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Where next on the greylisting road?

ARTICLE BY

  • Gerald Byleveld & Vicki Robinson
  • head of Financial Crime compliance and Crime Compliance and Financial Crime Investigations
  • Investec

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While the dust may have settled following the initial greylisting of South Africa by the Financial Action Task Force (FATF), the key local stakeholders have been hard at work in putting the recommendations and procedures in place, needed to ensure South Africa gets off the grey list as quickly as possible.

How did we get here? Where does this highway lead to? These were among the questions covered in a recent roadshow hosted by Investec for intermediaries to help clients understand the implications of greylisting on South Africa’s economy and their businesses.

The roadshow featured talks by Vicki Robinson, Head of Financial Crime Investigations at Investec, Gerald Byleveld, Head of Financial Crime Compliance at Investec, Ajam Joomun, Head of Compliance, Investec Mauritius, and Kevin Hogan, Head of Fraud Risk, Investec.

The key takeaway from the speakers was that while the process of complying with the requirements to have the greylisting removed can be an arduous one, it also has its rewards – in the form of a more robust and rigorous AML/CFT framework that can help to attract investment.

How did we get here and how do we solve this?

Robinson discussed the reasons behind South Africa’s greylisting, attributing it to the intersection of domestic politics and increased international standards. The peak of state capture around 2015/2016 happened to be at the time of increased scrutiny by the FATF.

Despite South Africa’s having a good history of legislation against financial crime and corruption, the period of state capture saw several shortcomings emerge that were flagged by the FATF.

The 2019 assessment highlighted South Africa’s AML programme at its lowest point, exposing the impact of state capture. By 2022 the report acknowledged progress – with 15 findings and eight strategic actions. It’s these eight actions that need to be tackled for South Africa, namely:

  1. Increase the number of outbound mutual assistance requests that help facilitate money-laundering or terrorism-financing investigations
  2. Improve risk-based supervision of designated non-financial businesses and professions, and ensure supervisors apply effective and proportionate sanctions for non-compliance
  3. Ensure access to accurate and current beneficial ownership information and apply sanctions for violations of beneficial ownership obligations
  4. Show that law enforcement agencies have increased their requests for financial intelligence from the FIC for the investigation of financial crimes
  5. Show an increase in investigations and prosecutions of serious and complex money laundering and terrorism financing activities
  6. Enhance the identification and seizure of proceeds of a wider range of predicate crimes
  7. Update the terrorism financing risk assessment to inform a national strategy for countering the financing of terrorism
  8. Implement targeted financial sanctions and show an effective mechanism for identifying those that meet the criteria for domestic designation.

Byleveld said South Africa needs to show step-by-step progress on each of these eight actions, with a staggered deadline (the first report was already submitted in April). The last of the actions is due at the end of January 2025, and South Africa will be discussed at the next plenary. In addition, a decision by the European Union (EU) is expected at the end of June. Assuming everything goes to plan, South Africa could have its greylisting lifted in August 2024 or January 2025, but it will be a big ask, said Byleveld.

Tropical heat – how Mauritius solved its greylisting problem

Joomun provided some insights into how Mauritius was able to have its greylisting lifted in record time (in October 2021, after 18 months). As a small country, Mauritius was able to rely on the close collaboration of the private and public sectors to take the action needed to satisfy the FATF, and ultimately lead to a stronger compliance environment that satisfied investors, customers, and regulators.

The result was a range of positive outcomes, including less compliance arbitrage between banks and other financial institutions, enhanced outreach, the setting up of an ultimate beneficial ownership registry and shorter timelines for reporting suspicious transactions.

Where does this highway lead to?

South Africa certainly has every incentive to resolve the greylisting problem as quickly as it possibly can. As noted above, the process of tackling the eight action points can lead to a better AML/CFT framework that should satisfy regulators and investors alike, making it easier to do business with South Africa (and for South Africans to do business abroad).

But it’s no slam dunk. The longer South Africa stays on the grey list, the more it affects investor confidence and trust in South Africa as a place to do business with, as external parties doubt the country’s ability to curb money laundering and prevent the financing of terrorism.

What this means for you

At first glance, South Africa’s greylisting looks as if it will herald a great deal more administration and compliance procedures for you and your clients. While the increased level of compliance can be seen as a cost of doing business, it can also be seen as a differentiator and create competitive advantage.

Mabule Setoaba, Head of Corporate Cash Management at Investec, said that Investec has been investing in digital processes for years so that the burden for clients is less. An example is an algorithm that looks at behavioural patterns to screen and clear transactions. “It’s important for us to invest in these technologies. It becomes the price you pay for a ticket to the game,” he said.

Setoaba said that many of the processes that greylisting had placed in the spotlight were already in place at Investec (e.g. UBO and verifications). “This talks to the partnerships we have with our clients and the role that these processes have in assisting to de-risk their businesses, which for us is the most important piece of the puzzle,” he concluded.

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