D-Day for South Africa this week
South Africa’s fate regarding a possible greylisting will be decided this week at a four-day plenary meeting in Paris, France, starting today (20 – 24 February).
The decision will be made by the Financial Action Tax Force (FATF), an international watchdog aimed at ensuring countries prevent money laundering and financial terrorism through international standards.
A possible greylisting will make doing business with South Africa harder than usual as new compliance steps will have to be met, especially regarding cross-border transactions.
On top of procedural difficulties, the knock-on reputational damage could be severely consequential.
South Africa has been a member of FATF for almost two decades, and in 2021 an assessment highlighted several issues with the country’s compliance. The country was found to be deficient in 20 of the FATFs recommendations.
The FATF stated that while South Africa understood the risks of money laundering from a domestic perspective, its understanding of vulnerabilities from a foreign perspective was limited.
The country’s law enforcement agencies also lacked the necessary skills and competency to investigate money laundering and terrorist financing cases, and its capacity to prosecute such matters was questioned, said the international watchdog.
The country was given until February this year to make necessary regulatory and structural changes.
If South Africa were to be greylisted, it would join other African nations such as Tanzania, Mozambique and the Democratic Republic of the Congo – all were recently greylisted during the latest FATF plenary meeting in October 2022.
South Africa is likely to have a similar fate, with little escape from the listing.
According to a Business Leadership South Africa (BLSA) report in collaboration with Intellidex, there is an 85% chance that the FATF will rule against South Africa.
The researchers estimated that the economic impact of greylisting could be limited or severe depending on how South Africa reacts to greylisting.
They estimated the impact at under 1% of GDP if government act with speed to 3% of GDP if South Africa is perceived to be slow and unwilling to meet the standards set by FATF.
The founder of research firm Intellidex, Stuart Theobald, cemented his team’s analysis earlier this month when he said that the country is likely to be listed and must prioritise getting off it as soon as possible.
“The consequences of greylisting are that 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.” he said.
“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.”
In light of the threat of greylisting, South Africa’s government initiated a slew of legislative changes, particularly dealing with the financial sector, including the General Laws (Anti-Money Laundering and Combating Terrorism Financing) Amendment Act and the Protection of Constitutional Democracy Against Terrorism and Related Activities Amendment Act.
According to James George, a compliance manager at Compli-Serve SA, the likelihood that such amendments will translate into action is questionable.
“South Africa may also need to learn the hard way to improve anti-money laundering and countering of financial terrorism measures.”
“We may have a legislative framework in place, but the challenge now is our ability to enforce the legislation and expertise to drive it,” said George.
The compliance manager does, however, see the greylisting as a possible new leaf for South Africa’s financial framework, being a necessary ‘scare’ that will ultimately help the country do what needs to be done to be a safe, competitive, and law-abiding investment destination on the global stage.
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