SA revamps finance system in face of gray listing risk

South Africa’s financial system is being overhauled to address weaknesses that have placed it at risk of being included on a global watchdog’s list of nations subject to greater oversight due to their shortcomings in tackling illicit finance.

“Our system is so naive that we can’t act” and are unable to deal with highly organised criminal syndicates, Ismail Momoniat, the National Treasury’s acting director general, said in a webinar organised by the Daily Maverick news website on Wednesday. The government realises “more needs to be done. We need to be more vigilant and importantly, we need to be able to act much quicker than we do,” he said.

Africa’s most-industrialised economy was found wanting in all 11 of the Paris-based Financial Action Task Force’s effectiveness measures to combat money laundering and the financing of terrorism. The evaluation was carried out in 2019 following an era of endemic graft during former President Jacob Zuma’s nine-year rule. Zuma, who quit in 2018 under pressure from the ruling party, has repeatedly denied wrongdoing.

South African authorities are now working to address regulatory weaknesses by year-end in a bid to avert being placed on the watchdog’s so-called gray list, with proposed legislation that needs to be approved by lawmakers at “advanced stages,” Momoniat said.

The government is also considering measures to allow different bodies to work together, share more information and act more quickly when dealing with money laundering, criminal syndicates and terror financing, he said.

While it’s unlikely South Africa can avoid being censured, “I’m not giving up,” and it should be possible for the country to secure its removal from the gray list fairly quickly if it’s included, Momoniat said.

The central bank has previously warned the classification may have wide-reaching consequences for South Africa’s financial system. Besides causing reputational damage, it could lead to capital and currency outflows, while transactional, administrative and funding costs for banks could increase, it said.