Cabinet has taken urgent steps to ensure South Africa is not "greylisted" with the approval of important amendment bills aimed at plugging gaps in the country’s anti-money laundering and anti-terrorism funding laws
Democratic Alliance MP and party spokesperson on finance Dion George said South Africa was now at great risk of being subjected to increased monitoring (so-called greylisting) by the global money-laundering and terrorist financing watchdog, the Financial Action Task Force (FATF).
This, he said, was due to weaknesses in the country’s ability to enforce anti-money laundering and anti-terrorism funding regulations, and difficulty in investigating and successfully prosecuting financial crimes.
Government on Friday said it has approved the submission to Parliament of new amendment bills to counter money laundering and combat terrorism financing. The bills seek to amend the Financial Intelligence Centre Act, Nonprofit Organisations Act, Trust Property Control Act, Companies Act and the Financial Sector Regulations Act.
The amendments, once they are signed into law, will add new rules and regulations on how firms and business keep records of ownership. More importantly, they will track the legal standing of individuals in leadership positions.
Essentially, the amendments will look at how companies keep records of people who own or control a company, and will bar people who are convicted of offences relating to money laundering and terrorist financing from registering as company directors, as well as trustees.
IMPACTS OF BEING GREYLISTED
Below is a list of issues that will impact SA’s economy if the country were to be greylisted.
- Banks operating in South Africa would face increased inspections by regulatory authorities, which means higher transactional, administrative, compliance, auditing and funding costs;
- South Africa may be placed on the EU’s blacklist and the UK’s list of high-risk countries, which means access to commercial loans, borrowing from the International Monetary Fund (IMF) and various other sources of financial aid would be restricted;
- Banks’ ability to conduct cross-border transactions would be restricted, which would hampering imports and exports, leading to a decline in international relations and GDP – the Reserve Bank already expects a decrease in GDP for the second quarter of 2022;
- The price of debt will increase and thus accelerate the crowding out of service delivery by higher interest repayments. This is already happening, as markets appear to be pricing in an inevitable greylisting.
THE SIGNS WERE THERE
In late July, the South African Reserve Bank (SARB) warned that South Africa's biggest banks were at “high risk” of being used for money laundering and terrorism funding.
The warning was contained in the SARB Prudential Authority’s latest Banking Sector Risk Assessment Report, which stated that the so-called big five banks, Standard Bank, FirstRand (FNB), Absa Bank, Nedbank and Investec, had to improve their prosecution of financial crimes and their ability to identify and report illegal cash flows and crimes by October this year.
South Africa is therefore at risk of being placed on an international grey list of countries that pose a threat to the international financial system by FATF.
The report said the five large banks hold 89% of the total assets for the banking sector, and are widely exposed to a high level of inherent money laundering/terrorism funding risk.
NEW AMENDMENTS
Government said the new amendments will address the deficiencies identified by FATF.
"The mutual evaluation report made 40 recommendations that would assist in getting South Africa to be aligned with international measures of combating money laundering and financing of terrorism. South Africa was found to be lacking in 20 areas. This [omnibus of bills] addresses about 14 of the areas identified," government said in a statement.
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