South Africa has been greylisted by global anti-money laundering watchdog the Financial Action Task Force (FATF), it was confirmed in an update on its website on Friday.
This is for failing to adequately tackle illicit financial flows, through the relevant legislation and measures to prevent possible money laundering and terror-financing.
The country has been greylisted together with fellow African nation Nigeria, and will face being under further scrutiny by the FATF.
South Africa and Nigeria were featured under the “high-risk and other monitored jurisdictions” section.
“Jurisdictions under increased monitoring are actively working with the FATF to address the strategic deficiencies in their regimes to counter money laundering, terrorist financing, and proliferation financing,” the watchdog noted.
“When the FATF places a jurisdiction under increased monitoring, it means the country has committed to resolve swiftly the identified strategic deficiencies within agreed timeframes,” it added.
The rand was 0.31% weaker at R18.41 in afternoon trade on Friday. JSE-listed bank stocks were over 2% weaker on the news.
Priced in?
The immediate impact of greylisting is likely to be muted because South Africa’s myriad problems mean international banks have already placed the country in a higher risk category and markets have already priced in the move, Peter Attard Montalto, head of capital markets research at Intellidex told Bloomberg earlier this week, ahead of the FATF meeting.
Read: Costs for banks and SOEs could spike if SA is greylisted
Investec Bank CEO Richard Wainwright also commented as far back as November last year that SA possibly being greylisted may already be priced in.
Speaking to Jeremy Maggs in a podcast, Wainwright however warned, that South Africa remaining on the list for more than 18 or 24 months may lead to “very serious issues”, including less access to dollars, and possible negative impacts on trade and foreign investment.
Reaction
National Treasury on Friday issued a statement saying the government notes the FATF decision to list South Africa as a “jurisdiction under increased monitoring”, or more commonly referred to as FATF’s “grey list”.
“Following intensive engagements with FATF over progress made by South Africa since the publication of its Mutual Evaluation Report [MER] in October 2021, including a face-to-face meeting held in Morocco on 13 January 2023, the FATF informed the South African Government that it recognised the significant and positive progress made by the country in addressing the 67 recommended actions or deficiencies highlighted in the MER,” said Treasury.
Read: SA to meet finance watchdog in bid to avoid grey list
“Following engagements with FATF, it assessed that the country needed to make further and sustained progress in addressing the eight areas of strategic deficiencies related to the effective implementation of South Africa’s anti-money laundering/combating the financing of terrorism laws as set out in the FATF’s statement,” it noted.
“These action items requiring attention by South Africa were adopted by the FATF Plenary on 24 February 2023, and the country is expected to address these deficiencies by no later than the end of January 2025,” National Treasury said.
Finance Minister Enoch Godongwana has informed the FATF President, Raja Kumar, that the South African Cabinet has considered an “Action Plan” and committed to actively work with the FATF and regional watchdog – the Eastern and Southern Africa Anti-Money Laundering Group – to swiftly and effectively address all outstanding deficiencies and to strengthen the effectiveness of its anti-money laundering and combating the financing of terrorism regime.
“Since the publication of its MER in October 2021, the South African Government has already demonstrated its
commitment to implementing the recommended actions, including the speedy enactment of two major pieces of legislation,” said noted National Treasury.
This included the General Laws (Anti-Money Laundering and the Combating the Financing of Terrorism) Amendment Act and the Protection of Constitutional Democracy Against Terrorism and Related Activities
Amendment Act. It saw the amendment of six “Acts of Parliament” in order to address some of the technical deficiencies identified by FATF.
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The Financial Sector Conduct Authority (FSCA) on Friday also issued a statement, noting that the FATF has “recognised the significant progress” made by the country to “remedy shortcomings in the country’s efforts to combat financial crime”.
This was since the publication of the FATF’s MER in October 2021.
“Both the FATF and South Africa acknowledge that further improvements are still required in some areas. The FATF has therefore placed South Africa under heightened monitoring as it works towards implementing these improvements,” the FSCA said.
“Since the MER, the FSCA has worked closely with other key stakeholders, including the South African Reserve Bank [Sarb], Financial Intelligence Centre [FIC] and the National Treasury, to strengthen its oversight of anti-money laundering and counter-terrorism financing risks in the financial sector,” it added.
Read:
‘Tweaks’ to the FIC Act
Has SA done enough to avoid joining the FATF grey list?
“The things that pertain to our mandate as the FSCA have largely been attended to,” FSCA Commissioner Unathi Kamlana said in the statement on Friday.
“So, as an authority in charge of supervising the conduct of financial players in SA, we are satisfied that our systems and processes are rigorous enough to monitor local players as required by FATF,” noted Kamlana.
“Of course, our work can only be effective and yield meaningful outcomes if all our partner institutions in the system work together. I’m encouraged to say that much progress has been made in this regard, and we will continue to pull together to address whatever gaps may still exist in our value chain,” he added.
The announcement that South Africa has ended up on the grey list, together with Nigeria, may weigh on the rand, warned Dawie Roodt, chief economist at Efficient Group.
Further ratings downgrade?
There is also a possibility that South Africa may be downgraded further by the credit rating agencies, said Roodt. However, he does not believe the move will have a massive impact on the economy.
“It will however cause much more red tape.”
“There will be more hoops to jump through if we want to do business internationally,” noted Roodt.
He said the sector that will be affected directly is the financial industry such as banks, stockbrokers and asset managers. The grey-listing will affect capital flows. He also expects an indirect impact on trade and trade financing.
Roodt pointed out that countries that end up on the FATF grey-list usually also ended up being downgraded.
“To be honest, I am not too concerned about this. If we are serious about fixing the concerns raised we can get back onto the white-list fairly quickly. In fact, it can happen within a couple of months if we are really serious,” he said.
Accountable institutions
Era Gunning, banking and finance executive at ENSafrica, said South Africa has already added several new categories of accountable institutions to the Financial Intelligence Centre Act (Fica) at the end of November 2022, which became effective in mid-December 2023.
This was one of the several attempts to avoid being grey-listed.
“These new accountable institutions are now required to register with the FIC. Failure to comply with Fica can lead to significant penalties, including imprisonment and fines,” added Gunning.
There are already obligations imposed on these new accountable institutions in terms of the act. “The FIC will be closely monitoring compliance to try and get South Africa off the grey list as soon as possible,” she said.
* Additional reporting by Amanda Visser.
