The Financial Action Task Force (FATF) is a watchdog over governments, fighting all forms of money laundering and terrorist financing. FATF conducted an evaluation of South Africa (SA) in this regard. In a two-pronged assessment of the adequacy of SA's legal framework and the efficiency with which legislation is implemented, a detailed report was recently published. It did not go well for SA!
The published report highlighted serious shortcomings in SA's policies and efforts to combat money laundering and financing of terrorism. The country's financial system is already highly vulnerable to crimes of this nature. It has been confirmed that SA has been listed on a Grey List for increased monitoring and now finds itself in the company of countries such as the Russian Federation, South Sudan, Nigeria, Syria, Democratic Republic of Congo and Yemen! SA is the only G20 country that appears on the Gray List.
Is it a disadvantage for a country to be on the Grey List?
Grey List countries find it difficult to obtain additional financing from global bodies such as the International Monetary Fund (IMF) and other financiers. Such countries may also suffer from international boycotts from the global community. This puts the economy at stake, with serious problems that the Grey List brings, such as the downward fall in the value of the Rand, inflation and increased trade deficits. Grey listing is not encouraging for foreign investment, and SA's foreign investment will decrease as a result. Being on the Grey List entails the risk that certain services can be withdrawn from the country: i.e. banking and payment services necessary for trade, remittances and other transfers and economic growth.
How can SA be removed from the Grey List?
Over the next two years, SA will have to provide evidence of concrete steps taken to combat money laundering and the financing of terrorism. It must also be possible to demonstrate that SA continues to work to make improvements to meet the FATF requirements. SA's ability to fight corruption and other financial crimes will need to be strengthened. This is primarily for the benefit of the country, its economy, its financial system, and also for the safety and security of the country's citizens.
In particular, National Treasury will need to work to continue to counter money laundering (and terrorist financing) by expanding systems in the financial sector, to reduce perceived risks associated with this.
When will SA's status be reviewed, and what happens in the meantime?
The general expectation is that a review will take place after three years, provided that the shortcomings related to the adequacy of laws to combat money laundering and terrorist financing have been addressed.
It is expected that SA will be evaluated again in 2027/28. Whether the political will exists in the ANC government to address the FATF shortcomings, amid the recent revelations about the involvement with corruption - only time will tell.
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