South Africa: South Africa Says Removal From FATF Grey List In 2025 Remains A Challenge

The South African National Treasury reported on 29 February that while South Africa was on track to address all the outstanding action items required to be removed from the Financial Action Task Force's (FATF) grey list, it remained a tough challenge to address all 17 of the remaining action items by February 2025.

"All relevant agencies and authorities will need to continue to demonstrate significant improvements, and also that such improvements are being sustained," it said.

South Africa was classed as a jurisdiction 'subject to increased monitoring' – the so-called 'grey list' – in February 2023, when the South African government made a high-level political commitment to work with the FATF and the Eastern & Southern Africa Anti-Money Laundering Group (ESAAMLG) to strengthen the effectiveness of its anti-money laundering and combating the financing of terrorism (AML/CFT) regime.

Jurisdictions under increased monitoring are actively working with the FATF to address the strategic deficiencies in their AML/CFT. When the FATF places a jurisdiction under increased monitoring, it means the country has committed to implement an Action Plan to resolve swiftly the identified strategic deficiencies within agreed timeframes.

South Africa's Action Plan listed 22 items linked to the strategic deficiencies that it is required to address before exiting the FATF grey list. The deadlines for addressing the action items fall between January 2024 to January 2025.

Should South Africa be assessed to have largely addressed all 22 Action Items in February 2025, the FATF will schedule an onsite visit in April or May 2025, to confirm that assessment and make a recommendation to the June 2025 FATF plenary.

The FATF published the latest update on South Africa at the end if its Plenary Meeting on 23 February.
It said South Africa had now addressed or largely addressed five of the 22 Action Items by addressing technical deficiencies in its targeted financial sanction regime related to terrorism financing, increasing the use of financial intelligence from the Financial Intelligence Centre (FIC) to support investigations, and increasing the resources of AML/CFT supervisors.

The FATF also considered that two further action items have now been partly addressed and confirmed that 14 of the 17 outstanding action items had now been partly addressed but three action items remained outstanding.

The deadline for South Africa to address or largely address four of the outstanding action items in the Action Plan is May 2024. A further eight action items are due in September 2024, and the final five items are due in January 2025.

In particular, the FATF said South Africa should continue to work on implementing its Action Plan to address its strategic deficiencies by:

• Demonstrating a sustained increase in outbound mutual legal assistance (MLA) requests that help facilitate investigations and confiscations of different types of assets in line with its risk profile.
• Improving risk-based supervision of Designated Non-Financial Businesses & Professions (DNFBPs) and demonstrating that all AML/CFT supervisors apply effective, proportionate and effective sanctions for non-compliance.
• Ensuring that competent authorities have timely access to accurate and up-to-date Beneficial Ownership (BO) information on legal persons and arrangements and applying sanctions for breaches of violation by legal persons to BO obligations.
• Demonstrating a sustained increase in investigations and prosecutions of serious and complex money laundering and the full range of terrorist financing (TF) activities in line with its risk profile.
• Enhancing its identification, seizure and confiscation of proceeds and instrumentalities of a wider range of predicate crimes, in line with its risk profile.
• Updating its TF Risk Assessment to inform the implementation of a comprehensive national counter financing of terrorism strategy.
• Ensuring the effective implementation of targeted financial sanctions and demonstrating an effective mechanism to identify individuals and entities that meet the criteria for domestic designation.

The process of addressing effectiveness deficiencies is distinct from the process of addressing technical compliance deficiencies. As reported by National Treasury last November, the FATF had formally re-rated 18 of South Africa's 20 deficiencies, based on the progress made by the South African authorities in the two-year period following its 2021 mutual evaluation.

Of these, 15 had been upgraded to a point where they were no longer deficient. South Africa was found to be fully or largely compliant with 14 Recommendations, while one Recommendation had been deemed to be inapplicable.

As a result, South Africa is now deemed to be fully or largely compliant in 35 of the 40 FATF recommendations, including five of the six core FATF Recommendations. The National Treasury said South Africa will apply for further re-ratings of its technical compliance deficiencies at the FATF's next Plenary meeting in October.

"We are working together with FATF and the United States as our important partner to combat illicit and terror finance, manage risks associated with that, and generate the necessary investor confidence in our country," said Deputy Minister of Finance, Dr David Masondo.

"Investment is critical for economic growth, which is a necessary condition for addressing unemployment and poverty in our country. But if our country is infested with corruption, illicit and terror finance, we cannot attract investment. Hence, we are working hard to get out of the grey list."