WeeklySA_AdminPRIORITIE: Increased focus on promoting good governance to boost superior economic growth paramount…
By Sandile Swana
South Africa’s economy, without the observance of the rule of law and the elimination of Mafia groupings, will continue to flounder
Several South African institutions, including big business, the South African Revenue Service (Sars), and the Banking Association of South Africa (Basa), are convinced the road to recovery hinges on the observance of the rule of law. And the fact that the country has successfully battled through 21 elements of financial governance non-compliance within the national financial services systems to beat grey-listing will count for nothing.
The country was grey-listed for non-compliance in 2023 by the Financial Action Task Force (FATF), a financial entity to which the country is a voluntary member – subjecting itself to its scrutiny.
FATF is a voluntary intergovernmental organisation, also serving as a finance watchdog established to combat money laundering, terrorist and proliferation financing, and other threats to the integrity of the international financial system.
The body sets global standards for anti-money laundering and counter-terrorism financing, promotes the effective implementation of these standards, and conducts mutual evaluations of member countries to assess their compliance with its recommendations.
South Africa has been drifting downwards measured in terms of worsening Global Corruption Index since 2012, and also worsening in rank in terms of the Organised Crime Index.
The country’s ranking in Africa as International Finance Centres has declined. The Global Financial Centers Index (GFCI) ranks the competitiveness of financial centres based on over 29 000 assessments from an online questionnaire.
In September 2023, it ranked Casablanca, Morocco, as the leading African financial centres, this followed by Mauritius, Kigali, Johannesburg, Nairobi, Cape Town, and Lagos.
South Africa has much ground to cover to improve its ranking in the financial world. Grey-listing is not an advantage, so its removal is a good start on a long journey to economic recovery.
Investec describes grey listing in these terms: “Grey-listing means that a country is under increased monitoring by the FATF due to certain deficiencies in its anti-money laundering (AML) and combating the financing of terrorism (CFT) and proliferation financing (CPF) framework.
“It is different from black-listing, which is applied to countries that do not cooperate with the FATF. “Once a country is added to the FATF grey list, it is typically also added to the EU high-risk third countries list. “To this end, they commit to working with the FATF to resolve the identified deficiencies within agreed timeframes.”
The South African government created a plethora of more than seven bodies and committees to work on getting South Africa to comply with the minimum requirements of combating illicit financial flows, terrorist financing and money laundering. Regarding the removal of the country from the list, Sars said: “Sars is proud to have supported the national effort to meet the 22 action items required by the FATF. Our specific contributions included:
• Enhanced investigation and collaborate recovery: In partnership with other law enforcement agencies through forums such as the National Priority Crime Operational Committee (NPCOC), the National Joint Operational and Intelligence Structure (NATJOINTS), the Inter-Agency Working Group on Illicit Financial Flows, the Fusion Centre, the South African Anti-Money Laundering Integrated Taskforce (SAMLIT), Inter-Agency Working Group on Illegal Money or Value Transfer Services (MVTS) and the State Capture Task Force, Sars has strengthened its financial intelligence-gathering capabilities and increased investigations and asset preservation/recovery in relation to tax and customs crime matters involving complex money laundering and terror financing schemes.
• Increased access to beneficial ownership information: We have introduced beneficial ownership reporting obligations for legal persons and trusts as well as collaborated closely with the Companies and Intellectual Property Commission (CIPC) and the Master of the High Court (MOHC) to improve access to accurate and up-to-date beneficial ownership information for legal persons and trusts.”
A highly attractive investment destination has to have rankings and verification reports that point to the safety of monies, investments, assets, and persons. South Africa has been identified as a risky place for all “valuable things and persons” hence the higher interest rates charged to the state when it borrows.
The country borrows monies of similar proportions to comparable countries, but it pays much higher interest rates because of the many risk-factors identified through grey-listing. Added to the country’s woes, is the development of the mafia state in the country.
The Madlanga Commission and the revelations by KwaZulu-Natal provincial commissioner General Nhlanhla Mkhwanazi have revealed that the journey ahead was going to be hard.
The Banking Association South Africa said: “The FATF announcement that South Africa has improved its capacity to fight financial crime is an achievement at a time when confidence in the country’s law enforcement is being challenged by the evidence presented at the parliamentary hearings and the Madlanga Commission of inquiry into allegations of criminality, political interference, and corruption in the criminal justice system.
“The effectiveness and integrity of the country’s law enforcement agencies must be quickly and decisively restored, to deal with concerns that South Africa is in danger of becoming a criminal state.”
The Banking Association South Africa (Basa) congratulated the national Treasury, and all stakeholders, for their collaboration in implementing and completing the remedial action plan, which led to South Africa successfully exiting the grey list.
“But while the country has been removed from the grey list, its capacity to fight financial crime will continue to be monitored and evaluated by the FATF. South Africa’s next FATF review begins in 2026,” said Basa.
“It must be clear that our bankers, accountants, lawyers, and other role players in the national finance system of South Africa have over the years been largely integrated into the irregular and criminal behaviour that has enablers of financial crime.”
Of this the Open Secrets wrote a comprehensive report regarding The Enablers:
“This investigative report shows that the systems that enable grand corruption and state capture are global in nature, and that private sector elites are central to the problem.
“Removing corrupt politicians from office and holding them to account is only the first difficult step. Directors of complicit corporations in South Africa and abroad must be held to account, too.
“Further, to guard against state capture, it is imperative that we change the rules of a secretive international financial system in which private actors profit immensely from enabling corruption. This investigative report is intended to provide the evidence and analysis to assist Justice Raymond Zondo, chair of the Zondo Commission with this pressing task.”
Chief economist and head of the research at the Standard Bank group Goolam Ballim said: “There is a clear need for the return of the rule of law and good governance in South Africa.
That alone will give the foundational 75% of the gross domestic product (GDP)DP growth rate. The first 75% of GDP rate comes from good governance.
“The remaining quarter is made up by capital, innovation, labour dynamics, and everything else in an economy, reflecting just how important the rule of law is,” said Ballim.
Goolam added that once the rule of law and good governance are in place, the cost of borrowing or the interest payments by the state will also come down. “The nation therefore has to focus on promoting good governance in order also to create superior economic growth,” concluded the chief economist.
