By Murendeni Raliphada

The Financial Action Task Force (FATF) is a global institution tasked with tackling money laundering, terrorist and proliferation financing. It was founded by the Group of Seven (G7) in 1989 in response to the increase of drug cartels and illicit money flows. The FATF is headquartered in Paris, France and researches how money is laundered, and terrorism is funded across the world. Based on research and its experience it issues reports, recommendations and guidelines for countries and institutions to mitigate the risk of money laundering using a risk-based approach.

Money laundering is a process of attempting to conceal or disguise the source or origins of illegal funds. South Africa has been on the grey list since the FATF February 2023 plenary meeting. The FATF has two lists. The ‘grey list’ and the ‘black list’.

The ‘black list’ relates to countries that have been identified by FATF who lack legislation, systems and institutions to identify and prevent laundering. Currently on this list is Iran, the Democratic People’s Republic of Korea and Myanmar.

The ‘grey list’ relates to countries with insufficient systems and institutions to identify and prevent laundering. Of course, no system or institution can ever prevent laundering and crime entirely. However, countries must have in place legislation and mechanisms to identify, mitigate, control, monitor and report.

The recent FATF plenary meeting held in Singapore on 26-28 June 2024 saw the removal of Türkiye (Turkey) and Jamaica after three years and four years respectively from the ‘grey list’.

The same plenary meeting also saw Monaco, the European tax haven for the super wealthy, and Venezuela, the South American oil producer, added to the list. This brings the number of countries on the ‘grey list’ to 21. Over half of countries on the ‘grey list’ are from the African continent, with Nigeria, Kenya and our neighbours Namibia and Mozambique making an appearance. But why does this matter for legal practitioners? Money laundering compromises the legal system and the rule of law. In the process of laundering many crimes arise, from fraud to bribery, corruption, theft, terrorism, to name just a few. The issue of South African institutions has been of particular concern with allegations that South African institutions have been used to facilitate funding for illicit gold transactions in Zimbabwe, illicit cigarette sales in the Southern African Development Community and to fund terrorism in northern Mozambique.

This rise in crime affects the reputation of not only the country as a whole, but its legal and financial systems. The perception of the country as lawless, negatively impacts public perception of legal institutions, law enforcement agencies and justice in the country. The reputational damage of grey listing and money laundering means a decrease in international investment. Legitimate investors see the country as high risk and will question the safety and returns of their investments. However, simultaneously criminals increasingly are interested in moving funds to the country as they now know that laundering controls are low. Bad actors use grey listing as an opportunity to abuse the weak systems and use the country as a haven for their criminal conduct. As our legal philosophy textbooks tell us, law is a social contract and crimes break down those social contract and disintegrate the social compact.

Additionally, there lies a risk of the country being blacklisted. Blacklisting would have grave effects on a country; and its ability to trade goods, borrow money and engage meaningfully in the global economy.

FATF and the Financial Intelligence Centre (FIC) have identified the following transactions that leave legal practitioners susceptible to laundering –

• property transactions;
• business transactions – opening of business, merger and acquisitions;
• opening of a business and family trusts; and
• cross-border transactions.

Legal practitioners are accountable institutions in terms of sch 1 of the Financial Intelligence Centre Act 38 of 2001 (FICA) and the FIC has published guidance notes to assist legal professionals in compliance with the Act and to assist with money laundering identification, mitigation, monitoring and reporting.
What measures must legal professionals take?

• Register with FIC as an accountable institution.
• Keep proper records – FICA requires that records be kept for minimum of five years from the date of the last transaction or five years from the date in which the business relationship was terminated (s 23 of the FICA). There are instances where the commissioner may request the records be kept longer.
• Know-your-customer (KYC) – as the legal practitioner you must be able to identify the person giving the instruction. If the client is representing someone else in the transaction, you must be able to identify both the representative and represented party. In the case of the trusts and business transaction the beneficial owners must be identified.
• Due diligence – identify if the customer is a politically exposed person (PEP) or if the person holds prominent political power or is associated with a PEP. Legal practitioners must be able to identify the institutions/party if money is being sent in cross-border transactions.
• Submit reports on cash transaction above R 49 999,99 (s 28 of the FICA).
• Report suspicious transaction as soon as possible (s 29 of the FICA). An example of a suspicious transaction is a property costing four times the average in that suburb.
• Report international funds transfers.
• Submit annual compliance reports to the FIC.
• Legal practitioners must ensure that they adequately train staff on FICA requirements and expectations.

The road to get South Africa off the grey list is a tough one and will require the cooperation from all sectors. Experience shows us that is takes on average three-five years for a country to be removed from the grey list. Compliance with the legislation in place is crucial and legal professionals must put in place mechanisms to safeguard against money laundering and illicit flows of funds for the good of everyone.

Murendeni Raliphada BCom LLB (Wits) PGDip in Compliance (UJ) is a Governance Officer at the Community Scheme Ombud Services – Department of Human Settlement in Tshwane.

This article was first published in De Rebus in 2024 (October) DR 16.