By Kerin Wood
South Africa awaits the outcome of the Financial Action Task Force’s (FATF) meeting, which is intended to determine if the country has done enough to address deficiencies in its legal framework, as well as the effectiveness of its implementation.
If successful, South Africa will be able to avoid ‘greylisting’ by the global inter-governmental body.
Representatives from the National Treasury, investigative and prosecuting units and other government departments engaged with FATF in mid-January on the progress made since October 2021, when South Africa was informed of the risk of possibly being greylisted.
FATF is expected to decide at a summit during the week of 20 - 24 February 2023 if the campaign by South African authorities has been enough to shore up the country’s ability to prevent money laundering, terrorist financing, and proliferation financing of weapons of mass destruction.
With the imminent decision by FATF on whether or not to greylist South Africa, many are asking whether the country has done enough to avoid the designation.
More specifically, some have questioned whether the efforts to date, which have largely focussed on technical compliance, are enough to demonstrate the effectiveness considerations and sufficient levels of enforcement to achieve the FATF’s immediate outcomes.
In PwC South Africa’s view, a lot of progress has been made to address technical compliance, and we’d like to highlight three significant developments:
1. South Africa has been able to fast-track legislative reforms, which seek to increase the breadth and depth of its regulatory frameworks.
These efforts have included the enactment of the General Laws (Anti-Money Laundering and Counter Terrorist Financing) Amendment Act 22 of 2022 on 31 December 2022.
The amendment gives effect to various pieces of legislation to address technical deficiencies highlighted in FATF’s evaluations. These include enhanced procedures and powers for regulatory authorities and improved access to information in relation to ultimate beneficial owners.
2. The scope of application of regulatory requirements around anti-money laundering was also significantly widened at the end of 2022 through amendments to FICA which served to make various new entities subject to the extensive obligations set out in the Act relative to the management of anti-money laundering and counter terrorist financing.
This included bringing higher-risk entities like virtual asset service providers and money transfer providers into the scope of Accountable Institutions under the Act.
3. Regulatory bodies such as the Prudential Authority (PA) and Financial Service Conduct Authority (FSCA) have also worked alongside banks and non-bank financial institutions to enhance the application of FATF’s risk-based methodologies to close out identified areas of concern.
These amendments are also supplemented by the Protection of Constitutional Democracy against Terrorist and Related Activities Amendment Bill of 2022, which addresses shortcomings linked to terrorist financing.
South African authorities should be commended for their efforts around regulatory reform to stave off a potential greylisting. The speed at which they have facilitated this is noteworthy.
The hope is that the efforts and the speed of implementation have been sufficient to demonstrate to FATF the seriousness with which the country takes our obligations around the prevention of money laundering and terrorist financing.
Regardless of the outcome next week, one thing remains clear: South Africa cannot afford to be complacent and must continue in its efforts to demonstrate the effectiveness of its enhanced legal framework through enforcement.
Going forward, the focus areas must include:
Heightened levels of risk-based supervision by regulators;
Law enforcement agencies prioritising enforcement initiatives and ensuring such investigations are effectively supported through sufficiently capacitated and skilled staff;
Mutual legal assistance and cooperation from other countries in criminal matters.
* Kerin Wood is PwC’s South Africa Risk and Response Leader.
BUSINESS REPORT