A roller-coaster year for trustees - 7 December 2023

What a roller-coaster year since the introduction of the Financial Action Task Force (FATF) measures late last year! The FATF final report, published in October 2021, scored 40 technical areas/legislation adequacy items (of which we were found to be fully compliant in only 3 of the 40, compliant or largely compliant in 20 of the 40, and partially compliant/non-compliant in 20 areas) and 11 areas of efficiency of implementing legislation (of which we were found to be critically weak on all items). We were put under a one-year observation period in October 2021 to allow us to address 67 Recommended Actions. In January 2023, the FATF assessed our progress, and even though we have made significant and positive progress, reducing the 67 Recommended Actions to 8 strategic deficiencies, the FATF found that more was to be done and they greylisted us in February this year. It is now important for us to get off the greylist as soon as we can. Government reckons that can be done by the beginning of 2025!

Legislation changes

Government introduced far-reaching changes to our legislation (the Trust Property Control Act, Nonprofit Organisations Act, Financial Intelligence Centre Act, Companies Act, and Financial Sector Regulation Act) in late December 2022 in an attempt to avoid being greylisted, which proved to be falling short to keep us off the greylist in February 2024. These legislation changes attempted to address 70% of the technical/legislation deficiencies identified by the FATF.

On 29 November 2023, National Treasury issued a media statement “Greylisting: Positive Progress in Addressing Technical Compliance Deficiencies in South Africa’s Anti-Money Laundering System” after the FATF published their follow-up report “South Africa: Follow-up Report on Technical Compliance Re-rating” (South Africa 2nd Follow-Up Report) on 28 November 2023. It was stated in this report that positive progress was made by South Africa in addressing technical compliance deficiencies in its anti-money laundering system. This report was released after the FATF Plenary formally re-rated 18 of the 20 deficiencies on 27 October 2023, on application by South Africa. It was found that we are now fully or largely compliant with 14 Recommendations, and 1 Recommendation was rated as not applying to SA. As a result, South Africa is now deemed to be fully or largely compliant (or not deficient) in 35 of the 40 FATF Recommendations, including in 5 of the 6 core FATF Recommendations. We are, therefore, left with 5 deficiencies in technical compliance (including 3 of the 18 which were upgraded from non-compliant to partially compliant and 2 which remain as partially compliant since 2021). The media statement confirms that South Africa will continue to address the remaining 5 deficiencies, with the expectation that they will be deemed to be addressed in the next FATF Follow-up report in October/November 2024. Government acknowledged that addressing the remaining actions within the agreed timelines would require significant effort from all the relevant South African authorities. Our authorities would also have to demonstrate that the improvements are sustainable before they would be deemed by the FATF to have been adequately addressed.

Implementation of legislation

Not only did we have to deal with the legislation changes, but we also had to address our 100% deficient implementation areas identified by the FATF in 2021. After the legislation changes were written into our law, government issued Regulations for its implementation on 31 March 2023, effective from 1 April 2023. Early in April 2023, government implemented a temporary Google Docs platform to upload “Beneficial Ownership” information onto the Master’s portal.

On 4 May 2023, the Department of Justice and Constitutional Development issued a media statement reminding (informing) the public that the new measures have come into effect from 1 April 2023 with the heading “Increased measures for Trusts to combat money-laundering and terrorism financing crimes”. The media statement reminded South Africans that South Africa is obliged, as a member of the FATF, to ensure that its regulatory environment is geared towards international standards in anti-money laundering and combating the financing of terrorism and that South Africa will be evaluated again by the FATF (with potentially severe consequences for the country for non-compliance).

The acting Chief Master also issued Directive 8 of 2023, effective 16 October 2023, titled “Beneficial Ownership Register”, which reminds trustees that the requirements apply to all trusts, “irrelevant of when and for what purpose it has been registered”. The directive reminds trustees that they are legally obliged to submit Beneficial Ownership registers electronically on a platform provided by the Master. Government introduced a permanent Beneficial Ownership register, which replaced the temporary Google Docs platform people complained about. The new system is a “web-based system that will enable trustees and other authorized parties to submit Trust Beneficial Owners details in a safe and secure environment”. The previously used Google form will therefore be decommissioned. A slightly amended Excel template was made available for upload. No extension is provided to submit beneficial ownership information to the Master and the directive stresses that “all South Africans are required to provide records and reports on all information about beneficial owners as from 1 April 2023”. The directive states that trustees should submit information “within a reasonable time after the launching of the Master’s electronic BOR”. Trustees are reminded of the penalty for non-compliance (up to R 10 million and/or five years imprisonment). Trustees will be given 48 hours to comply in the event of non-compliance with the requirements to avoid the penalty to be activated.

The media statement issued by National Treasury on 29 November 2023 (referred to above), stated that the FATF Follow-up Report did not address the progress made by South Africa to improve the effectiveness deficiencies identified and that it is a distinct process from addressing technical compliance as it is conducted under the FATF’s International Co-operation Review Group Joint Group (ICRG JG) process. It was stressed that overcoming the effectiveness deficiencies were essential for South Africa to exit the FATF greylist.

Conclusion

The Minister of Finance, Enoch Godongwana stressed that there is “a significant amount of work that must still be done” to prove to the FATF that enough was done to remove South Africa from the greylist when he delivered his Medium-Term Budget Policy Statement (MTBPS) on 1 November 2023. Government expects to address all the deficiencies identified by the FATF by early 2025. This includes the remaining 5 deficiencies in technical compliance as well as all 11 areas of efficiency in implementing legislation. This gives us only one year to demonstrate compliance.