Countdown to greylist removal: Is South Africa ready for its FATF judgment day?

In June this year, the Financial Action Task Force’s (FATF) Strasbourg Plenary deemed South Africa successful in “substantially completing” its 22-item Action Plan for removal from the FATF greylist. This has set the stage for an authorised onsite visit in October when FATF will determine whether South Africa can finally be scrubbed from the greylist.

Despite the considerable progress we have made, this is “not a time for complacency”, as the South African Reserve Bank (SARB) has cautioned. FATF will not be satisfied by a box-checking exercise and will expect to see signs of sustainable improvement in South Africa’s compliance culture. All stakeholders in the financial system face a huge task to surmount this hurdle of delisting.

The onsite assessment: a key milestone in the journey towards greylist removal

FATF’s onsite assessment will evaluate the progress South Africa has made in implementing anti-money laundering (AML) and counter-terrorist financing (CTF) measures since it was greylisted in February 2023. In line with FATF practices, the global AML/CTF watchdog will determine the nation’s effectiveness and technical compliance ratings across its 11 Immediate Outcomes (IOs).

The on-site visit is only one stage of the FATF investigation, which also includes pre-visit assessments and a post-site review. During the onsite visit, FATF will interview stakeholders such as the National Treasury, the Directorate for Priority Crime Investigation (DPCI), the Financial Intelligence Centre, SARB, banks, legal firms, not-for-profit organisations (NPOs) and estate agents.

During the review, representatives from the public and private sector will be asked to show where and how effectively South Africa has strengthened anti-financial crime controls. Stakeholders will need to make full descriptions of adherence to the 11 IOs (complete with quantitative metrics) to demonstrate that South Africa’s overall compliance is worthy of removal from the greylist.

What South Africa has done right so far and some outstanding gaps

The completion of the Action Plan highlights a commendable cooperative effort from South Africa’s government, regulatory bodies and regulated institutions to address the country’s historical prosecution weaknesses and reputation for state capture. South Africa has made impressive progress across the IOs, including increasing the rates of investigations and prosecutions (IO 7, IO 9), implementing FIC data to support law enforcement (IO 6), and seizing illegal assets (IO 8).

The work completed to date includes tough reforms such as a comprehensive national CTF risk assessment strategy. The introduction of a beneficial owner (BO) registry, meanwhile, ensures that authorities have access to business and trust property ownership data, supported by revisions to the Trust Property Control Act and the Companies Act.

Accountability for strengthened AML measures has expanded beyond financial houses to Designated Non-Financial Businesses and Professions (DNFBPs), such as real estate agents, accountants, high-value goods dealers, lawyers and independent legal practices.

Mind the compliance gaps

Time is running out to address gaps for the onsite assessment. Filing of BO declarations since the registry’s introduction in 2023 is still lacking, while both inter-agency and private-public coordination remain in the early stages. FATF will be particularly looking for improvement from  the sectors flagged for low effectiveness and technical compliance ratings in 2021: legal practices; NPOs; DNFBPs; money transfer services; foreign branches or subsidiaries; and cash couriers.

Cross-sector cooperation will be key to ensure FATF’s 22 Action Items and IOs are satisfactorily addressed. Regulatory technology (RegTech) can provide a bridge for improved AML efforts among the government, watchdogs and accountable firms. These platforms provide real-time monitoring and detection for strange transaction behaviours, politically exposed persons or sanctioned against watchlists and BO databases; help conduct enhanced due diligence; and ease the submission of timely, detailed suspicious activity/transaction reports to the FIC.

These capabilities can showcase how sharing financial intelligence can lead to more investigation and prosecution success, especially through closer partnerships between the public and private sectors. While there are no firm plans for a dedicated sanctions authority (like the UK’s OFSI), the designation of a ‘digital intelligence unit’ to support DPCI and the NPA shows specialised agencies are a key consideration in reducing existing AML weaknesses.

But even more importantly than crossing items off the to-do list, South Africa must show that compliance is embedded into every part of its financial system, The Mail & Guardian identified the greylisting as a “symptom” of a systemic “illness” that will go away without cooperation across the ecosystem. FATF greylist removal might be a mark of success, but we should be more ambitious than that.

Ongoing compliance must become second nature, not in response to external deadlines, but as part of a long-term commitment to financial integrity, transparency, and trust. If South Africa succeeds, it will not only secure removal from the greylist but also position itself as a global leader in the fight against illicit financial flows.

Bradley Elliott, CEO of Anti-Money Laundering (AML) platform RelyComply.

*** The views expressed here do not necessarily represent those of Independent Media or IOL.

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