HAWKEN MCEWAN: Greylisting: state and businesses need to work towards turnaround

It’s been a year since global watchdog the Financial Action Task Force (FATF) put SA on its greylist for failing to meet international standards with regard to anti-money-laundering, combating the financing of terrorism and proliferation financing. What progress has been made since then by the government and regulatory bodies to get the country off the greylist? 

When SA was greylisted in February 2023 it was a huge blow to our confidence. Just like the news that our sovereign credit rating had been downgraded to junk status three years before, it hurt to know that other countries would now be wary of investing in our assets or doing business with us.

Of course, we’d known for a while that there were chinks in our armour. We were warned by the FATF in a 2019 inspection that there were problems, but our efforts were arguably too little, too late, with proposed changes coming into effect literally weeks before the final review in 2023.

The key areas the FATF highlighted were taking a more risk-based approach to fighting financial crime, and really understanding who we are getting into business with through more robust due diligence. Another finding was that there were gaps in intelligence — requiring more co-operation with other financial intelligence units and investigative authorities globally, and expanding the reach of oversight across a broader base of non-financial businesses.     

How has the greylisting changed the world’s perception of SA?

The biggest cost has been reputational damage. We are now perceived by the rest of the world as being below par in combating financial crimes such as corruption, money-laundering, terrorism financing and proliferation financing. The public proclamation of the flaws in our financial systems means other countries are going to be more cautious about engaging with SA.

The greylisting means local individuals and businesses will be subject to more scrutiny regarding their source of funds, counterparties and reasons for transactions before international companies will do business with them. This additional due diligence will come at a cost, which will be passed on to the consumer, whether it is through administration fees, reduced rates or increased prices. Thus, compliance-related costs will increase and international deals may be delayed due to more red tape.

Along with the news that SA received its worst score yet in the recent corruption perceptions index by Transparency International, the greylisting has compounded our already reduced economic prospects and slow pace of job creation.

What still needs to be done? SA has accepted the FAFT’s report and has made progress in addressing its recommendations. These include broadening the types of businesses that must now comply with the Financial Intelligence Centre Act (Fica), such as credit providers, high-value goods dealers and companies that help others set up businesses and trusts.

The idea here is to put controls around industries outside the direct financial markets that money-launderers can make use of in their schemes. While these new categories have been announced, there is still much work to be done to educate these sectors in terms of the potential risk their businesses carry, and how to implement appropriate controls and reporting processes.

Another positive development has been the introduction of the requirement for centralised beneficial ownership registers. It is now a requirement for the ultimate beneficial owners of all companies and trusts to be registered with the Companies & Intellectual Property Commission or the master’s office to prevent them from being used to disguise the true identity of who is really behind them. 

While this is a great step forward, access to this register is strictly limited to the authorities, meaning accountable institutions still have to duplicate the work in establishing the beneficial ownership of their legal person clients.

The Financial Intelligence Centre has also begun working more closely with other investigating units to share intelligence and ultimately support prosecutions — something the FATF has said it wanted to see sustained improvement in.    

The length of time a country remains on the greylist depends on how quickly it resolves its shortcomings. This varies on average from five to 10 years. A country is a big ship, and big ships take time to turn.

However, it is quite possible to reverse the decision in a shorter time with commitment and tangible, sustained action. Mauritius, Iceland and Serbia were able to implement reforms quickly and were delisted in one to two years. Other countries — where deficiencies are particularly serious or progress in rectifying them is slow — have remained on the greylist for several years, including Yemen (since 2010), Syria (2013) and the Democratic Republic of Congo (2010).

The SA government has stated that it expected to address the deficiencies by the end of January 2025. Given the upcoming election, whether this will be possible remains to be seen.

What can companies do? It’s not just the government that is responsible for turning around the greylisting. All companies have a role to play in combating money-laundering, terrorism financing and proliferation financing by ensuring their products and services are not knowingly or unwittingly exploited by criminals.

It’s understandable that there’s apathy among many businesses to report suspicious activities. Why make the effort to report things when nothing seems to happen in terms of prosecutions? However, while it is tempting to succumb to the logic of this argument, companies and individuals need to make a collective effort to fight financial crime by doing what is right, not what it easy. 

Fica, and similar legislation around the world, exists for a genuine purpose. While compliance may seem like a burden, by understanding the risk in a business, implementing effective controls, adopting the right technology to support staff and reporting suspicions, companies really can play a part in turning the country around — after all, it is those on the front line that have the best view of what is really happening on the ground.      

• McEwan is director of risk & compliance at DocFox.