Learn about anti-money laundering requirements in South Africa, and how financial businesses can safeguard themselves after the country was greylisted by the FATF.
South Africa remains an attractive destination for investors. According to the International Monetary Fund, the country is the second-largest economy in Africa after Nigeria. It’s also one of the biggest fintech hubs in Africa, and home to some of the continent’s leading banks and financial institutions, including the Johannesburg Stock Exchange (JSE)—the largest stock market in the continent.
South Africa is considered a great starting point for businesses seeking to enter the African market. At the same time, the country is considered vulnerable to money laundering and terrorist financing (ML/TF), and has shortcomings in its legal framework for combating these issues. This was reflected in the FATF’s February 2023 decision to put the country on the “Grey List”, which is a “list of jurisdictions under increased monitoring” due to strategic deficiencies.
Let’s dive into what the FATF Grey List really means, how financial businesses can stay compliant when entering the South African market while safeguarding themselves from money laundering.
The following organizations must comply with AML regulations in South Africa:
The full list of regulated organizations can be found in Schedule 1 to the Financial Intelligence Centre Act (FICA).
FICA requires the above institutions to implement measures to prevent money laundering and report suspicious transactions to the Financial Intelligence Centre.
The FIC Act is South Africa’s key AML regulation. It introduces requirements regarding customer due diligence, record-keeping, and reporting to the Financial Intelligence Centre.
Other AML regulations in South Africa include:
South Africa is a member of the Financial Action Task Force (FATF), and its AML legislation has widely adopted the FATF’s risk-based approach. The country’s main AML act therefore requires businesses to adopt the following measures:
The South African Reserve Bank (SARB) requires banks to keep certain records, including those related to foreign exchange transactions and foreign currency accounts, for a minimum of 10 years.
Inspections of accountable institutions may be conducted by the FIC or other supervisory authorities. Representatives of the FIC may have access to records kept by accountable institutions by virtue of a warrant issued by an authorized body.
In South Africa, non-compliance with the FICA can result in severe penalties for individuals and companies:
South Africa has a large informal economy with a high prevalence of cash—meaning an economy that is neither taxed nor monitored by the government. This makes it easier for criminals to conduct illicit activities. South Africa is also a major producer and exporter of precious metals and stones, which can be used to launder money, as well as a target for illicit financial flows, including trade-based money laundering and fraudulent invoicing.
In February 2023, the Financial Action Task Force (FATF) Plenary officially “greylisted” South Africa—placing the country onto a list of “jurisdictions under increased monitoring” due to the weaknesses in their AML/CFT regimes.
Being on the FATF’s Grey List can have negative consequences for a country’s financial system. It can scare off investors and companies seeking to enter the market and lead to increased scrutiny from international regulators, which makes it difficult for the country to access international financial markets.
Although AML legislation in South Africa was updated in 2022 with the General Laws (Anti-Money Laundering and Combating Terrorism Financing) Amendment Act and the Protection of Constitutional Democracy Against Terrorist and Related Activities Amendment Act, these legislative amendments weren’t enough to improve the country’s AML/CTF framework as was prescribed by the FATF Mutual Evaluation Report in October 2021.
South Africa has applied for a re-assessment of their AML/CTF laws by the FATF Plenary in June 2023, and a positive change can be expected in the country’sAML measures in the near future. In the meantime, how should businesses protect against money laundering and other financial crimes in South Africa?
Businesses in South Africa should conduct the following procedures to decrease the risk of money laundering:
In South Africa, KYC requirements are set out in the Financial Intelligence Centre Act (FICA) and include:
In South Africa, money laundering is a criminal offense under the Prevention of Organized Crime Act (POCA). It can be defined as the process through which criminals, either directly or indirectly, conceal or disguise the nature, source, location, disposition or movement of property that is derived from criminal activity.
South Africa has been identified as a ‘high-risk country’ for ML/TF by various international organizations, including the Financial Action Task Force (FATF). The FATF placed South Africa on its ‘Grey List’ in February 2023 due to deficiencies in its AML/CFT legislation.