South Africa on FATF grey list
South Africa has been grey listed by the Financial Action Task Force (FATF) after considering protection mechanisms employed against ensuring South Africa is not used as a money laundering, terror funding, or proliferation financing jurisdiction.
What does that mean to us in reality?
The FATF is a global inter-governmental body, that promotes policies of good governance and sets international standards relating to the combating of money laundering, terrorist financing, and the financing of the proliferation of weapons of mass destruction and biological weapons. There are currently 39 members of the FATF: 37 jurisdictions (including South Africa as a member state) and two regional organisations (the Gulf Cooperation Council and the European Commission).
22 countries, including South Africa, currently appear on the FATF grey list for not having adequate controls in place to efficiently combat and report on these “nefarious“ practices.
The grey listed country will experience enhanced FATF monitoring and be required to demonstrate that they are addressing these monitored outcomes to achieve compliance.
To be removed from the grey list, each jurisdiction will come under “increased monitoring” and will have to actively work with the FATF to address strategic deficiencies in their regimes.
On a stand-alone basis the grey listing does not have a direct bearing on the creditworthiness of a country and according to ratings agencies will not in, or of itself be a factor that will see the countries credit rating being downgraded. However, the most significant implication is the reputational damage to the country, as its ability to combat financial crimes – like corruption and money laundering as well as terror financing – is brought into question globally.
A related implication will come from consequential action taken with regard to cross-border transactions, particularly action taken by foreign banks and service providers such as trust companies that provide correspondent banking services. The grey listed jurisdiction can expect heightened due diligence around any transaction emanating either from within the country or, in terms of foreign direct investment.
In the event that we as a country, are seen to be adhering to the remedies to combat the inadequacies pointed out by the FATF, the negative moves in the rand and bond markets which we have experienced over the last month or so, should gradually improve. The heightened complexities which investors will experience may be a deterrent in the short term, but we believe that these are now priced into the market, and provided we continue to strive to clean up our act, we will achieve compliance and be removed from the grey list and ultimately be a better investment destination.
While the grey listing notification is not in itself a positive development, GTC welcomes the FATF decision in anticipation that South Africa will deliver on its stated intentions of correcting the identified issues. The net result would be a much-welcomed improvement in the perception of international investors which is key to the long-term success of our country. This hope is not without precedent, given the example of Mauritius and other countries which were able to move back off the grey list with an improved financial system and global standing.
