Navigating FATF Grey List Compliance: What High-Value Goods Dealers in South Africa Need to Know

With South Africa on a deadline to get themselves off the Financial Action Task Force (FATF) Grey List, the Financial Intelligence Centre (FIC)  have stepped up their inspections and have issued 28 Administrative Sanctions since January 2024.  This is bound to increase as more inspections are carried out before the FATF review in September.

We can also confirm that High Value Goods Dealers (HVGD’s) are being inspected, and although none of them have been fined yet, this gives you an idea what sanctions are being imposed and why.

1. In terms of Directive 6 & 7, all Accountable Institutions (AI’s) were required to complete a Risk & Compliance Return (RCR) online in 2023.  The deadline for HVGD’s was July 31^st 2023.  The return is to give the FIC an idea of what your understanding is of Anti-Money Laundering (AML) / Terrorist Financing (TF) & Proliferation Financing (PF) risks.  This is a fairly long process as there are around 70 pages of questions.  The important thing to remember is to answer honestly, if you don’t know or have no understanding or you have nothing in place, just say so.  If you have not submitted, we strongly suggest you complete it here : https://forms.office.com/pages/responsepage.aspx?id=szVSHGOkAUqWp9wmNLKqdI9HhQsnLBNOhNaH9pW2gUtUN1NLOTJBUTNINkdKME45QVFQVTA5UURORC4u
2. In terms of Section 21B all Accountable Institutions are required to determine the Ultimate Beneficial Ownership (UBO) of all their clients.  So, in the case of Legal Persons, Trusts and Partnerships, you must have evidence that you have identified the person who has ultimate control / ownership.  If there is a complicated business structure, you need to keep going until you find the “warm body” at the end.  There are other issues addressed in this section and we would strongly urge that you familiarise yourself with the requirements and stipulations.
3. Section 42 deals with developing and maintaining a Risk Management & Compliance Program (RMCP).  This is a working document and should accurately record the processes you use to comply with FICA.  It must also evolve with your business and be frequently reviewed and updated.  In other words, the RMCP must actually be implemented, it cannot just be words on paper or a copy/paste exercise using a template.
4. Section 28A deals with your responsibilities in terms of ensuring that you have no dealings with anyone listed on the United Nations Targeted Financial Sanctions (TFS) list.  Your process of screening all existing and new clients against this list must be documented in your RMCP.  Not only must it be documented, the process must be followed and you must be able to show proof that you have actually done the screening.
5. Basic customer identification – an Accountable Institution may not establish a business relationship or conduct a single transaction with a person they cannot identify and verify.

These are the areas where AI’s are being found non-compliant and the fines vary from R 10 000.00 to R 600 000.00.  And these fines are for the smaller AI’s.  The banks, insurance companies and other larger financial services providers are generally fined by their regulators, The South African Reserve Bank (SARB) and The Financial Services Conduct Authority (FSCA).  The most recent fine in this sector was R 16 000 000.  The biggest portion of those fines was for not having processes in place to detect suspicious and unusual transactions.

With the next FATF review in September and the final one in February 2025, we can expect more inspections, fines, directives etc.  The South African Diamond & Precious Metals Regulator (SADPMR) will also more than likely issue their new compliance roadmap as they too, have to be much more stringent as the supervisory body of a sector of High Value Goods Dealers.

If we are not removed from the Grey List next year, we go through the whole process again, which probably means much more stringent measures being put in place.

There are various companies that deal with FICA compliance who can assist you (for a price) but many of them also have free webinars, articles, events and newsletters which are extremely educational and free.

We would advise that you have a look at the following websites:

1. The Financial Intelligence Centre – https://www.youtube.com/financialintelligencecentre-  & www.fic.gov.za
2. DocFox – https://docfox.co.za/
3. Lexis Nexis – www.lexisnexis.co.za
4. Horizon Compliance – https://www.horizoncompliance.co.za/
5. Masthead – https://www.masthead.co.za/compliance/fica/
6. Moonstone – https://www.moonstone.co.za/

The bottom line for all this is that it will be extremely prudent for all HVGD’s to familiarise themselves with the new legislation and understand how beneficial this will be for us in the long run.  South Africa has a well documented history of fraud, corruption and money laundering but what you might not realise is that we are known to the FIC to be a hub / transit point for terrorist and proliferation financing, with gold and diamonds being at the top of the list for moving money easily across borders.

As newly listed Accountable Institutions we actually now have the opportunity and tools to assist in combating fraud and corruption in the industry and, in my opinion, this is a huge step in the right direction.

Contact Shani Schreuder on shani@cpmct.co.za for assistance or more information.