improvements are deemed sustainable FATF will reconsider South Africa’s grey listing status,” Bishop said.
“Since the grey listing, Cabinet and the Justice, Crime Prevention and Security (JCPS) Cluster has overseen the Action Plan’s implementation with National Treasury chairing the Interdepartmental Committee on AML/CFT.
“Overall, the focus is on strengthening South Africa’s capability to deal with financial crimes by substantially improving the effectiveness of the system.”
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