South Africa Remains on FATF Grey List Amid Ongoing Anti-Money Laundering Concerns

Persistent Deficiencies in Terrorist Financing, Non-Profit Oversight, and Beneficial Ownership Transparency

Johannesburg, July 9, 2025 – South Africa continues to be listed under the Financial Action Task Force (FATF) increased monitoring regime, commonly known as the “grey list,” as outlined in the FATF’s June 2025 update.

Despite significant strides since its placement on the list on February 24, 2023, critical deficiencies in South Africa’s anti-money laundering and counter-terrorist financing framework remain, particularly in areas highlighted by the 2021 Mutual Evaluation Report (MER).

These shortcomings, including non-compliance in five key FATF Recommendations and low effectiveness in three critical outcomes, pose risks to the country’s financial integrity and its status as a regional financial hub.

An on-site assessment is pending to verify the sustainability of reforms, but South Africa must address these gaps to exit the grey list and restore global confidence.

Persistent Concerns from the 2021 MER

The 2021 MER rated South Africa non-compliant (NC) in five FATF Recommendations and low effectiveness (LE) in three Immediate Outcomes (IOs), signaling significant vulnerabilities in its AML/CFT regime. Below is an analysis of these concerns and their implications:

1. R.6 – Targeted Financial Sanctions Related to Terrorism & Terrorist Financing (Non-Compliant)
   
   • Concern: South Africa’s framework for implementing targeted financial sanctions (TFS) against terrorism and terrorist financing is deficient. The MER noted that TFS are rarely used, and implementation of United Nations Security Council Resolutions (UNSCRs) for terrorism financing has been negligible since 2017. Authorities favor criminal proceedings over administrative TFS designations, limiting their ability to swiftly freeze terrorist assets.
   
   • Implication: This gap leaves South Africa vulnerable to terrorist financing activities, particularly given its identified risks from foreign terrorist fighters and transit activities. Weak TFS mechanisms hinder the country’s ability to disrupt terrorist funding networks, potentially exposing it to international scrutiny and exploitation by illicit actors.
   
2. R.8 – Non-Profit Organizations (Non-Compliant)
   
   • Concern: South Africa lacks specific measures to monitor non-profit organizations (NPOs) at risk of terrorist financing abuse. While an NPO Task Team was established, no targeted monitoring or supervision of high-risk NPOs has been implemented, as noted in the MER.
   
   • Implication: NPOs can be misused to channel funds for terrorism, a significant risk given South Africa’s regional role. The absence of robust oversight undermines efforts to protect legitimate NPO activities while preventing abuse, potentially affecting humanitarian aid flows and compliance with UNSCR 2761 (2024) on humanitarian exemptions.
   
3. R.12 – Politically Exposed Persons (Non-Compliant)
   
   • Concern: The MER highlighted deficiencies in identifying politically exposed persons (PEPs), including a time-limited PEP definition and inadequate requirements for accountable institutions (AIs) to detect PEPs among existing customers or beneficial owners. This limits enhanced due diligence for high-risk individuals.
   
   • Implication: Weak PEP controls increase the risk of corruption and money laundering, particularly in the context of South Africa’s history of “State capture.” Inadequate identification of PEPs could allow illicit funds to flow through the financial system undetected, damaging South Africa’s reputation.
   
4. R.15 – New Technologies (Non-Compliant)
   
   • Concern: South Africa has not adequately assessed or mitigated money laundering and terrorist financing risks related to new technologies, including virtual assets (VAs) and virtual asset service providers (VASPs). VASPs face only general reporting obligations and are not subject to licensing or supervision.
   
   • Implication: The lack of regulation for emerging technologies, such as cryptocurrencies, leaves South Africa exposed to misuse by criminals exploiting unregulated digital platforms. This gap is particularly concerning given the global rise in virtual asset-related financial crimes.
   
5. R.17 – Reliance on Third Parties (Non-Compliant)
   
   • Concern: There are no requirements for AIs to ensure that third parties performing customer due diligence (CDD) are regulated, supervised, or compliant with AML/CFT standards. Information from third parties is not required to be readily available, and no criteria exist for determining acceptable third-party jurisdictions.
   
