It has been a year since the grim reality of South Africa's greylisting status by the Financial Action Task Force (FATF). While the shadow of this decision persists, a careful analysis reveals a landscape marked by both challenges and encouraging progress. South Africa has undertaken a complex journey to address anti-money laundering (AML) deficiencies as it strives for potential delisting by 2025.
Before being placed on the greylist, South Africa underwent its mutual evaluation assessment by the FATF in 2021. This set off a series of events as the country desperately tried to strengthen its anti-money laundering and counter-terrorist financing systems. The General Laws Amendment Bill, a legal overhaul that introduced novel concepts like beneficial ownership, brought legislative skill to the forefront. Simultaneously, the Fusion Centre became a symbol of cooperation between different law enforcement agencies, presenting a unified front against financial crimes.
The National Treasury contributed to this symphony of reform by allocating a substantial ZAR 14 billion in its mid-term budget. The capital infusion was a strategic move to help agencies combat financial crime, laying the groundwork for a multifaceted approach to compliance.
The greylisting underscored the imperative for South Africa to intensify its measures against money laundering and financial crimes. However, this journey is not without its challenges. To achieve strong AML compliance, South Africa must restructure its enforcement systems in addition to ensuring the enforcement of new laws. This is where the difficulties in attaining greater conviction rates show themselves, underscoring the necessity of a resurrected National Prosecuting Authority (NPA). A ray of hope emerges with the Deferred Prosecution Agreement (DPA). This novel legal instrument provides firms with a means of redeeming themselves by exhibiting commendable behaviour during the prosecution process, encouraging co-operation and maybe hastening the conclusion of complex financial crime cases.
Questions often arise as to the impact a greylisting by the FATF has on the European Union's blacklist. Although effective, the European Union's (EU) blacklisting paints a vivid picture of the 2020 methodology and the process that has come under fire for allegedly failing to consider a country's continuous efforts and producing harsh penalties. The additional degree of difficulty comes from the United Kingdom's (UK) distinct high-risk countries list. The impact of greylisting on foreign transactions involving South African banks is difficult to quantify because several variables contributed to the early resilience. It is nevertheless imperative to make continuous efforts to reduce any negative effects.
The EU's automatic blacklisting based on the FATF grey list raises concerns about its proportionality and potential for disproportionately impacting listed countries. While respecting international standards is paramount, addressing these concerns is crucial to ensure a fairer and more collaborative global approach to combating financial crime.
Measuring this impact proves to be an art rather than a science, with various factors contributing to South Africa initially weathering the storm. The complexity of external capital flows, coupled with South Africa's diverse challenges beyond financial realms, provides a canvas for ongoing efforts to stave off potential adverse implications.
The financial sector regulators are intensifying their focus on AML regulations and learning a lot from their international colleagues. The effectiveness of using administrative penalties for noncompliance is increasing. While recent changes such as the General Laws Amendment Bill strengthen the legal basis, real delisting and rehabilitation require constant cross-sector co-operation. Building a robust collective front requires public-private partnerships and active participation from the National Treasury and the general public.
Though the immediate financial impact of the greylisting hasn't been severe, the long-term consequences cannot be ignored. 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. However, it's crucial to acknowledge the hurdles that remain.
The saga continues to unfold, with a story of challenges, reforms, and the unwavering pursuit of financial integrity.
🎧Listen to Webber Wentzel's Podcast: Greylisting: Unveiling South Africa's AML Efforts and the 2025 Delisting Ambition as Gabi Richards-Smith, Lerato Lamola, Kirsten Wolmarans, and Rashaad Carrim delve into the complex journey of addressing AML deficiencies.
