By Glenn Farred

The Financial Action Task Force (FATF) has signifi cantly impacted the regulatory environment for nonprofits in South Africa. FATF itself is a little-known and understood international body, having been established by the G7 in 1989, initially to combat money laundering and later expanded to countering terrorist financing.

The public is, however, familiar with its nomenclature,as widely reported in the media, as the “grey list”, which South Africa has unfortunately found itself on for the past few years. In April 2024 the Terrorist Financing Risk Assessment for the NPO Sector in South Africa was launched. The Sectoral Risk Assessment (SRA) was produced by the Technical Team and Oversight Group, as well as all participants, contributors and reviewers, supported by the European Union, the European Union AML/CFT Global Facility and technical support provided by Greenacres Associates. intensive process, as detailed in the report, was undertaken. The key finding of the report,in respect of terrorist financing, is that the sector was found to represent a medium risk.

There were 276 183 NPOs registered with the Department of Social Development, as at 30 June 2023, and by the end of June 2023, a total of 59 657 PBOs registered with the South African Revenue Service. A further 82 875 NPCs were reported by the CIPC (Companies and Intellectual Property Commission), as at 3 June 2023. In addition, some 60 000 non-registered voluntary associations are also estimated to exist, according to the report.

Given the strong Constitutional protections provided for in respect of freedom of association, expression
and assembly, it is unsurprising that a diverse nonprofit sector would generate a medium level of risk. Some of the identified risks have been addressed by the South African government and its regulatory bodies through the General Laws Amendment Act (GLAA, 2023).

Consequently, registered NPOs must ensure that:

  • Accurate and up-to-date information in respect of office-bearers, administration and operations of the NPO, and control structure is provided to the NPO Directorate.
  • Changes to the organisation’s information must be provided to the NPO Directorate as soon as the
    changes have been made.
  • Information on all registered NPOs will be made publicly available on request.
  • Furthermore, NPOs must:

    • Exercise due diligence when electing office-bearers by conducting background checks before election into office.
    • Check members against the CIPC list of delinquent directors.
    • Check if members are not listed in the Sanctions List of people suspected of terrorism.
    • Check if members are not listed as offenders or have criminal records, etc.

    Should a Board member be disqualified through a court order whilst serving as an offi ce-bearer, the organisation must submit the court order to the NPO Directorate within 30 days after a court order is granted. The reality for a significant number of NPOs is that they are currently non-compliant with the legislation, as amended. This obviously will necessitate wideranging awareness and capacity building interventions to assist NPOs to familiarise themselves with the legislation. At the same time, compliance enforcement or misinterpretation of the legislation
    is likely, resulting in a myriad of possible unintended consequences for the sector. Inyathelo has played an
    important role in the process relating to FATF thus far. It has participated actively in the Oversight Group as
    well as being represented in the technical committee, in addition to contributing to the regional processes (with the Southern Africa Regional FATF Hub).

    These contributions have been welcomed by government, regulatory bodies and other stakeholders as positively impacting on the quality of the legislation, reports and regulations which have been adopted.

    However, the wide-ranging implications will require on-going support to the sector in responding to the implementation and monitoring of legislation, policies and regulations. The importance of moving South Africa off the grey list is generally accepted across all stakeholders, where broad consensus exists on the need to mitigate risks associated with terror fi nancing as well as money laundering. The extent to which these have occurred cannot be ignored or underplayed.

    The danger of over-regulation and misaligned implementation in response to these risks remain equally concerning in their potentially harmful impact on the operating environment for the nonprofit sector.

    Continued vigilance, awareness and evidence-based interventions are called for. South Africa’s relative inexperience with FATF and open, democratic space requires careful calibration between meeting global standards while preserving Constitutional rights and freedoms.

    Technically sound analysis, new and informed research as well as stringent monitoring must inform our efforts to preserve the enabling environment, whilst encouraging compliance and preventing abuse of nonprofits.

    Inyathelo is and will remain a critical partner to the sector on our journey.

    Glenn Farred served as a civil society representative on the Technical Team – Sectoral Risk Assessment and is a member of the Southern African Regional FATF Hub. He is a longstanding social justice and development activist.


    This article was first published in the 2024 Inyathelo Annual Report.