Concerns about the potential of being placed on the "grey list" grow as South Africa's time of surveillance with the Financial Action Task Force (FATF) draws to a conclusion. The flaws of the nation, the possible effects of greylisting, and the planned changes to current legislation that could have an influence on accountants are all covered in this article.

The South African Government will report back to anti-money laundering watchdog FATF this October, but have they done enough to avoid greylisting, and what will going grey mean for you? 

Why greylisting is in the news

The slowly unfolding train crash that is greylisting picked up pace when anti-money laundering and terrorist financing watchdog Financial Action Task Force (FATF) published an evaluation in October 2021 highlighting South Africa’s shortcomings. 

South Africa was placed under a one year observation period by FATF, which expires in October 2022. The country has to convince FATF that it has made enough progress in addressing the 20 technical deficiencies identified in order to avoid being greylisted. 

Government introduced a bill to parliament, which it’s hoping to pass by November, that will amend existing laws, including those that govern FICA, NPOs, trusts, companies and the Financial Sector Regulation Act.

These amendments, once they come into effect, will affect many accountants. (see below)

What the grey list is

It’s a list of countries that don’t meet global standards when it comes to fighting money laundering and terrorist financing, according to FATF, which is an intergovernmental body based in Paris.

FATF publishes reports regularly where it lists, “jurisdictions under increased monitoring” - colloquially referred to as greylisted countries. National Treasury notes that falling onto the list will, “have the effect of increasing the cost of doing business for South African businesses with foreign trading partners.”

What South Africa needs to do to avoid greylisting?

In August, National Treasury introduced the General Laws (Anti-Money Laundering and Combating Terrorism Financing) Amendment Bill to parliament. Government hopes this bill, which amends various existing acts, will address at least 14 of the 20 FATF recommendations.

Some examples of changes include amending the Nonprofit Organisations Act in order to tighten the rules regarding who may serve as appointed trustees, in order to exclude those who’ve committed certain crimes or who are unrehabilitated delinquents. 

If passed in its current form, the bill will also require trustees to keep a record of certain prescribed information about beneficial owners and make it available to the Master of the High Court.  The concept of beneficial ownership is found in many of the amendments affecting the Companies and Financial Intelligence Centre Acts.  

Despite these changes, Ismail Momoniat, the acting director general of National Treasury has said it will be a “bit of a miracle to escape greylisting.”  

How greylisting will affect South Africa

In a note to its members, SAIBA’s experts explain that greylisting “could make doing business with the country even tougher. In effect, the country would become a ‘high-risk jurisdiction to transact’, requiring anyone wanting to do business with South Africa to jump through an additional layer of compliance hoops.”

Julian Bonnici, a journalist, based in Malta explains that when the island was greylisted in 2021, most people didn’t feel the direct impact. However, for those working inside financial services companies, it created a “bureaucratic nightmare”, especially for smaller companies, which have less capacity to meet regulatory demands. Business owners and the self-employed found it tough to open bank accounts due to “rigorous due diligence checks following Malta’s greylisting.”

How greylisting will affect accountants

The legislative changes currently making its way through parliament will likely affect accountants involved in compliance work if enacted. In its note to members, SAIBA points out that, “It [The General Laws Amendment Bill]  will require additional record keeping and disclosure by 2 000 000 Trusts, NPOs and Companies.”

For accountants, it’s crucial to ensure that they have adequate KYC (know your client procedures) in place.

Why greylisting is not a Hotel California situation

Malta escaped greylisting after a year. Mauritius was greylisted in February 2020, but by October 2021, it escaped the list. Bowmans notes, “A high-level political commitment was made by the Government of Mauritius to swiftly resolve the identified strategic deficiencies within agreed timeframes.”

Closer to home, Botswana was placed on the grey list in 2018, and Zimbabwe in 2019. Within three years, both countries were removed.  However, there is no guarantee that countries who suffer greylisting will recover quickly.

Every greylisting cloud has a silver lining

No one wishes for South Africa to be greylisted, however compliance manager James George told BusinessTech, “Going grey was a good thing for Mauritius and could be for South Africa as well – enhancing defences against financial fraud in the process. There can be a positive outcome if we don’t make it, and if we look to the likes of Mauritius in dealing with the same grey reality.”

Nicolaas van Wyk, the CEO of SAIBA, welcomes the government's legislative drive to improve our anti-money laundering framework. “People who are setting up fake companies to help syphon money out of the country are a massive problem. As a leading recognised controlling body, SAIBA has already taken proactive steps to improve the standards we expect our accountants to adhere to.

“From our side, we will continue to advise the government whenever called upon, and you can be sure we will advise our members regarding how changes in legislation will affect them.”