By way of background, the Financial Action Task Force ("FATF") is an independent inter-governmental body that develops and promotes policies to protect the global financial system against money laundering, terrorist financing and the financing of proliferation of weapons of mass destruction. The FATF recommendations are recognised as the global anti-money laundering ("AML") and counter-terrorist financing ("CTF") standards. It identifies jurisdictions with weak AML/CTF measures in public documents that are issued three times a year. By June 2024, 133 countries and jurisdictions had been reviewed, with 108 publicly identified as non-compliant. 84 of these jurisdictions have made the necessary reforms to address their AML/CTF weaknesses and have been removed from the process.
South Africa has been a FATF member since 2003. In a Mutual Evaluation Report, in 2019, the FATF concluded that South Africa had a solid legal framework for combating money laundering and terrorist financing, but significant shortcomings remained. These findings led to South Africa being grey listed in in February 2023.
The FATF's grey list identifies countries that are actively working with the FATF to address strategic deficiencies in their regimes to counter money laundering, terrorist financing, and proliferation financing. Such jurisdictions must resolve the identified strategic deficiencies within agreed timeframes and are subject to increased monitoring.
South Africa is required to address 22 identified deficiencies
within specified timeframes. By June 2024, South Africa had
addressed or largely addressed eight of these items. These items
relate to the legal provisions criminalising terrorist financing
and underpinning South Africa's targeted financial sanction
regimes, increasing the use of financial intelligence from the
Financial Intelligence Centre ("FIC") to
support money laundering investigations, the introduction of
risk-based tools to identify higher-risk
"Designated Non-Financial Businesses and Professions",
the updating of the Terror Financing National Risk Assessment, and
increasing the resources and capacity of relevant authorities. If
the Republic addresses the remaining 14 action items by January
2025, it could be removed from the grey list by June 2025.
In a media statement published on 2 July 2024, National Treasury noted that whilst South Africa is on track to address all the outstanding action items, it remains a tough challenge to address all 14 items by the deadline. All relevant agencies and authorities will need to continue to demonstrate significant improvements, and that such improvements are being sustained and are effective.
In one of the attempts to address the deficiencies identified by the FATF, the schedules to the Financial Intelligence Centre Act, 2001 ("FICA") were amended in November 2022 by the addition of several accountable institutions that must now comply with FICA. These include dealers in the retail and wholesale sector in high-value goods (where an item is valued in that business at R100 000,00 or more), certain credit providers, crypto asset service providers and some trustees.
The FIC and the Prudential Authority of the South African Reserve Bank are actively conducting AML/CFT compliance inspections on accountable institutions.
On Tuesday, 13 August 2024, the FIC Appeal Board ruled in favour of the FIC in an appeal brought by Capital Point Properties, an estate agency (and accountable institution under FICA). The appeal challenged administrative sanctions (including financial sanctions totalling R266,000) imposed by the FIC due to Capital Point Properties' failure to develop and implement a Risk Management and Compliance Programme ("RMCP") in a timely manner and not scrutinising clients against the targeted financial sanctions list. The business also failed to comply with Directive 6 of 2023, which required accountable institutions to submit a risk and compliance return questionnaire by a specified deadline.
In his ruling, Judge Louis Harms, chair of the FIC Act Appeal Board, held: "The fact that a transgression has been rectified does not mean that it was not a transgression and cannot or should not be subject to a sanction."
Executive Manager for Compliance and Prevention at the FIC, Christopher Malan, has confirmed that the FIC is obliged to impose administrative sanctions to promote a change in compliance behaviour.
The implications are clear: FICA is not going away, and all accountable institutions must get their AML/CTF houses in order or face serious penalties, including imprisonment for a period not exceeding 15 years or fines not exceeding ZAR100-million.
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