South Africa added to grey list

By Bahle Gama

South Africa and Nigeria have been grey listed by the Financial Action Task Force (FATF). The decision was made during a meeting held in Paris on Friday.

The move by the intergovernmental body that sets global standards to combat money laundering and terrorist financing puts these countries alongside countries such as Mozambique, Syria, Yemen and Haiti.

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According to reports, FATF’s decision signals to global banks, financial institutions and investors that these countries are not fully compliant with anti-money laundering and terrorist financing standards.

In a statement on Friday afternoon, FATF said that South Africa and Nigeria had been added to the grey list. In terms of South Africa, It said that in recent months, the country has reportedly made significant progress on many of its recommended actions to improve its system, however, more work is said to be needed to increase investigations and prosecutions of money laundering, as well as the seizure of assets due to crimes.

Eight areas of improvement were identified. More reports state that the decision by FATF was not unexpected as when delivering the budget in Parliament on Wednesday, Minister of Finance Enoch Godongwana said the country should be prepared for the possibility of a grey listing.

The decision to greylist South Africa by the Financial Action Task Force has been described as ‘devastating’ and damning to the SA justice system by different organisations and parties.

Amongst these is the country’s official opposition party, Democratic Alliance and ActionSA.

Action SA Director of Policy Johann Krige says that the decision will harm the country’s ailing economy further compounding the unemployment crisis.

“While we are disappointed by the decision, it comes as no surprise. It has been abundantly clear since the publication of FATF’s mutual evaluation report in 2021 that grey listing has been the most likely outcome for South Africa,” said Krige

He stated that despite ample warning, the SA government failed yet again to act in the best interest of its people and that the General Laws Amendment Bill on Anti-Money Laundering and Combatting Terrorism Financing was introduced too late, and the reforms recommended by the
FATF report were not implemented with sufficient urgency.

“Unfortunately, we are all too aware that any efforts to combat illicit financial flows would be met with severe resistance by the ANC and their deployments that have captured our state institutions, as this would be in direct conflict with the ANC’s corrupt activities,” he said.

Krige added that due to South Africa’s grey listing, South African businesses will face even more barriers to growth as the cost of doing business internationally is set to increase.

“If estimations made by analysts are correct, South Africa’s economic growth may slow down by an additional 1-3 per cent per year, something we can ill afford in the midst of the various other ANC-led crises South Africa finds itself in,” said Krige.

Krige was echoed by Democratic Alliance’s (DA) Dr Dion George who says that greylisting is a damning indictment of the country’s criminal justice and the government’s inability to combat financial crimes such as money laundering and terrorism financing.

He stated that the situation had arisen primarily due to the inadequacy of the country’s legal framework and the failure of the authorities to prosecute those responsible for such offences.

Dr George stated that the immediate effect of the greylisting is that SA clients will be subject to enhanced due diligence, which will increase the costs of doing business for South African companies and individuals trading internationally or holding bank accounts or investment accounts abroad.

This, he said, will also complicate access to funding from non-profit organisations and multilateral development assistance. He added that banks will face increased costs in managing correspondent banking relationships and those with global infrastructure providers such as payment systems.

“The greylisting has placed our nation at significant risk, as the rest of the world now views South African companies and individuals as high-risk counterparties in global transactions. This development is entirely unacceptable, and it is incumbent upon our government to take immediate action to rectify this untenable position. We must restore confidence in our financial system and demonstrate to the international community that South Africa is a responsible and trustworthy partner in global trade,” Dr George said.

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Our sister publication, Eswatini Daily News reports that grey listing is expected to hike the cost of doing business in South Africa by increasing the amount of due diligence companies have to carry out, and South Africans may also find sending funds offshore and transacting with international banks more difficult. 

Historically, grey listing has reportedly also led to a decline in foreign investment. According to News 24, a report by research firm Intellidex noted last year that capital flows, foreign direct investment and portfolio inflows all tended to decline after a country was grey listed.