The South African government is hopeful that the country will be removed from the Financial Action Task Force (FATF) grey list by early 2025. A recent follow-up report by the international body seems to support this view.
However, credit management company Debtsource warns that a timely exit from the grey list could be in jeopardy due to slow registration of companies as ‘accountable institutions’ under the new amendments to the Financial Intelligence Centre (FIC) Act.
The amendments to the FIC Act expanded the definition of credit providers to include high-value goods dealers and crypto asset service providers, among others. These ‘accountable institutions’ are required to register and submit regular reports to the FIC.
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The expanded definition also includes estate agents and casinos, where the risk of criminal and terrorist activity is deemed to be high. With this expansion comes new reporting obligations, such as the need for risk management and compliance programs.
However, many companies have been slow to register or are ignoring the amendments, hoping that lax enforcement will render them null.
The FATF findings highlighted that South Africa does not lack adequate anti-money laundering and combating of terrorism (AML/CFT) measures, but rather that these measures are weakly enforced.
Another key issue identified by the FATF is the need to identify beneficial owners of companies and trusts, bringing transparency to financial transactions.
The greylisting of South Africa carries a negative connotation for local companies, as it implies poor financial hygiene. This can increase reputational risk and impose higher standards of due diligence when dealing with foreign businesses and banks. Estimates suggest that this could cost the economy 1% to 3% of GDP annually.
The latest FATF report shows improvements in 18 out of the 20 deficiencies previously identified. South Africa is now deemed fully or largely compliant with 35 of the 40 FATF recommendations. However, there are still five areas of deficiency that need to be addressed before the greylisting label can be removed.
One of the steps taken by the South African government was the formation of an inter-departmental committee on anti-money laundering and combating terrorism financing.
However, the low levels of compliance and awareness of the registration requirement among companies in the trade credit market may hinder progress. This lack of registration will be noted by the FATF and could have negative consequences for South Africa’s bid to exit the grey list.
For accountable institutions, the stakes are high. Non-compliance can result in financial penalties, reputational damage, and a tarnished business environment. Sanctions can range from cautions and reprimands to restrictions, suspensions, and financial penalties of up to R50 million for any legal person.
Law firm Cliffe Dekker Hofmeyr advises that these new accountable institutions must register with the FIC, perform risk assessments on their businesses, and develop anti-money laundering and combating terrorism financing policies.
Existing accountable institutions also need to conduct due diligence on themselves to identify any gaps and implement controls to prevent money laundering and terrorism financing.
South Africa’s journey to exit the FATF grey list by 2025 is not without its challenges. The government must ensure that compliance with AML/CFT measures is not only strengthened but also consistently enforced.
Companies must also recognize the importance of registering as accountable institutions and implementing robust risk management and compliance programs. By addressing these issues, South Africa can improve its standing and reputation in the global financial community.
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