S Africa moves laws to avoid being grey-listed by financing watchdog

The South African government has introduced some urgent changes to its laws to avoid the country being grey-listed by the Financial Action Task Force (FATF), the global money laundering and terrorist financing watchdog.

As a policy-making body, the Paris-based 200-member FATF works to generate the necessary political will to bring about national legislative and regulatory reforms in these areas.

The Minister of Finance has tabled General Laws (Anti-Money Laundering and Combating Terrorism Financing) Amendment Bill in Parliament, which will now follow the process of public comments, convening hearings, making amendments and passing the Bill.

A statement released by the Treasury said that this demonstrated the commitment of the South African government to Anti-Money Laundering/Combating the Financing of Terrorism (AML/CFT) and addressing the deficiencies identified by FATF's Mutual Evaluation Report (MER) of South Africa, which was published in October 2021.

When enacted into law, it will improve South Africa's adherence to international best practices in combating financial crimes and corruption, the Treasury said.

South Africa received a very poor rating assessment in its mutual evaluation, and as a result has been placed in an enhanced follow-up process, which involves more frequent reporting to the FATF, until South Africa has addressed all the deficiencies that were identified.

South Africa was also placed on a one-year observation period (from October 2021 to October 2022).

In terms of the follow-up process, South Africa is required to submit its first follow-up report to the FATF at the end of August 2022, and the second report in October 2022, in preparation for the February 2023 FATF Plenary.

A FATF grey listing, which is made public, is likely to have the effect of increasing the cost of doing business for South African businesses with foreign trading partners.

National Treasury has been working closely with officials from the Departments of Justice and Constitutional Development, Trade, Industry and Competition, Social Development, the Financial Intelligence Centre, the Companies and Intellectual Property Commission and the South African Revenue Service through an Interdepartmental and agency Committee on AML/CFT that is chaired by the Director-General of National Treasury in preparing an action plan to prevent greylisting, including the development of the draft Bill, the statement said.

The South African authorities have also secured technical assistance from the World Bank and the European Union, to learn the lessons of other countries on how to strengthen the AML/CFT system to better tackle financial crimes and corruption, and to prevent the country from being grey-listed.

To ensure that the necessary laws are enacted as soon as possible in line with the need to show progress in our report back to the FATF, all amendments across several Acts have been incorporated into one omnibus Bill.

The Amendment Bill seeks to address deficiencies in at least 14 of the 20 recommendations, including an appropriate enhancement of powers and procedures for regulatory authorities.

A separate Bill, the Protection of Constitutional Democracy against Terrorist and Related Activities Amendment Bill, 2022, deals with two further recommendations.

The Treasury said that the outstanding four deficient recommendations would be dealt with via policy processes and mechanisms to be developed by October/November 2022.

The statement conceded that aside from successfully addressing all or most of the 20 technical deficiencies by the end of the year, South Africa will have the harder task of demonstrating the effectiveness of its laws and frameworks, including demonstrating that the country has credible national risk assessments to deal with money laundering and terror financing.

It is imperative that the country demonstrates in the next six months that it has made significant progress in addressing the deficiencies in FATF, Treasury concluded.