Being on the grey list means international finance flows are subjected to higher compliance obligations and transaction costs.
Lawyers and estate agents are still keeping South Africa on the grey list despite efforts of the Financial Intelligence Centre to tackle all the items on the list of the Financial Action Task Force (FATF) designed to curb money laundering and the financing of terrorism and proliferation financing.
The FATF is an intergovernmental body established in 1989 by the ministers of its member jurisdictions to protect financial systems and the broader economy from threats of money laundering and the financing of terrorism and proliferation, thereby strengthening financial sector integrity and contributing to safety and security.
The Financial Intelligence Centre (FIC) is South Africa’s national centre for the gathering and analysis of financial data to safeguard the integrity of the country’s financial system and its institutions. The Financial Intelligence Centre Act (FICA) mandates the FIC to assist in the identification of the proceeds of crime and assist in combating money laundering, terrorist financing and proliferation financing to facilitate effective supervision and enforcement of the Act.
Under this legislation, financial and non-financial institutions are required to fulfil certain compliance obligations that include registering with and filing various regulatory reports to the FIC that form the basis for the FIC’s analysis to develop financial intelligence reports.
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SA on grey list since February 2023
The FATF greylisted South Africa in February 2023 due to its failure to comply with FATF standards and measures to combat illicit financial flows, terrorist funding and potential threats to the integrity of the global financial system.
Christopher Malan, executive manager for compliance and prevention at the FIC, says positive efforts and commitment by non-financial businesses and professions (DNFBPs) registered with the FIC significantly contributed to bringing South Africa closer to exiting the FATF grey list.
However, despite these strides, he points out that the DNFBPs the FIC supervises are reminded that the country has only partially addressed the grey listing concerns pertaining to DNFBP risk and compliance understanding as raised by FATF.
DNFBPs include legal practitioners, estate agents, trust service providers (including accountants) and dealers in precious stones and metals, including Krugerrands and other dealers in high-value goods.
Malan says DNFBP’s level of understanding of their own risk and compliance situation and their reporting to the FIC remains a concern, as the FIC is their sole supervisory body for anti-money laundering, combating terrorist financing and countering the financing of proliferation of weapons of mass destruction.
Financial Intelligence Centre: SA on grey list due to obligations to FATF not met
South Africa is required to improve risk-based supervision of DNFBPs by implementing and keeping up-to-date supervisory risk-assessment tools to identify higher risk DNFBPs as a basis for risk-based supervision, according to the FATF, but has not yet met this requirement fully, largely due to the fact that the number of risk and compliance returns (RCRs) DNFBPs submitted to the FIC remains unsatisfactory.
This is especially true for legal practitioners and estate agents, who are considered to be higher-risk DNFBP sectors. Malan says on average, these two sectors’ current RCR submission rate is at around 70%, with legal practitioners submitting 11 351 and estate agents 6 506 RCRs.
“While the priority risk-based focus is on estate agents and legal practitioners, the other DNFBP sectors, such as high value goods dealers, including dealers in precious stones and precious metals, including Krugerrand dealers, as well as trust service providers, including accountants, must also substantially and urgently file their outstanding RCRs with the FIC.
“Critically, RCR submission rates across all DNFBPs must move closer to the 100% mark over the current quarter between April and June for the FIC to improve its risk-classification for each sector.”
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More submissions needed
He says if the FIC attains a closer to 100% RCR submission rate across all DNFBPs, it will improve the FIC’s risk assessment and analysis of RCRs per sector to identify more credible numbers of higher risk ratings for businesses and professions.
“The key issue that requires urgent attention are that individual DNFBP accountable institutions who have long outstanding RCRs must submit their RCRs to the FIC without further delay.”
For South Africa to demonstrate continued and sustained focus on ensuring the robustness of its economy, businesses must play their part, Malan says.
“While most of the DNFBP sectors listed in the FIC Act have rallied to the compliance challenge of remediating the action items through the submission of the RCR to the FIC, much higher levels of compliance are needed.
“With little to no information on the risks these sectors face, the FIC can only assume that those who are non-compliant are at high risk of money laundering and terrorist financing abuse.”
