South Africa has whittled down to six the number of outstanding items on the Financial Action Task Force’s “to do” list, but it must address all six outstanding items by February if it hopes to get off the global financial crime watchdog’s grey list by the middle of next year.
One of the outstanding action items should have been “ticked off” the list by last month, but it was not because of low compliance by companies and trusts. This item concerns beneficial ownership.
The FATF also wants to see supervisory bodies, which include the Financial Intelligence Centre (FIC) and the FSCA, imposing sanctions on non-compliant accountable institutions, as defined by the FIC Act.
On Friday, the FATF announced that South Africa has been given a “passing grade” for a further nine items on the 22-item Action Plan that was drawn up when the organisation grey-listed the country in February last year.
Eight action items were upgraded to “largely addressed” and one to “partly addressed”, the FATF said at a press conference following the conclusion of its October Plenary meetings in Paris. The country is now deemed to have largely or fully addressed 16 of the 22 action items.
“South Africa has taken steps towards improving its AML/CFT [anti-money laundering and combating the financing of terrorism] regime, including by demonstrating a sustained increase in outbound MLA [mutual legal assistance] requests, strengthening its AML/CFT supervisory capacity by improving the risk-based supervision of DNFBPs [Designated Non-financial Businesses and Professions], enhancing its identification, seizure, and confiscation of proceeds and instrumentalities of a wider range of predicate crimes, in line with its risk profile, the update and implementation of its TF [terrorist financing] strategy and increasing relevant authorities’ TF capabilities on the basis of an understanding of its TF risks, as well as ensuring the effective implementation of targeted financial sanctions,” the FATF said in a statement said.
“Mutual legal assistance” refers to the process where countries co-operate with one another to exchange information, gather evidence, and take legal action across borders in support of investigations and prosecutions.
The 22 action items are linked to the eight strategic deficiencies identified in South Africa’s AML/CFT regime. The Action Plan also contains deadlines, or reporting cycles, by which South Africa must have addressed the 22 items.
South Africa now has one reporting cycle left to address the remaining six action items by February next year, National Treasury said in a statement on Friday.
Expect the compliance heat to be turned up
Three of the six items relate to demonstrating a sustained increase in the investigation and prosecution of complex money laundering, terrorist financing, and unlicensed cross-border money or value transfer services. The other three relate to beneficial ownership information in respect of companies and trusts, and to imposing remedial action and sanctions by AML/CFT supervisory bodies.
The FATF’s statement said “South Africa should continue to work on implementing its Action Plan to address its remaining strategic deficiencies, including by:
- demonstrating that all AML/CFT supervisors apply effective, proportionate, and effective sanctions for non-compliance;
- ensuring that competent authorities have timely access to accurate and up-to-date beneficial ownership information on legal persons and arrangements and applying sanctions for breaches of violation by legal persons to beneficial ownership obligations; and
- demonstrating a sustained increase in investigations and prosecutions of serious and complex money laundering and the full range of TF activities in line with its risk profile.”
In light of the FATF’s remarks about sanctions – and the looming February 2025 – accountable institutions should not be surprised if FICA supervisory bodies start turning up the heat on compliance and hit delinquent businesses with hefty fines.
Focus on beneficial ownership information
Treasury’s statement drew attention to the action item related to beneficial ownership.
It said South Africa was supposed to have addressed this item by September this year. But the FATF Africa Joint Group found that insufficient beneficial ownership information has been provided in respect of companies and trusts.
“It is incumbent upon all companies and trusts to ensure they have registered accurate beneficial ownership information with the CIPC [Companies and Intellectual Property Commission] and the Masters Office, respectively, in accordance with their legal obligations,” Treasury said.
It called upon trusts and companies to submit their beneficial ownership information before 30 November, to increase the coverage in beneficial ownership registries “significantly”.
Next steps to get off the list by June
National Treasury’s statement welcomed the progress made by state agencies in ensuring that South Africa now meets 16 of the 22 action items.
However, in keeping with its previous responses to the FATF’s upgrading of South Africa’s compliance status, Treasury reiterated that South Africa faces a challenge to exit the grey list at the end of the next reporting cycle. This is because the country will have to address all six outstanding action items by February 2025 if it hopes to do so.
Read: Exiting the grey list before June 2025 is unlikely, says Treasury
Read: Treasury: tough challenge to tick off all the items on FATF’s Action Plan
If South Africa is successful in addressing all the remaining action items in the next reporting cycle, the February 2025 FATF Plenary will authorise an on-site visit by the Africa Joint Group to confirm its assessment of the progress. This will happen around May 2025, Treasury said.
If the on-site assessment results in a positive outcome, the Africa Joint Group will recommend to the June 2025 FATF Plenary that South Africa be taken off the grey list.
But if the Group assesses that South Africa has not adequately addressed all the remaining action items in February 2025, South Africa will be required to continue reporting to the Group every four months until all the action items have been addressed. Hence, the exit from greylisting will be moved from June 2025 to October 2025, or later.
The grey list, officially the “list of jurisdictions under increased monitoring”, is a list of countries that are deemed to have deficiencies in their AML/CFT systems and are considered to pose a risk to the international financial system.
When a country is placed on the grey list, it means the FATF has identified certain weaknesses or shortcomings in its framework. These deficiencies could include inadequate laws or regulations, insufficient enforcement measures, or a lack of co-operation with other countries on AML/CFT issues.
Progressing with addressing technical compliance deficiencies
Last week’s FATF Plenary also approved the upgrade of South Africa’s compliance with the organisation’s Recommendations (or standards).
The FATF has 40 Recommendations that set out a comprehensive and consistent framework of measures that countries should implement to combat money laundering and terrorist financing, and the financing of the proliferation of weapons of mass destruction. The FATF assesses compliance with each Recommendation as “compliant”, “largely compliant”, “partially compliant”, or “non-compliant”.
South Africa now complies or largely complies with 37 of the 40 Recommendations. An additional Recommendation was deemed not to apply to South Africa.
Treasury said this was substantial progress since the 2021 FATF Mutual Evaluation when South Africa was found to be deficient in 20 Recommendations.
Furthermore, South Africa is now deemed to comply or largely comply with all six core Recommendations.
The two Recommendations outstanding are Recommendation 8 on non-profit organisations and Recommendation 32 on cash couriers. Both are assessed to be “partially compliant”.
Treasury emphasised that the process to upgrade the outstanding Recommendations does not affect the process for South Africa to exit the grey list, “as greylisting is a consequence of the assessment of the extent to which a country uses its power effectively”.
The extent to which a country complies with the 40 Recommendations is based on its AML/CFT legislation and systems. The action items, on the other hand, concerns how effectively a country implements its AML/CFT regime – for example, investigating and prosecuting financial crimes.
Treasury said South Africa’s compliance with 37 of the 39 applicable Recommendations places it in a good position for the 2026/27 Mutual Evaluation assessment.
It said further legislation will be introduced next year to strengthen Recommendation 8 (non-profit organisations) and improve compliance with the other Recommendations.
