We held our breath and hoped it wouldn’t happen, but it did. South Africa was added to the “Grey List” by international financial crime watchdog, the Financial Action Task Force (FATF) at the end of last week. What does this mean for South Africa? Is it simply more bad news on top our ever-growing pile of bad news? Is our bad news bucket overflowing? Should we stress? Should we panic? Let’s take a look at the facts.
Is South Africa on the FATF Grey List?
Yes. Here’s what we can tell you about this developing situation:
- On Friday 24 February 2024, the FATF added South Africa to its “Grey List” of countries under close scrutiny. This means we need to pull up our socks in how we approach the implementation of standards that prevent and address money laundering and terrorism financing within our borders.
- As a result, our reputation as Africa’s most advanced economy has taken a knock, despite significant existing effort to address our shortcomings as previously identified by the FATF.
What does it mean to be a jurisdiction under increased monitoring from the FATF?
- We will need to take firm and visible steps to address strategic deficiencies in our country to counter money laundering, terrorist financing, and proliferation financing.
- Being placed on the Grey List also means that we have already committed to accelerating our efforts in resolving the identified strategic deficiencies and we have agreed to being subject to a higher degree of monitoring from the FATF.
- We are actively working with the FATF to address our strategic shortfalls in order to avoid being “black-listed”. In other words, the situation is urgent, but not yet dire.
Why is South Africa being greylisted by the FATF?
South Africa was greylisted by FATF because we performed poorly in our 2021 mutual evaluation, in that we were assessed as having not achieved the desired level of compliance with 20 of the FATF’s recommendations, as well as for having too many pitfalls in our legal frameworks to be immediately effective.
- This was due to exploitable weaknesses in law enforcement agencies created as a result of the state capture. South Africa was placed under a one-year observation period with instructions to address 67 Recommended Actions.
- Some progress has been made, as these 67 actions were reduced to 8 strategic deficiencies in January 2023.
- Although the hard work we have put in since 2019 has not gone unnoticed by the FATF, South Africa is greylisted until our remaining deficiencies are addressed.
What are the implications for a country like South Africa to be greylisted by FATF?
- The most obvious consequence is reputational damage. Our effectiveness in tackling financial crimes like corruption and money-laundering, as well as terror financing have been flagged below international standards.
- It might impact how other countries treat us when it comes to cross-border transactions and banking services. However, it is worth pointing out that FATF does not require stricter due diligence measures to be applied, but rather that other jurisdictions are cognisant of the fact that we are greylisted when conducting their risk analysis.
- It will impact our foreign direct investment (FDI) attractiveness: greylisting will discourage FDI in South Africa and reduce capital inflows. As transaction costs rise, this has a discouraging effect on international enterprises doing business with South African firms. South Africa will be considered a high-risk jurisdiction for business, so some foreign investors might pull out their money.
- There might be a decrease in South Africa’s external reserves: If there is a reduction in capital inflows and foreign investment, this could deplete external reserves as there will be less tax revenue.
Which other countries are now also greylisted?
Nigeria, Africa’s biggest economy, was also added to the Grey List on Friday. Other countries that were greylisted include Albania, Barbados, Burkina Faso, Cayman Islands, Democratic Republic of Congo, Gibraltar, Haiti, Jamaica, Jordan, Mali, Mozambique, Panama, Philippines, Senegal, South Sudan, Syria, Tanzania, Türkiye Uganda, United Arab Emirates and Yemen.
How long does it take countries to get out of the Grey List?
While it is tempting to give in to despair, being greylisted is not an irredeemable situation however, as shown recently by de-listed countries Cambodia (listed in 2019) and Morocco (listed in 2021). Furthermore, our neighbour Mauritius made an astonishing recovery in two short years which shows us that while we’re in for a heavy slog, we can climb out of the hole that’s been dug for us by corrupt politicians and extreme maladministration.
Generally, it takes between one and three years for countries to address their shortcomings and be removed from the Grey List. This determination takes place after a final on-site assessment, once the FATF and the greylisted country have convincingly met all elements of their action plan. South Africa has committed to address the eight identified areas of strategic deficiencies as identified by the FATF, before the deadline of January 2025.
The 8 strategic deficiencies identified by the FATF that South Africa must focus on to combat money laundering and terrorist financing:
We must have addressed the following FATF recommendations in In the next two years with:
- A visible increase in outbound Mutual Legal Assistance requests that are helpful in facilitating money laundering/terrorism financing (ML/TF) investigations as well as an increase in confiscations of assets accordingly.
- Improved the risk-based supervision of Designated Non-Financial Businesses and Professions (DNFBPs) and showed that all AML/CFT supervisors apply effective, proportionate, and effective sanctions for incidents of non-compliance.
- Ensured that the relevant competent authorities have timely access to accurate and up-to-date Beneficial Ownership (BO) information on legal persons and their arrangements when applying sanctions for breaches of violations by legal persons to BO obligations.
- Evidenced an increase in law enforcement agencies’ requests for financial intelligence from the Financial Intelligence Centre for its ML/TFL/PF investigations.
- Boosted our numbers in terms of investigations and prosecutions of serious and complex money laundering and the full range of terrorist financing activities in line with our risk profile.
- Improved the means we use to identify, seize and confiscate the proceeds and instruments used to commit a wider range of predicate crimes, in line with our risk profile.
- Updated our terrorist financing risk assessment so as to strengthen the implementation of a deeper, more comprehensive national counter-financing of terrorism strategy.
- Increased our effectiveness in implementing targeted financial sanctions and demonstrated a more effective mechanism to identify individuals and entities that meet the criteria for domestic designation.
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