From grey list to clearer conscience by next October?

South Africa expects to be off the dreaded grey list by June next year. However, failing that, there might be an extension of another four months to October.

The government must still address 14 matters on the list of serious deficiencies dealing with money laundering and international terrorism financing and hopes to address eight to 10 issues in the current reporting cycle.

The Financial Action Task Force (FATF), the financial crime watchdog that sets global standards to combat money laundering and terrorism financing, placed SA on its grey list in 2023. The country was tasked with rectifying 22 identified deficiencies in its anti-money laundering and counter-terrorism financing measures.

Timeframe

Ismail Momoniat, a National Treasury veteran who focuses on fiscal governance, tax policy and financial sector regulation, says Treasury has reported to a FATF team in Brussels on the progress the country has made, but the outcome of the meeting is not yet known.

If South Africa manages to deal with eight to 10 matters, it leaves four to six issues for the last reporting cycle that starts in October.

“If we do manage to get them all done, then there will be a site visit around May next year, and we would exist the grey list at the earliest in June next year,” he said during the annual Tax Indaba in Cape Town.

“I think it is doable; we certainly hope to get there. Even if we fail, hopefully, we would only need one extension for another four months. We may get out in June at the earliest, but it may go into October.”

The challenge

A tough challenge is demonstrating to the FATF that the country’s criminal justice system can successfully investigate and prosecute those involved in financial crimes.

The level of compliance from “accountable institutions," such as members of the legal profession, estate agents and trustees, appears to be problematic. Accountable institutions include any person or organisation referred to in Schedule 1 of the Financial Intelligence Centre (FIC) Act that carries on the business of any entity. This list was vastly extended at the end of 2022.

Christopher Malan, executive manager responsible for compliance and prevention at the FIC, says the country needs business and investment confidence.

“We must remember that we have fallen from grace. SA was the chair of FATF in 2005 and 2006. Now we are finding ourselves amidst a crowd of countries where we should never have been.”

He had a harsh message to the business community. If businesses do not see themselves as part of the solution, the FIC has only one option left, and that is to issue non-compliance sanctions.

Malan says being part of the solution is to act as a good corporate citizen. He understands there is an additional compliance burden, but the FIC cannot be perceived as being slack in fulfilling its supervisory responsibility. He warned that there will be increased sanctions.

The FIC conducted inspections at 30 institutions, and only four passed. Non-compliance sanctions were issued, ranging between R20 000 and R7.7 million. Non-compliance was mainly due to the lack of filing risk management compliance programmes timeously.

The greylisting costs

Roy Havemann, senior economist at the Bureau for Economic Research at the University of Stellenbosch, says it is important to weigh the economic implications for the country against the increased cost of compliance.

He referred to Pakistan, which was similarly greylisted a few years ago. It estimated the cost to the economy at R200 billion.

It is not only the money that leaves the country that is a matter of concern. It is also the money that is not coming into the country.

“Investors look at us saying the country is on the grey list, plus it has a sub-investment grade rating, so they will not invest in SA,” he says.

Enablers of corruption

Paul Gering, a tax specialist at PKF, noted the lack of action against those named in the Zondo Commission’s report on state capture.

He accused government of coming with a “stick” at the private sector for non-compliance and being enablers of corruption and money laundering. Gering says many firms simply do not have sufficient manpower to deal with the additional compliance burden timeously.

The government also delayed releasing the revised acts dealing with financial controls, which created confusion because the acts contained different definitions of concepts.

“It is all very well to put the pressure back on us, but some of it stems from government as well,” he added.

Momoniat acknowledged that the government has been slow to investigate and prosecute those already implicated. However, like other countries, SA must go after the enablers as well to stem corruption.

Phia van der Spuy, founder of Trusteeze and chair of the session, said many businesses are working extremely hard to be compliant.

-MONEYWEB