President Cyril Ramaphosa says that South Africa being added to the Financial Action Task Force’s (FATF’s) global grey list is concerning, but “less dire” than some suggest.
Writing in his weekly letter to the public, the president said the country has gone through a rigorous process of addressing the issues raised by the global financial watchdog, adding that fundamentals are in place.
“We know what we need to do to get off the grey list. We are determined to do this as quickly as possible,” he said.
The president said that the listing gives South Africa an opportunity to tighten its controls and improve its response to organised crime – ultimately placing it on a stronger footing to effectively deal with such crimes.
“It is noteworthy that the strategic deficiencies identified by the FATF do not relate directly to the country’s financial sector. This means that financial stability and costs of doing business with South Africa will not be seriously impacted by the greylisting,” said Ramaphosa.
On 24 February, the country was officially greylisted by the FATF, scarring the reputation of the country as a jurisdiction to conduct business with and possibly leading to higher transaction costs and necessitating more steps of compliance when doing business, especially internationally.
Despite a myriad of new laws fast-tracked in late 2022, South Africa failed to meet all eleven recommendations made by the FATF in 2019 to effectively put measures in place to combat money laundering and financing terrorism.
Following the listing, the rand tanked to its worst level since May 2020 despite the move, by and large, being priced into the markets.
Intellidex founder and analyst Stuart Theobald said that the impact of greylisting is hard to measure.
“The main consequences will be felt by businesses that operate internationally. This can result in increased costs and administrative burdens and discourage multinational companies from investing in the country,” said Theobald.
He added that the reputational damage would be hard to come back from.
“Other countries must treat South Africa with a heightened level of suspicion. Several countries require their institutions to apply ‘enhanced due diligence’ of South African counterparts.”
“In practice, this means more frequent assessments, requests for more details on sources of funds and procedures, and more senior management engagement with foreign counterparts. That is if those counterparts will do business with South Africans at all,” Theobald said.
Ramaphosa said that the greylisting had caused a lot of concern about the state of the country’s financial institutions, law enforcement agencies and investment environment.
He noted, however: “The situation is concerning but less dire than some people suggest.”
The president said the original evaluation by the FATF took place in 2019 during the state capture era, which was detrimental to the South African Revenue Service (SARS), the National Prosecuting Authority (NPA) and the Hawks.
According to Ramaphosa, since the results of the mutual evaluation report were published in 2021, out of 67 recommendations, eight were not met.
“When it comes to developing world-class expertise, legislative reform and strengthening state institutions to combat complex financial crime, we have come a long way. This is notwithstanding deliberate attempts to erode the state’s ability to detect, investigate and prosecute such crimes during the state capture era,” he said.
“We have restored credibility to key institutions like SARS and the NPA to enable them to fulfil their respective mandates. We have bolstered the powers of the Special Investigating Unit (SIU) by establishing a Special Tribunal to recover public funds stolen through corruption and fraud and an Investigative Directorate in the NPA to investigate serious corruption.”
Enoch Godognwana, the minister of finance, announced additional funds to be allocated to the police, the NPA, the SIU and the Financial Intelligence Centre (FIC) last week, he added.
“Like all countries, we are dealing with the shifting sands of globalised crime and criminal syndicates. The challenge facing authorities is to anticipate criminal innovation and to respond swiftly and effectively.”
It is now up to South Africa to demonstrate, among other things:
- An increase in the investigation and prosecution of serious and complex money laundering and terrorism financing
- An increase in mutual legal assistance requests to other countries
- An increase in the use of financial intelligence by law enforcement agencies
- The effective implementation of targeted financial sanctions