South Africa Faces Increased Scrutiny As FATF Grey Lists The Country



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On 24 February 2023, the second five-day Plenary of the Financial Action Task Force ("FATF"), the global money laundering and terrorist financing watchdog, under the Presidency...
South Africa Finance and Banking
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On 24 February 2023, the second five-day Plenary of the Financial Action Task Force ("FATF"), the global money laundering and terrorist financing watchdog, under the Presidency of T. Raja Kumar of Singapore concluded in Paris. The Plenary (the decision making body of the FATF) made a number of decisions including placing South Africa (along with Nigeria), on the FATF's Jurisdictions under Increased Monitoring, often referred to as the FATF's grey list.

Back in South Africa, as one of the attempts to avoid the grey listing, several new categories of accountable institutions were added to Schedule 1 in FICA at the end of November 2022, which became effective mid-December 2022. These new accountable institutions are now required to register with the Financial Intelligence Centre ("FIC"). Failure to comply with Financial Intelligence Centre Act, 2001 ("FICA") can lead to significant penalties, including imprisonment and fines. There are already obligations imposed on these new accountable institutions in terms of FICA and the FIC will be closely monitoring compliance to try and get South Africa off the grey list as soon as possible.

In a previous article, we set out the amendments made to FICA in terms of which a significant number of persons were added to the list of "accountable institutions".

The newly added accountable institutions include:

  • life insurance business (excluding reinsurance business)
  • credit providers under the National Credit Act ("NCA")
  • certain credit providers excluded in the NCA
  • financial services providers under the Financial Advisory and Intermediary Services Act
  • business of a money or value transfer provider
  • business of dealing in high-value goods in respect of any transaction where such a business receives payment in any form to the value of ZAR100 000 or more
  • certain crypto asset service providers
  • certain trustees and entities which assist others in establishing companies

In terms of FICA, every accountable institution referred to in Schedule 1 to FICA must, within the prescribed period and in the prescribed manner, register with the FIC.

The prescribed period and manner for registration are set out in regulation 27A of the FICA Regulations. In terms of this provision, any person or category of persons added to the list in Schedule 1 of FICA after the commencement of this regulation must register with the FIC within 90 days after the amended Schedule 1 is published by notice in the Government Gazette and not when the amendments became effective.

This means that accountable institutions must register as such by next week. It was initially believed that the 90-day period for registration commenced when the amendments became effective (ie December 2022), but the latest interpretation is that it commenced on 29 November 2022.

The obligations (as distinct from the duty to register) imposed on accountable institutions have already commenced.

Compliance by these newly added institutions will be on the radar of the FIC. According to a media statement released by the FIC on 30 November 2022:

"In the first 18 months from the date of commencement of the amendments, the FIC and supervisory bodies will focus on entrenching [FICA] risk and compliance provisions and implementation among the new sectors in Schedule 1 to the [FICA]. Supervisory bodies will conduct inspections and, where warranted, issue remedial administrative sanctions, based on a risk-based approach, to correct identified areas of non-compliance. In respect of the new sectors, the FIC and supervisory bodies do not envisage issuing financial penalties for non-compliance with [FICA] during the transitional 18-month period."

For as long as South Africa remains on the grey list, South Africans who have bank accounts overseas will be subjected to enhanced due diligence and it may become more onerous for other South Africans to open offshore bank accounts or invest offshore.

Non-compliance with FICA can lead to hefty penalties, including imprisonment for a period not exceeding 15 years or a fine not exceeding ZAR100-million.

ENSafrica has developed a FICA toolkit to help organisations fast-track compliance.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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