Cape Town - No sooner had Finance Minister Enoch Godongwana committed some R14bn over the medium term and R1.7bn for this year in Budget 2023 last Wednesday to fight crime and corruption, than the Paris-based Financial Action Task Force (FATF) two days later at its plenary meeting dealt a further body blow to South Africa’s international reputation by placing it as a “jurisdiction under increased monitoring.”
South Africa joins a list of 23 countries which includes Nigeria, South Sudan, Syria, the UAE, Uganda, Tanzania and Mozambique, in being “greylisted.”
In the case of South Africa, it is for failing to fully comply with some 67 recommended actions or remedy deficiencies designed to strengthen South Africa’s Anti-Money Laundering and Combating the Financing of Terrorism (AML/CFT) measures as highlighted in the mutual evaluation report (MER) by FATF and South Africa in 2021 and in a subsequent face-to-face meeting held in Morocco on January 13, 2023.
Pretoria has until 31 January 2025 to address the eight areas of strategic deficiencies identified by FATF.
The implications are implicit - the reputational damage to the country, as its effectiveness in combating financial crimes like corruption and money-laundering as well as terror financing are deemed to be below international standards.
In addition, there is the consequential action taken with regard to cross-border transactions, particularly possible action taken by foreign banks that provide correspondent banking services.
While FATF acknowledges that “South Africa has made significant progress on many of the MER’s recommended actions to improve its system including by developing national AML/CFT policies to address higher risks and newly amending the legal framework,” it is obvious that there is a fundamental dichotomy in the policy provisions and requirements of FATF and Pretoria’s policy and institutional capacity in delivering them.
It is likely that Godongwana had prior notice of the greylisting, stressing in his budget speech: “We should be prepared for that possibility.”
His fast tracking of amendments to the key catchall laws – the General Laws Amendment Act of 2022, and the Protection of Constitutional Democracy Against Terrorist and Related Activities Amendment Act - last December was perhaps a naïve attempt to think that a compartmentalised approach to tackle such an entrenched phenomenon would preempt the greylisting.
The irony or sop is that a huge chunk of the R1.7bn FY2023 allocation in the budget is for the National Prosecuting Authority precisely “to support the implementation of the recommendations of the Zondo Commission and FATF.”
The proof of Godongwana’s new national strategy on AML/CFT will not be because of evaluations, assessments, commitments and legal amendments, but due to effective monitoring, enforcement, seizure of illicit assets and crucially exorcising the ogre of self-enrichment, entitlement and corruption from the psyche of some ANC party cadres and the body politic of South Africa.
The National Treasury and SARB, should be commended for their work in tightening AML/CFT measures in the financial sector, including in cross-border transactions, but it remains a ‘work in progress’ given the evolving sophistication of the money launderers and the pervasiveness of the problem in South Africa.
Godongwana recognises “the need to be more effective in implementing our laws, particularly in fighting organised and sophisticated crimes.
Addressing the FATF issues is part of the broader fight against corruption, crime, state capture and the deliberate weakening of the institutions of law and order in our country.”
But it’s not merely a question of tackling money laundering and terrorism financing as a result of corruption not at national and local government levels, kidnapping for ransom, fraud especially relating to government procurement and cronyism, and proceeds of crime, but also tackling their causes.
The ANC after Madiba’s passing has long lost its moral compass so defined with the era of state capture under Zuma, and the failure of Ramaphosa even to contain let alone eradicate it, himself resorting to casuistry with the collusion of the ANC to avoid impeachment over an alleged money laundering scandal, only to be re-elected party president for another term.
What a reversal of fortunes and stature of a President who only a couple of years ago was the darling of the G7 and the preferred choice Africa leader they could do business with.
The FATF greylist refers to the organisation’s practice of publicly identifying countries with strategic AML/CFT deficiencies. To put it bluntly, it is the public ‘naming and shaming’ of South Africa that it remains a hotbed for money laundering and terrorism financing.
FATF, the intergovernmental organisation mandated by the G7 to develop policies to combat money laundering and terrorism financing, has several categories of classification, the highest being “high-risk jurisdictions subject to a call for action” usually reserved for perceived pariah states currently North Korea, Iran and Myanmar.
By being greylisted, South Africa is committed to “actively working with the FATF to address the strategic deficiencies in its regimes to counter money laundering, terrorist financing, and proliferation financing.
When the FATF places a jurisdiction under increased monitoring, it means the country has committed to swiftly resolve the identified strategic deficiencies within agreed time frames.”
Despite Godongwana’s bravado of steady progress and the hope of compliance by 2024, the FATF action plan for South Africa reveals serious structural and operational shortcomings.
These call for “a sustained increase in investigations and prosecutions of serious and complex money laundering and terrorism financing activities;” ensuring competent authorities have timely access to accurate and up-to-date Beneficial Ownership information on legal persons and arrangements and applying sanctions; much greater interaction between law enforcement agencies and financial regulators; enhancing the identification, seizure and confiscation of assets and proceeds of predicate crimes; implementation of a comprehensive national counter financing of terrorism strategy; and improving risk-based supervision of Designated Non-Financial Businesses and Professions (DNFBPs) and demonstrating that all AML/CFT supervisors apply effective, proportionate, and effective sanctions for noncompliance.
Coinciding with South Africa’s greylisting is the suspension of Russia from FATF - the first time in the organisation’s 34-year history that it has taken such unprecedented action, “a step warranted by Russia’s unlawful, immoral, and unprovoked war against Ukraine.”
Russia is already under specific US, EU and UK financial, arms, and other sanctions and embargoes, which targets key sectors, evasion efforts, military supplies and individuals.
Here there are serious potential implications for South African “enablers”, businesses, financial entities and organisations deemed complicit in sanctions busting and evasion measures.
The fact that Pretoria has refused to condemn the Russian invasion of Ukraine and has adopted a “neutral” foreign policy stance based on serving the country’s national interest in a move away from Madiba’s redline of supporting human rights and democratic values, has not exactly endeared Ramaphosa and his administration to the democratic West.
FATF in a stark message at its Paris plenary warned “all member jurisdictions to remain vigilant of threats to the integrity, safety and security of the international financial system arising from the Russian Federation’s war against Ukraine.
The FATF reiterates that all jurisdictions should be alert to possible emerging risks from the circumvention of measures taken in order to protect the international financial system and take the necessary measures to mitigate these risks.”
Parker is an economist and writer based in London
Cape Times