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Godongwana Highlights Challenges in Estimating Illicit Financial Flows as SA Aims to Exit FATF Greylist
South Africa is racing against time to address issues related to illicit financial flows (IFFs) as it works toward exiting the Financial Action Task Force (FATF) greylist. Finance Minister Enoch Godongwana recently acknowledged the difficulty in quantifying economic losses caused by these illicit activities.
Why is South Africa on the FATF Greylist?
In early 2023, South Africa was placed on the FATF greylist due to insufficient measures to combat money laundering and terror financing. This greylisting has increased scrutiny on the country’s financial systems, impacting international transactions and adding compliance costs.
Godongwana emphasized that while it’s challenging to measure the exact losses from IFFs, certain sectors—such as gambling, property, legal services, and cash-based networks—are more vulnerable to exploitation.
“Due to the illicit nature of these flows and tax evasion, putting an accurate amount on how much is lost to the fiscus or the economy is difficult,” he stated.
Progress Made
The Interdepartmental Committee on Anti-Money Laundering and Combating the Financing of Terrorism (IDC-AML/CFT) has been actively working to address FATF’s recommendations. As of October 2024, South Africa resolved eight action items, leaving six critical points to address by January 2025.
Key unresolved issues include:
- Increasing investigations and prosecutions for complex money laundering and terror financing.
- Ensuring access to beneficial ownership information.
- Enforcing penalties for non-compliance with anti-money laundering (AML) and counter-terrorism financing (CFT) regulations.
Path to Delisting
If the country meets the remaining requirements, an FATF onsite visit could occur in May 2025, potentially leading to delisting by June 2025. Failure to comply would result in extended reporting cycles, with delisting possibly delayed until late 2025 or beyond.
Economic Impact
Although no official data has been provided on the greylist’s impact on foreign direct investment, Finance Minister Godongwana noted that enhanced due diligence measures by regions like the EU and the UK have raised transaction costs for South African entities.
The South African government, led by the Treasury and the IDC-AML/CFT, remains committed to meeting FATF requirements within the stipulated timeframe. This effort is crucial not only for financial system integrity but also for regaining investor confidence.
“If the onsite assessment results in a positive outcome, the FATF Africa Joint Group will recommend delisting South Africa,” Godongwana explained.
South Africa is in a critical phase of reform to exit the FATF greylist. While challenges persist in tackling illicit financial flows, the progress made so far reflects a concerted effort to rebuild trust in the country’s financial system.
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