While major advancements are acknowledged to have been made within the framework for combating the financing of terrorism (CFT) and anti-money laundering (AML) in South Africa (SA). There are still significant risks that need to be addressed, more than a year after the country was placed on the Financial Action Task Force’s (FATF) so-called “greylist”.
What The FAFT Greylist is:
A country on the “greylist” identifies countries that are actively working with the FATF to address strategic deficiencies in their regimes to counter money laundering and terrorist financing and means the country has committed to resolve swiftly the identified strategic deficiencies within agreed timeframes and is subject to increased monitoring.
Implications of Grey-listing
There are multiple implications of grey-listing for South Africa that impact it’s ability to be competitive:
- The country’s reputational and economic well-being. South Africa, along with other countries on the list, now has a negative reputation in the global economy.
- This has resulted in the downgrading of the country by credit rating agencies, which in turn has affected the country’s ability to borrow on the international capital markets, and or the interest rates they have to pay to secure any additional funding as it is seen as high risk.
- The FATF listing impacts potential investments as many international investment companies are restricted by regulations, not to invest in a country that is greylisted.
The FATF has noted the clear technical progress, but in order for South Africa to be taken off the greylist, this encouraging trend needs to continue and produce noticeable results.
Capitec Sanction – More Needs to be Done
The recent sanction of Capitec Bank to the tune of R59 million (ZAR) this week, indicates however, how seriously this situation is being taken.
This sanction follows on the sanctions by the South African Reserve Bank (SARB) imposed on Bidvest Bank Limited and HSBC in October last year as a result of its non-compliance with the amended FICA regulations that were implemented to improve South Africa’s ability to control and eliminate illegal flows of monies.
According to a report issued by SARS, the administrative sanctions imposed on Capitec Bank were due to its failure to comply with certain provisions of the FICA Act.
The sanctions consist of seven cautions, one reprimand and a financial penalty totalling R56.25 million, of which R10.5 million is conditionally suspended for a period of 36 months as from 30 July 2024.
The administrative sanctions imposed on Capitec stem from the following non-compliance:
- Findings linked to Capitec Bank indicate that the bank failed to fully comply with sections 21(1) and/or 21A to 21H of the FIC Act in that it failed to adequately conduct customer due diligence, enhanced due diligence and ongoing due diligence in respect of the sampled client files. Aspects of non-compliance inter alia included deficiencies concerning the following:
- Verification of the identity of client;
- Identification of the beneficial owners of legal entities;
- Obtaining and/or verification of the address and source of funds;
- Conducting PEP screening and ongoing due diligence including annual reviews for high-risk clients; and
- Obtaining senior management approval when re-risk rating clients or pertaining to reviews of high-risk clients.
Compliance Key to Grey-list Exit and Economic Growth
The Prudential Authority (PA), operating within the administration of the SARB, imposed a caution not to repeat the conduct which led to the non-compliance and a financial penalty of R20 million, of which R5 million is conditionally suspended for a period of 36 months for the retail segment, and a financial penalty of R15 million, of which R2 million is conditionally suspended for a period of 36 months for the business bank segment.
The South African Banking sector is a major component of the South African economy’s health and has been a robust industry despite the downturn in economic output. The sector needs to continue in its efforts to maintain financial ethical standards to enable the country to start moving forward into economic growth again after a lack-lustre period of growth in 2024 of less than half a percent.