South Africa finds itself in a precarious position as it races against time to exit the Financial Action Task Force (FATF) grey list.
Ismail Momoniat, acting Director General of the National Treasury, has underscored the nation’s penchant for talk and planning. He also lamented its lack of implementation fervour.
He was speaking at the Financial Sector Conduct Authority Industry Conference in Bryanston, Johannesburg on Thursday.
His sentiments echo a broader sentiment within the country’s financial sector. Here, promises of reform often outpace tangible actions.
Concerns over widespread corruption
South Africa’s inclusion in the FATF’s grey list in 2019 was attributed to concerns regarding widespread corruption. It has supposedly tarnished the country’s standing with global investors and financial institutions.
Notable advancements in addressing deficiencies highlighted by the FATF have been achieved. A total of 18 out of 20 deficiencies re-evaluated in November 2023. However, Momoniat acknowledged that significant challenges persist.
This as the deadline for full compliance approaches, casting a shadow over the nation’s efforts.
“The challenge is the action plan.”
Key legislative measures reflect a concerted effort by South African authorities to bolster the country’s financial crime laws.
Financial crime laws
These include the passage of the General Laws (Anti-Money Laundering and Counter-Terrorist Financing) Amendment Bill in December 2022.
Additionally, widening the mandate of the Financial Intelligence Centre Act (FICA) has enhanced monitoring and detection capabilities. This is indicates a step in the right direction.
Yet, despite these strides, Momoniat warned of the arduous journey ahead. He emphasised the urgency of the impending deadline.
With less than a year remaining to address the remaining deficiencies, South Africa stands at a critical juncture. It requires a concerted effort from all relevant stakeholders to meet FATF’s stringent standards.
Ramifications of exit failure are significant
The ramifications of failing to exit the grey list by the end of January 2025 are significant. Not only in terms of reputation, but also in terms of access to international finance and investment.
South Africa’s ranking in Transparency International’s Corruption Perceptions Index further underscores the imperative for swift and decisive action. This because perceptions of corruption can erode trust and deter potential investors.
In 2024, South Africa’s democracy index score fell to 41, two points lower than its 2022 rating and below the global average of 43. This marked the lowest score in the country’s history.
Consequently, South Africa now falls under the category of “flawed democracies”.
Flawed democracy grouping
Comparatively, full democracies typically have an index average of 73. This while flawed democracies average around 48. Non-democratic regimes hover at approximately 32.
South Africa was among 23 nations reaching their nadir scores this year.
The report highlights South Africa as one of the countries to watch in sub-Saharan Africa.
It is clear that as South Africa navigates the final stretch of its journey towards FATF compliance, the stakes are high and the pressure is mounting.
Standing within the global financial community
The nation’s ability to implement necessary reforms and adhere to international standards will determine its standing within the global financial community. It will also shape its economic trajectory for years to come.
This year marks the 30th anniversary since the end of apartheid and the dawn of a new democratic era. It adds significance to the nation’s democratic trajectory.
Time is of the essence, and South Africa must heed the call to action with unwavering determination and resolve.
“We feel confident that South Africa will be removed from the grey list by the next review date, in 2025. This is given the fixes we are implementing.
“But this has been a costly episode for us. The lesson is that joint efforts are required to look after the integrity of South Africa’s financial system. We all suffer when this is compromised.
Fiscal system is resilient
“At the same time, despite all this bad news, we must appreciate that our financial system is resilient. The test of a system is how well it handles stress. You never want to see stress.
“But we have had a lot of it in recent years. And the good news is that the system has largely coped well,” Reserve Bank Governor Lesetja Kganyago said at the conference.
