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[TOP STORY] SA risks money laundering, terrorist financing grey-listing

The global FATF has given SA 18 months to get its monetary affairs in order: Jeanine de Swardt-Breeds of Masthead.

SIMON BROWN: I’m chatting now with Jeanine de Swardt-Breeds from Masthead. Jeanine, I appreciate the early morning time. At an event we were at last week you were doing a keynote presentation around grey-listing of South Africa. And I think many of us were totally unaware of the background details. The Financial Action Task Force [FATF], a global body, were in the country last year October, and essentially they’ve given us 18 months to get our affairs as a country in order. What are the concerns for them? Is this really sort of back to money-laundering and those sort of issues?

JEANINE DE SWARDT-BREEDS: Good morning, Simon, and thank you for having me on the show. Yes, absolutely. Maybe I should just give some background regarding the Financial Action Task Force. They are, like you said, an international financial watchdog. They are an inter-governmental body that develops and promotes policies to protect the global financial system, specifically against money laundering and terrorist financing. They were established after 9/11 to combat the financing of terrorist activities and money laundering.

What they actually do is they have a system of mutual evaluation where the member countries, of which South Africa is one, evaluate each other on how compliant they are with recommendations make by the Financial Action Task Force. So they make recommendations which are globally endorsed standards against money laundering and terrorist financing, which must be implemented by countries. What they do is they use this framework to assess a country’s level of compliance with combating money laundering and terrorist financing.

The mutual evaluation was conducted in South Africa [from] 2019 until 2021, and the report was issued in October last year. They’ve basically given South Africa 18 months to address the deficiencies they’ve identified in this report. The report highlighted that South Africa has a solid legal framework to fight money-laundering and terrorist-financing, but there are significant shortcomings in implementing an effective system.

They actually mentioned state capture quite a lot in the mutual evaluation report, and bringing people to justice who were involved in money laundering.

They said that some of the critical weaknesses are performing proper customer due diligence for institutions that need to comply with Fica [Financial Centre Intelligence Act] and with regard to terrorist-financing offenses. There were certain businesses, non-financial businesses, and professions like our legal practitioners, our estate agencies and trust companies, where there was severe non-compliance regarding supervision and how they implement sanctions.

They also spoke about inefficient transparency and ultimate beneficial ownership. They said law enforcement is completely in the dark about who benefits from complex structures such as non-profit organisations, trusts and companies. And slotting into this problem is South Africa’s struggle to identify politically-exposed persons who ultimately benefit from [some] of these transactions.

Two more things that they said [are that] there’s still a lack of tracking and sharing information with our cross-border cash flows, and a lack of skills and resources to proactively investigate money laundering and terrorist financing in South Africa.

SIMON BROWN:… Some of it, is just government, but some of it is other sort of boards – and you mentioned estate agents and the selling of houses and the like. We’ve got a lot in place, [but] there’s a lot we need to do, and of course that clock is ticking. Your sense on [whether we are] correcting those shortfalls?

JEANINE DE SWARDT-BREEDS: In my opinion, we are. There’s been a lot [written] about this in the last couple of weeks, because there were a couple of interviews. What we’ve seen is, I think, they have been busy in the background. Even though a lot of institutions are not aware of this, some of you might know that there have been a lot of sanctions issued against large banks, insurance companies, especially in the form of penalties for non-compliance with Fica. There’s been an amendment of Fica back in 2017, where the way that you on-board clients completely changed. There is something called a risk-based approach. There is enhanced customer due diligence if a client poses a higher risk of money-laundering.

What they’ve also done in the meantime is assess certain industries [such as] our Krugerrand dealers, our gambling industry, again, the legal practitioners, the estate agents – and they evaluated those industries in terms what the vulnerabilities are, and how their products and services can be abused for money laundering. They basically asked these industries to get their ducks in a row.

There’s also been proposed amendments to Fica where they want to include more businesses under what they call ‘accountable institutions’. That will include something called high-value dealers, which means that when there is a business and the value of a transaction is more than R100 000, [that] will also be regarded as an accountable institution that needs to comply with Fica and reports to the Fic (Financial Intelligence Centre Act) in certain instances. So there are quite a lot.

Treasury said that they would still bring additional urgence to anti-money-laundering before parliament at the end of July. They mentioned that they are pretty confident that our country will have addressed the regulatory weaknesses by the end of our period.

SIMON BROWN: Okay. So I suppose we could say we are working on it, we are moving in that direction. The implications if we don’t get it right and we are grey-listed? It’s not like we are cut off, but I imagine it’s more compliance. It’s more Fica, it’s more proof of funds – and the rest of the world puts a bigger onus on us.

JEANINE DE SWARDT-BREEDS: Yes, absolutely. Should we be placed on the FATF greylist the international world will see us as a high-risk environment from a money-laundering perspective. This will mean that there will be enhanced requirements from international investment companies. The enhanced monitoring will also require additional things; foreign banks and investors can impose a burden on us. This can increase transactional costs.

And many banks and investors have policies against engagement with grey-listed countries.

I was hearing a lot in the last couple of weeks as well that they say the UK and the European Union can actually blacklist South Africa. Just from a general perspective this can cause an increase in interest rates. It can cause a huge knock on our economic environment.

From an FSP perspective, what financial service providers would need to do is to identify which of their providers are willing to work with countries that are on the grey list and then identify what their on-boarding assessments are, and then start collecting information from clients in line with investment companies overseas.

I think from an investor perspective what they can expect is that investment choices will be more limited, as some financial institutions may not want to transact with us. That can again lead to increased compliance costs, increased administrative burden and additional due diligence.

SIMON BROWN: I take that. We need to keep an eye on this. October is the deadline. Well, government’s promising stuff by parliament by the end of the month. We’ll keep an eye on that and we will track it through to October to see how it goes. Jeanine de Swardt-Breeds from Masthead, I appreciate the early morning time.

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SA has been financing terrorists since 1994 – what changed??

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