   • Implication: This deficiency weakens the integrity of CDD processes, increasing the risk that laundered funds or terrorist financing activities go undetected when AIs rely on external parties for compliance.
   
6. IO.5 – Legal Persons and Arrangements (Low Effectiveness)
   
   • Concern: South Africa struggles to provide timely access to accurate beneficial ownership (BO) information for companies and trusts, rated Low in effectiveness. Legal persons and arrangements are frequently cited in money laundering schemes, with limited sanctions for non-compliance with BO requirements.
   
   • Implication: Inadequate BO transparency facilitates the misuse of legal entities for illicit purposes, complicating law enforcement efforts to trace criminal proceeds. This vulnerability undermines South Africa’s ability to combat complex financial crimes.
   
7. IO.9 – Terrorist Financing Investigation and Prosecution (Low Effectiveness)
   
   • Concern: The MER noted only one terrorist financing conviction and one ongoing prosecution, inconsistent with South Africa’s significant TF risks. A conservative approach to classifying politically motivated violence as terrorism hampers investigations.
   
   • Implication: Weak TF prosecution efforts leave South Africa vulnerable to terrorist financing networks, potentially allowing the country to be used as a transit point or logistical base for terrorist activities, which could have regional security implications.
   
8. IO.10 – Terrorist Financing Preventive Measures & Financial Sanctions (Low Effectiveness)
   
   • Concern: South Africa’s preventive measures for TF, including TFS and NPO oversight, are ineffective relative to its risk profile. Terrorists are not adequately deprived of resources, and domestic designation mechanisms are underutilized.
   
   • Implication: Ineffective TF preventive measures heighten the risk of terrorist financing activities going unchecked, undermining South Africa’s national security and international compliance obligations.

Progress and Current Status

Since February 2023, South Africa has made significant strides, as noted in the June 2023 update. The country substantially completed its action plan, addressing key deficiencies through:

• Improved access to BO information and sanctions for violations.
• Enhanced risk-based supervision of designated non-financial businesses and professions (DNFBPs) and effective sanctions.
• Increased investigations and prosecutions of serious money laundering and terrorist financing.
• Greater use of FIC intelligence by law enforcement.
• Enhanced asset confiscation and outbound MLA requests.
• Updated TF risk assessment and improved TFS implementation.

The June 2025 update confirms that South Africa was reviewed since February 2025, indicating ongoing progress. However, its continued presence on the grey list suggests that some deficiencies, potentially related to the non-compliant Recommendations (R.6, R.8, R.12, R.15, R.17) or low-effectiveness outcomes (IO.5, IO.9, IO.10), remain unresolved or require further verification of sustainability.

The pending on-site assessment, noted in June 2023, is critical to confirm whether reforms are consistently implemented.

Implications for South Africa

Remaining on the FATF grey list signals that South Africa has not fully addressed all strategic deficiencies, which could impact its international financial reputation and foreign investment. The FATF’s guidance against enhanced due diligence or de-risking protects South Africa from severe financial restrictions, but persistent vulnerabilities in TF sanctions, NPO oversight, and new technologies could deter global partners. The low effectiveness in BO transparency and TF measures heightens the risk of illicit financial flows, particularly given South Africa’s history of “State capture” and its role as a regional financial hub.

The on-site assessment will likely scrutinize:

• The sustainability of BO information access and sanctions (addressing IO.5, R.24, R.25).
• The effectiveness of TF investigations and TFS implementation (addressing IO.9, IO.10, R.6, R.8).
• Progress in regulating new technologies and VASPs (R.15).
• Strengthened PEP identification and third-party reliance frameworks (R.12, R.17).

Looking Ahead

South Africa’s substantial completion of its action plan positions it close to exiting the grey list, potentially at the next FATF Plenary (e.g., October 2025). However, addressing remaining gaps, particularly in NPO oversight and new technologies, is critical. Strengthening law enforcement capacity, enhancing border controls for cash couriers (another MER concern), and ensuring robust TF measures will be essential.

Continued political commitment and resource allocation are vital to sustain reforms and align with FATF standards, bolstering South Africa’s financial integrity and global standing.

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