South Africa's Measures to Combat Money Laundering and Terrorist Financing

Blog / South Africa's Measures to Combat Money Laundering and Terrorist Financing

The Financial Action Task Force (FATF) issued its Mutual Evaluation Report on 7 October 2021 after its examination of South Africa's system for anti-money laundering, counter-terrorism financing, and counter-proliferation funding (AML/CFT/CPF).

An assessment team directed by the International Monetary Fund performed the mutual evaluation of South Africa, which comprised officials from the Eastern and Southern Africa Anti-Money Laundering Group and FATF member nations. The review began in April 2019 and will be completed in May 2021. This is South Africa's third mutual evaluation, following those completed in 2003 and 2009.

The FATF is a global organization that promotes policies and standards to combat money laundering, terrorist financing, and the spread of weapons of mass destruction. South Africa joined the FATF in 2003 and is one of 39 member countries. The FATF members have jointly established international guidelines for measures that governments should put in place to prevent money laundering and terrorism funding.

Mutual assessments are peer reviews intended to examine nations' compliance with AML/CFT/CPF standards and identify initiatives needed to improve their effectiveness. Countries are subjected to these assessments on a regular basis. The results of mutual assessments are intended to help member nations enhance their financial systems, ultimately improving the integrity of their financial systems.

The research identifies severe flaws in the country's AML/CFT/CPF framework. South Africa is expected to take corrective action to resolve inadequacies mentioned in the mutual evaluation report within 18 months.

FAFT's Findings on South Africa's AML/CFT Regime

  • While important AML/CFT agencies routinely recognize corruption, tax-related crimes, and fraud as the principal domestic ML concerns, their awareness of the relative amount of such threats, as well as the vulnerabilities or channels employed to launder the profits, is limited. The hazards posed by revenues from foreign predicates are still partially understood. The authorities' grasp of TF hazards is rudimentary and patchy.
  • South Africa has failed to adopt comprehensive national AML/CFT policies based on ML/TF concerns. Existing policies or measures mitigate some ML risks. Still, significant risks for beneficial owners of legal persons and trusts, cross-border cash movement, and criminal justice efforts are not yet focused on effectively combating higher risks such as ML related to corruption, narcotics, and tax offenses remain largely unaddressed. Policy efforts have been focused on terrorism and have yet to address TF threats.
  • Some sectors (including VASPs and prospective high-risk DNFBPs) have not yet been included in the AML/CFT system, and their risks have not yet been assessed. As a result, simplified measures are frequently not justified by showing minimal dangers.
  • The extent to which the goals and objectives of the competent authorities are linked with national ML risks and policies varies, with the LEAs and the NPA focused on predicate crimes rather than ML and supervisors at various levels of applying an RBA to AML/CFT supervision. The aims and operations of the authorities are only matched with the TF risks to the degree that such risks are identified.
  • The policy coordinating organization, the IDC on AML/CFT, plays a vital role in coordinating the ML NRA and TF NRA but excludes some stakeholders and has yet to create any AML/CFT policy proposals at the strategic level. Coordination and collaboration at the operational level generally function well, but the often-formal character of the process occasionally slows it down.

Guide for anti-money laundering regulations and authorities in South Africa

Suggestions Actions to Improve AML Compliance in South Africa

  • Law enforcement should have a better grasp of the primary profit-generating crimes, especially those perpetrated in a foreign nation, as well as the pathways and vulnerabilities used to launder these funds.
  • Authorities should increase and harmonize their awareness of TF risks among themselves, particularly through completing the TF NRA to guide strategies to avoid and combat TF.
  • South Africa should adopt national AML/CFT regulations to address heightened risks for I BO; (ii) the use of cash and its physical and unlawful cross-border movement; (iii) third-party ML; (iv) foreign predicate crimes; and (v) TF, including fully integrating it into the NCTS. South Africa should also guarantee that all FIs, DNFBPs, and VASPs, particularly those with potentially greater risk, such as DPMS and CSPs, are subject to AML/CFT duties and supervision or monitoring.
  • South Africa should ensure that the goals, objectives, and performance targets of the major AML/CFT agencies are linked with the ML/TF threats identified and national AML/CFT regulations, particularly to ensure that LEAs focus on large ML.
  • The authorities should examine the composition and structure of the IDC on AML/CFT to ensure that it is inclusive of all stakeholders, including DNFBP supervisors, and (ii) capable of driving policy in both the Financial Cluster and the JCPS Cluster.
  • To combat the PF of weapons of mass destruction, authorities should put in place structures for cooperation and coordination.
  • When the ML NRA and TF NRA complete their investigations, the authorities should disclose their results to all private sectors subject to AML/CFT duties.

On 1 September 2021, Cabinet was briefed on the assessment's findings and shortcomings and acknowledged the findings and flaws brought to the notice of the South African government. Accordingly, the administration is completely committed to adopting the report's recommendations and enhancing the whole system for investigating financial crimes, including the fight against corruption.

National Treasury leads an interdepartmental AML/CFT/CPF committee that is managing and organizing a thorough reaction and follow-up steps based on the report's recommendations. The National Treasury will provide frequent updates to the Cabinet on the country's development. Continuously enhancing the country's AML/CFT/CPF system is critical to protecting and making the financial system less tolerant of misuse.

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