South Africa burned by greylisting – and the clock is ticking

The impact of South Africa’s greylisting is being felt across the country’s domestic institutions. The country needs to improve many of its identified woes to avoid long-term negative effects on the economy.

This was outlined by the Governor of the South African Reserve Bank (SARB), Lesetja Kganyago, at a meeting of the SARB shareholders on 30 July, where he noted that the next review for the grey list is looming, coming in January 2025.

“Although we are working hard to exit the Financial Action Task Force (FATF) grey list, the effects of being greylisted are being felt as foreign counterparties apply greater scrutiny to our domestic institutions,” said Kganyago.

South Africa was placed on the FATF’s grey list in February 2023 for not fully complying with international standards around the prevention of money laundering, terrorist financing and proliferation financing.

“FATF also criticised South Africa’s failure to show serious commitment to prosecuting individuals linked to state capture,” explained Peter Fabricius in an article for the Institute of Security Studies (ISS).

When the FATF places a country on its grey list, it means that the country has committed to resolving the identified strategic deficiencies within agreed-upon timeframes and is subject to increased monitoring within reporting cycles.

“Being greylisted means South Africa is a less attractive investment destination,” which results in the country needing to give better returns and paying higher interest on foreign investment, economics Professor Jannie Rossouw from the Wits Business School told the SABC.

FATF identified 22 action items that South Africa must address to improve its anti-money laundering and combating the financing of terrorism regime if it wants to get off the list.

At the FATF’s latest review in June 2024, it kept South Africa on the list as eight of the 22 items have been addressed or largely addressed, with 14 still in progress.

The FATF has said that South Africa, among other requirements, must still show that it can implement a modern and comprehensive strategy to counter the financing of terrorism, do more to curb money laundering, and investigate and prosecute complex financial crimes.

In terms of the action plan, South Africa has two reporting cycles: September 2024 and January 2025.

Earlier this year, Kganyago said that he is confident that the country will be removed from international financial crime watchdog FATF’s grey list next year by ticking off all the required items.

“We need to get off this list as soon as possible – in my view, the government should have done more, we should have moved faster [and] I can only hope that we achieve the deadline of 2025,” said Rossouw.

The Professor said that it is crucial for South Africa to get off the grey list if we want to move the country “forward to higher economic growth and with that lower unemployment.”

Kganyago highlighted at the meeting that the Prudential Authority (PA) and the Financial Surveillance Department are driving the SARB’s efforts to get South Africa off the FATF grey list.

“Although foreign counterparties have been applying greater scrutiny to our domestic institutions as a result of the FATF greylisting, the PA has found no immediate negative impact on correspondent banking relationships,” said the Governor.

He added, “It is nevertheless imperative that the action items are addressed timeously to avoid long-term negative effects on the economy.”

After its recent review, the FATF said that “South Africa has taken steps towards improving its [anti-money laundering (AML) and counter-terrorist financing (CFT)] regime.”

This includes “implementing and updating its supervisory risk assessment tools for Designated Non-Financial Businesses and Professions (DNFBPs), updating its terrorist financing risk assessment, and enhancing the capacity of relevant CFT authorities.”

However, a recent risk assessment by the Financial Intelligence Centre (FIC) shows that although progress has been made to counter it, South Africa is still considered to be a hub for financial flows between terror suspects and groups.

“South Africa is considered to be a hub or transit point for financial flows between terror suspects and terror groups in the region,” said the FIC.

“Despite South Africa not currently being regarded as a primary target for attack, the country is implicated in the financing of terrorist activity that takes place beyond its borders, which contradicts… international obligations and presents a high reputational risk,” added the group.

According to the report, the activities of the Islamic State (IS) and its affiliates have “become one of the deadliest global terror groups,” and South Africa’s current terror financing threat predominantly emanates from the IS, its affiliates, its supporters, and its ideology.

The FATF said in June 2024 that South Africa should enhance its action plan by (among other measures):

• Increasing outbound mutual legal assistance requests;
• Ensuring AML/CFT supervisors impose effective sanctions for non-compliance;
• Improving access to accurate beneficial ownership information;
• Boosting investigations and prosecutions of serious money laundering and terrorist financing;
• Expanding seizure and confiscation of crime-related proceeds;
• Effectively implementing targeted financial sanctions and identifying relevant individuals and entities.

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