NEWSROOM

Greylisting – is South Africa in trouble?

Experts put the probability of a greylisting at 85%, primarily based on the undermining of the criminal justice system during the state capture era. The global body will decide whether to greylist South Africa at its conference in February 2023.

What is Greylisting?

Greylisiting was introduced by The Financial Action Task Force (FATF), a Paris based organization founded in 1989 and the global money laundering and terrorist financing watchdog. The inter-governmental body (39 member countries) sets international standards that aim to prevent these illegal activities by overseeing compliance with anti-money laundering and counter-terrorism financing measures.

In short, it has been introduced to bring about a global effort to prevent illicit funds from being channeled towards terrorism and other such activities. Foreign investors judge us on this and our ability to mitigate risks.

Did we Pass or Fail?

South Africa was found to be partially compliant with 20 of FATF’s 40 recommendations In October 2021.

The basis of their decision was based on the following:

  • Poor history in investigating and convicting money laundering and terrorist financing crimes
  • Increased levels of financial crimes since the last evaluation was done in 2009.
  • Specifically, reference was made to the extent to which corruption and State Capture has proliferated in government institutions in the recent past
  • The country’s inability to bring criminals to justice because of laundering.

What is being done about it?

Although considerable progress has been made in terms of addressing the deficiencies pointed out by the FATF, much of this has been on the legislative side. There are bills (Anti-Greylisting bill) tabled before parliament and for public comment. Cabinet has in recent weeks urgently approved the submission of a numbers of bills aimed at amending an omnibus of legislation. The amendments will be focused on: 

 

  • The Financial Intelligence Centre Act
  • The Non-profit Organisations Act
  • The Trust Property Act
  • The Companies Act
  • The Financial Sector Regulations Act
  • The protection of Constitutional Democracy Against Terrorist and Related Activities Act

 

The NPA, SAPS, DPCI and Hawks have taken steps to hire more forensic accountants and investigators to combat such illicit crimes.

So what will happen and what should you do?

Economists anticipate that there could be an impact to South Africa’s GDP by about 1%-3% if foreign investors would be discouraged from doing business in South Africa.

South African investors risk rating will go up at many international institutions especially those in Europe and UK. This means more documentation and compliance requirements. When wanting to invest offshore the magnifying glass will come out and the finer details of the source of funds will have to be proved.

On average, it takes countries on the grey list five to 10 years to get themselves removed from it. Importantly, however, it is very possible to reverse the decision in a shorter time. Mauritius is a good example, having been removed after less than two years on the grey list.

It seems unlikely that SA will satisfy the FATF in time and there will be implications from a reputational, economic and market perspective but perhaps this is wake up call that was needed? This could bring about the fast tracking of much needed reforms and prosecutions and drive the political will we sorely need.

We don’t expect there to be much of a change in your investments as we need to keep in mind that much of this has already been priced into our markets, but there will likely be additional paperwork and red tape required when moving money offshore.