Two Sectors Hindering South Africa’s Removal from the Grey List – Time is Running Out

81

South Africa’s efforts to remove itself from the Financial Action Task Force’s (FATF) grey list have encountered obstacles, with two specific industries identified as significant contributors to the challenge.

In February 2022, South Africa was placed on the FATF’s grey list due to weaknesses in addressing illicit financial flows and combating terrorist financing, prompting the European Union to designate the country as high-risk in May.

Christopher Malan, Executive Manager of Compliance and Prevention at the Financial Intelligence Unit (FIC), highlighted legal practitioners and estate agents as the primary culprits hindering South Africa’s progress in exiting the grey list. The FATF identified these sectors as vulnerable to money laundering activities.

Among the 22 directives necessary for South Africa to leave the grey list, the FIC has established a regulatory framework to identify high-risk organizations. However, compliance issues persist within the legal and real estate sectors, particularly regarding Directive 2A, which involves identifying high-risk entities, and Directive 2B, which investigates these entities.

Many companies, especially legal practitioners and estate agents, have failed to submit their Risk and Compliance Returns (RCRs), impeding the identification of high-risk entities. Only slightly over 50% of legal practitioners and approximately 43% of estate agents have submitted their RCRs, despite efforts by the FIC to ensure compliance through webinars and outreach to regulatory bodies.

To compel compliance, the FIC has begun imposing sanctions, including fines of R50,000, against non-compliant entities. Compliance with Directive 2A is critical by May, followed by Directive 2B in September, to meet FATF requirements.

Failure to meet these deadlines could jeopardize South Africa’s ability to exit the grey list, affecting the reputation of legal and real estate sectors as committed anti-money laundering entities. Although the FATF deadline for addressing shortcomings is January 2025, Malan stressed the importance of meeting these requirements by November to allow time for reporting.

Despite immediate challenges, there is confidence that South Africa can meet the January 2025 deadline if issues with Directive 2A are resolved promptly, with collaboration among stakeholders pivotal to achieving compliance with all 22 directives.