Alert: South Africa’s grey listing means extensive new compliance requirements!

28 February 2023 ,  Dr Damian Viviers 3453
The announcement on Friday that South Africa has been grey listed has come as a shock to many South Africans blissfully unaware of this sword hanging over our heads. For those in the know, grey listing has been unavoidable given the damning reports levelled against weaknesses in our money laundering and financial control framework. But besides hurting our economy the grey listing has also forced government to introduce stricter control measures to correct the shortcomings and hopefully have the grey listing removed over time. And these control measures will affect all businesses and individuals in some way or another.

The Financial Action Task Force (“FATF”) periodically assesses nations and the effectiveness of their financial intelligence regulatory frameworks and controls to prevent money laundering, the illicit flow of money and terrorism financing. When serious deficiencies in a country’s framework are identified, the FATF may consider placing that country on what is termed their ‘grey list’. This serves as a warning to the international community that doing business with these countries potentially involve a great deal of risk and deters foreign investment. A further consequence is that these countries are subject to increased scrutiny by the FATF and can only be removed from the grey list if they manage to convince the FATF that they have addressed the identified deficiencies.

South Africa’s anti-money laundering framework was recently assessed by a joint International Monetary Fund, the Eastern and Southern African Anti Money Laundering Group, as well as the FATF with various weaknesses and shortcomings being identified. Given that South Africa has failed to remedy these in time, the FATF has proceeded to officially place South Africa on its grey list with all the consequences that follow such grey listing.

With the release of the initial report, the warning lights came on and Government had to move aggressively to try and prevent the grey listing outcome. The result was an increase in focus by the Financial Intelligence Centre (FIC) on compliance by businesses with the Financial Intelligence Centre Act (FICA) as well as an intensified awareness by FIC on establishing new regulatory frameworks and guidance for businesses in the lead up to the promulgation in haste during December 2022 of the new General Laws (Anti-Money Laundering and Combatting Terrorism Financing) Amendment Act 22 of 2022 (the “Amendment Act”).

A key criticism levied by the FATF against South Africa, was its poor track record in identifying, investigating and convicting money laundering and terrorist financing crimes. FATF also noted the increasing levels of financial crime, with specific mention also of increasing levels of corruption and state capture within government institutions.

The Amendment Act, encompassing amendments to a number of different pieces of legislation, is a Hail Mary attempt by Government to align the South African regulatory framework with international standards. These amendments affect various areas of our law and introduce a number of new compliance requirements for companies, trusts, non-profits as well as existing accountable institutions (as defined by FICA). They also introduce substantial sanctions in the form of fines and jail time for certain entities, as Government seeks to wield a big stick to bring entities in line with the new regulatory requirements - comply or suffer the consequences, as it were. The latter stick, a necessary evil, is the only way South Africa will find its way off the grey list as the FATF is only interested in results, and unless South Africa can demonstrate an increased effectiveness in identifying and convicting criminals under the Amendment Act, the grey listing will not be lifted.

This means examples will be made and compliance with the new Amendment Act requirements will be strictly enforced as Government aims to show results and prove that its changes have been effective. Woe betide the trustee or director that is not paying attention and caught in the cross hairs!

Given the extensive range of amendments to various pieces of legislation, we are unpacking these new requirements in a serious of articles and webinars to help prepare trustees, directors and accountable institutions to understand the new requirements and how to ensure their compliance. Follow us and don’t be caught napping, lest a big stick wake you up rudely!


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