SA flagged for weak dirty-money controls

• Country has 18 months to improve • ‘Greylisting’ would cause serious economic damage

SA has been given 18 months to improve its capacity to track and prosecute money laundering and terrorist financing or face “greylisting” by the Financial Action Task Force (FATF), the international body that develops and monitors policy to combat financial flows of organised crime and terrorism.

Greylisting by the FATF would raise SA’s risk profile, place a question mark over its financial regulatory bodies and attach a higher risk premium to corresponding relationships between SA banks and international financial institutions. The high regard for SA’s financial regulation has for many years been a buffer against further credit ratings downgrades.

The FATF’s latest “Mutual Evaluation Report of SA” was accepted by the cabinet in September, which endorsed its recommendations and has directed the Treasury to lead an interdepartmental process to remedy the shortcomings.

The Treasury said the FATF report had “identified significant weaknesses in parts of the country’s anti-money laundering, counter financing of terrorism and counter-proliferation financing system. SA is expected to take remedial steps within 18 months to address deficiencies identified”. Counter-proliferation financing refers to the financing of nuclear and chemical warfare activities.

The Treasury said the government was “fully committed to implementing the recommendations and strengthening the entire system for investigating financial crimes”.

The overarching critique of SA is that while the big banks do have the necessary regulation in place, the country as a whole does not follow a risk assessment approach and is therefore unaware of many of the risks to which it is exposed.

While SA scored poorly in most areas, it was particularly weak in monitoring possible terrorism financing activities, exposing itself to be used as a transit point or base for terrorism activities in other countries.

There were serious deficiencies in monitoring non-financial institutions such as lawyers,