EDITORIAL: Urgent action required to avoid greylisting

It is critical SA meet the deadlines laid down by the international body that sets standards for the combating of money laundering and financing of terrorism.

The consequences of not doing so will be dire for the financial sector in particular and for business in general and will undermine the investor confidence that SA desperately requires if it is to improve its growth rate. Business, especially the banking sector, is rightly concerned.

A finger can be pointed at the National Treasury for dragging its feet in bringing legislative amendments to parliament arising from reports by the Financial Action Task Force (FATF), which have identified weaknesses in SA’s regime for combating money laundering and terrorism financing. Even the Treasury concedes that it has been tardy in doing so. The latest FATF report was completed in October 2021 and SA must address all the deficiencies identified by this October, failing which SA could be greylisted when the FATF meets again in February next year.

Greylisting will have dire consequences for the country, entailing huge reputational risk and damage to the financial system. International trade and investment links could be cut off because governments, financial institutions and businesses in many countries are reluctant to do business with countries considered to have weak regimes. The cost of business will rise and entry to new markets will become more difficult.

SA banks would risk losing critical correspondent banking relationships with overseas banks, and regulators in the US, UK, EU, Japan and China could restrict their domestic banks from transacting with SA banks and impose penalties and fines where such restrictions are not complied with. The greylisting of Mauritius between February 2020 and October 2021 had grave consequences for that country.

SA has been on the FATF radar since an evaluation report in 2009, with various progress reports after this.

The Treasury began a consultation process on the proposed legislative amendments in March 2017 and these continued with the relevant economic sectors and supervisory bodies until 2019. The proposed amendments were published for comment for two months in June 2020 and amendments made where relevant on the basis of the comments received. Finance minister Enoch Godongwana approved their tabling in parliament at end-March 2022 and this happened on May 17.

So there has been plenty of time for the Treasury to act and there should not have been this last-minute rush to meet the deadline.

The proposed amendments to the schedules to the Financial Intelligence Centre (FIC) Act include extending the list of accountable institutions to include motor vehicle, Krugerrand and precious stones dealers; crypto asset services providers; high-value goods dealers receiving payments of R100,000 or more; money or value transfer providers; and trust and company service providers involved in conducting transactions on behalf of their clients such as accountants, estate agents, lawyers and notaries. Credit providers other than banks would also be included.

Accountable institutions have to report suspicious transactions to the FIC and are required to identify and verify clients, retain client and transactional records and perform other customer due diligence requirements in terms of the FIC Act.

Despite the extensive consultations that have already taken place, parliament’s two finance committees have decided that parliament must hold its own public consultation process, which is just going to delay matters further. The National Assembly is in recess until mid-August, which adds to the time pressure.

Part of the reason for the view that parliament must hold its own public hearings was the report by the Treasury last week that 2,295 “non-material” comments were received on the proposed amendments via Dear South Africa. Of these 1,983 were opposed.

Dear South Africa is a platform that allows members of the public to express their views — sometimes on matters that do not affect them directly. These views should not act as a brake on what might be unpopular but necessary legislative amendments to comply with international standards.

That said, it is understandable that parliament wants to avoid a legal challenge on the grounds that it did not comply with the constitutional obligation of public participation. It has to do its utmost to pass the amendments before the October deadline. And the Treasury must move with greater speed in implementing the host of other recommendations made by the FATF, which go beyond the schedule amendments.