Cabinet approves bill to strengthen fight against money laundering

South Africa will soon learn its fate at the end of September, on whether it will be greylisted or not, after it was placed in a one-year observation period following a very poor ratings assessment in its mutual evaluation report, a study done by the Financial Action Task Force.

The Financial Action Task Force (FATF) is the global money laundering and terrorist financing watchdog.

The mutual evaluation report is an assessment of a country’s measures to combat money laundering and the financing of terrorism and proliferation of weapons of mass destruction. This includes an assessment of a country’s actions to address the risks emanating from designated terrorists or terrorist organisations.

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South Africa received a very poor ratings 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.

Treasury pulls up its socks

As a result, the Minister of Finance has tabled the General Laws (Anti-Money Laundering and Combating Terrorism Financing) Amendment Bill in Parliament. The Department of Treasury says that this signifies a significant step towards addressing the deficiencies identified by the FATF’s report.

In a statement from Treasury, the department explained that the proposed amendment of five pieces of legislation, which are administered by different Ministers, seeks to fully satisfy the technical compliance deficiencies identified in the report.

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“The South African authorities have 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 greylisted,” the statement read.

Report out 20 recommendations, Treasury takes note

The Amendment Bill seeks to address deficiencies in at least 14 of the 20 recommendations in the report, 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, dealt with two further recommendations.

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

The Amendment Bill proposes to amend the following laws:

  • Trust Property Control Act, 1988: Minister of Justice and Correctional Services
  • Nonprofit Organisations Act, 1997: Minister of Social Development
  • Financial Intelligence Centre Act, 2001: Minister of Finance
  • Companies Act, 2008: Minister of Trade, Industry and Competition
  • Financial Sector Regulation Act, 2017: Minister of Finance

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Still a long road to credibility

But even with the amendment bill, the Department of Treasury still stressed that it should be noted 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 AML/CFT laws and frameworks, including demonstrating that the country has credible national risk assessments to deal with money laundering and terror financing.

The country would still have to prove that its supervisory authorities in both the financial sector and in non-financial sectors like the legal profession, gambling sector, estate agents all have appropriate risk-based approaches.

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Most importantly, the country needs to prove that its investigative and prosecuting authorities are able to demonstrate speedy investigations, prosecutions and asset forfeitures for financial crimes and corruption.

Repercussions from being greylisted

A FATF greylisting, 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.

According to a MoneyWeb report, Greylisting can reduce a country’s capital flows by as much as 7.6%.

The DA reckons that the reputational damage of being greylisted would be so immense that the country could even face additional downgrades in investment and credit ratings, further restricting access to international markets.