Russia kicked out of FATF membership as South Africa and Nigeria join grey list

South Africa and Nigeria have officially been added to FATF's grey-list of countries that needed to do more to improve their ability to fight financial crime, exposing them to greater scrutiny by investors and banks around the world.

Russia has also been suspended from membership of the taskforce in the statement today (24 February) following the conclusion of the second Plenary of the FATF under the Presidency of T. Raja Kumar of Singapore.

Delegates from over 200 jurisdictions of the Global Network participated in these discussions at the FATF headquarters in Paris.

One year after the Russian Federation's illegal, unprovoked and unjustified full-scale military invasion of Ukraine the FATF reiterated its deepest sympathies to the people of Ukraine for the needless loss of life and destruction of Ukrainian infrastructure and society.  

"The Russian Federation's continuing and intensifying war of aggression against Ukraine runs counter to FATF's principles of promoting security, safety and the integrity of the global financial system and the commitment to international cooperation and mutual respect upon which FATF Members have agreed to implement and support the FATF Standards. As a result, the FATF Plenary has today suspended the membership of the Russian Federation."

South Africa is only the second G20 economy after Turkey to have been added to the FATF grey-list. The UAE, Albania and Yemen are also among those grey-listed. Only three countries — Iran, North Korea and Myanmar — are blacklisted.

To read highlights from a briefing note reported by International Investment earlier today on the impact of the South Africa grey listing by global law firm White & Case, click here.  

In early reaction, South Africa's Financial Sector Conduct Authority said in a statement today that the FATF report had "concluded that South Africa has a solid legal framework for combating money laundering and terrorist financing but significant shortcomings remain.

"In particular, the country needs to pursue money laundering and terrorist financing in line with its risk profile, including by proactively seeking international cooperation, detecting and seizing illicit cash flows, and improving the availability of beneficial ownership information.

"Authorities need to make better use of the financial intelligence products provided by South Africa's financial intelligence unit. The country should also improve the application of the risk-based approach by obligated entities and supervisors."

The FSCA affirmed a tougher stance to combat money laundering and terrorist financing.

On 24 February 2023, the Financial Action Task Force (FATF) announced its decision to place South Africa on its grey list. The FATF recognised the significant progress made by South Africa to remedy shortcomings in the country's efforts to combat financial crime since the publication of its Mutual Evaluation Report (MER) in October 2021.

However, both the FATF and South Africa acknowledge that further improvements are still required in some areas. The FATF has therefore placed South Africa under heightened monitoring as it works towards implementing these improvements.

The Financial Sector Conduct Authority (FSCA) appreciates the consultative process adopted by the FATF to date and respects the decision that has been taken. Since the Mutual Evaluation, the FSCA has worked closely with other key stakeholders, including the South African Reserve Bank (SARB), Financial Intelligence Centre (FIC) and the National Treasury, to strengthen its oversight of anti-money laundering (AML) and counter-terrorism financing (CFT) risks in the financial sector.

These coordinated and substantial efforts, led by the National Treasury, have resulted in many of the key deficiencies relating to the supervision and prevention of AML/CFT risks in the financial sector being addressed in a relatively short period of time.

The FSCA is the market conduct regulator of all financial institutions in South Africa. It is also the authority responsible for the AML/CFT supervision of financial services providers (FSP), asset managers and collective investment schemes (CIS).

As such, it plays a vital role in safeguarding the integrity of, and preserving public trust in, South Africa's highly interconnected financial system. Based on the immense work undertaken over the past 18 months, the Authority is confident that it has put in place a robust framework to detect, monitor and act quickly against facilitators of financial crime in line with the FATF

FSCA commissioner Unathi Kamlana said: "The things that pertain to our mandate as the FSCA have largely been attended to. So as an authority in charge of supervising the conduct of financial players in SA, we are satisfied that our systems and processes are rigorous enough to monitor local players as required by FATF.

"Of course, our work can only be effective and yield meaningful outcomes if all our partner institutions in the system work together. I'm encouraged to say that much progress has been made in this regard, and we will continue to pull together to address whatever gaps may still exist in our value chain." 

The regulator further said some of the progress made includes:
• Establishment of a dedicated department responsible for AML/CFT supervision;
• Enhancement of internal and external awareness and understanding of AML/CFT
risks at a sector-wide and institutional level;
• Introduction of market entry requirements to enhance transparency of ownership
information and prevent criminals from being the beneficial owners of, or holding key
management positions in, supervised entities;
• Development and implementation of a risk-based supervision methodology for
AML/CFT risks, including intensive off-site supervision through enhanced compliance
reporting, increased engagements with individual institutions and more frequent
inspections on high and very high-risk entities;
• Strengthening of the FSCA's collaboration model with the Prudential Authority (PA) to
ensure a consolidated and holistic view of AML/CFT risks in large financial groups;
and
• Increasing of AML/CFT-related sanctions against non-compliant institutions.

Despite this significant progress, the FSCA recognises that it can still improve in certain areas, it further said. In particular, the regulator would continue to bolster the breadth and depth of its AML/CFT supervisory capacity as well as further reinforce its sanctions and enforcement framework for AML/CFT breaches.

"We remain more committed than ever in our supervisory efforts to combat money laundering and terrorist financing and to dissuade criminals who aim to misuse South Africa's financial system for nefarious purposes. We will continue to work closely with the Interdepartmental Committee on AML/CFT led by National Treasury to strengthen South Africa's fight against financial crime."