The recent greylisting of South Africa by the global financial crime watchdog the Financial Action Task Force (FATF) may probably not have come as a surprise to many.
Greylisting is a critical concern as it can have a negative impact on foreign investment, trade, and financial transactions involving South Africa, but many experts believe it also presents an opportunity to the country to address the loopholes and deficiencies identified by the FATF.
President Cyril Ramaphosa addressed the concerns about the greylisting in a recent newsletter, writing that “the greylisting is an opportunity for us to tighten our controls and improve our response to organised crime”.
“The listing of South Africa as a ‘jurisdiction under increased monitoring’ – commonly known as greylisting – has caused much concern about the state of our financial institutions, law enforcement agencies and investment environment. The situation is concerning but less dire than some people suggest,” Ramaphosa wrote.
He added that since the dawn of democracy in South Africa, the country has sought to build credible, independent institutions while implementing effective laws to deal with complex financial crimes.
“We have gone through a rigorous process of addressing the issues that the FATF has raised with us. The fundamentals are in place, and we know what we need to do to get off the grey list. We are determined to do this as quickly as possible. This is important not only for our international standing, but also for our own ability to fight these crimes in our country,” he said.
Zaakir Mohamed, the Head of Corporate Investigations and Forensics at CMS South Africa, agrees that it is an opportunity for South Africa to take stock and address any shortcomings in its anti-money laundering and counter-terrorism financing (AML/CFT) regime.
“We must never let a crisis, any crisis, go to waste,” he says, adding that it is critical that government, law enforcement and financial institutions do it in a meaningful and sustainable way.
“When it comes to issues of money laundering, corruption, and organised crime, everyone has a part to play in addressing it, and that includes corporate South Africa,” he says.
According to Mohamed, it is easy for various stakeholders to get involved in a blame game following the news of the greylisting, but instead it should be seen as an opportunity to work together and address the shortcoming as a collective.
There is a need to address the shortcomings with urgency and seriousness, as the most significant implication of South Africa’s greylisting is the reputational damage that comes with the status.
A further implication relates to cross-border transactions and the action taken by foreign banks providing correspondent banking services.
The greylisting requires selected institutions to undertake more enhanced monitoring, according to the Treasury. It means that institutions in greylisted countries which engage in cross-border trade and other activities may be subject to higher levels of customer due diligence by financial institutions outside of that country.
In practice, it means more thorough and detailed processing and vetting of clients to understand the source of their funds. Companies may face increased due diligence requirements when conducting business in, or with, South Africa, which could increase transaction costs and delays.
Banks and other financial institutions may also be more cautious in their dealings with South African companies, which could make it harder for these businesses to access credit and other financial services.
The impact of FATF greylisting on South Africa's image internationally could also be significant. South Africa is a major economy in Africa, and its reputation as a business-friendly and stable country is important for the region as a whole. Greylisting can damage this reputation and make it harder for South Africa to attract investment and trade.
In his newsletter, Ramaphosa emphasised that South Africa had already taken a number of steps to improve its capabilities to address anti-money laundering and counter-terrorism financing.
“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,” he said.
While it can take anywhere from one to three years for countries to address the FATF deficiencies, South Africa is expected to address the eight areas of concern by no later than the end of January 2025. The Treasury has announced that the Government hoped to address them before then.
During the period of review over the next two years, South Africa will need to demonstrate, among other things, a sustained increase in investigations and prosecutions of serious and complex money laundering and terrorist financing activities in line with its risk profile and ensure the effective implementation of targeted financial sanctions.
The country will need to demonstrate an effective mechanism to identify individuals and entities that meet the criteria for domestic designation. South Africa will also need to further enhance its identification, seizure, and confiscation of the proceeds of financial crimes.