Dire consequences for South Africa if we miss the looming greylisting deadline

It has been a little more than a year since the Financial Action Task Force (FATF), an international initiative established to combat money laundering, published its Mutual Evaluation Report (MER) on South Africa in which it identified major “weak spots” in our compliance processes. The FATF gave the country a deadline of February 2023 to remedy all the deficiencies or face possible greylisting.

If South Africa does not implement the necessary measures to remedy those weak spots before the deadline, the consequences could be dire.

According to the International Monetary Fund (IMF), a greylisted country can expect an average decline in capital inflow of 7.6% of gross domestic product (GDP), a decrease in foreign direct investment (FDI) of 3% of GDP, and a decrease in portfolio inflow of 2.9% of GDP.

Being greylisted is likely to further impair the economy’s links to the global financial system, raise the country’s cost of capital and create an additional disincentive for offshore companies to deal with South Africa.

The country could also face international restrictions imposed by other jurisdictions, leading to additional barriers to doing business.

The international economic impacts may include an increase in the regulatory burden imposed on both South African entities and their foreign counterparts, economic restrictions from international funders such as the IMF or World Bank and restrictions imposed by individual banks and businesses on doing business with South African entities.

Countries that have been greylisted in the past have suffered long-term effects: in Botswana, asset managers were not able to transact directly with pension funds containing an offshore portfolio, and FDI in the diamond sector was affected as the repatriation of profits from Botswana to the origin was affected.

Read more in Daily Maverick: “SA at 85% risk of being greylisted, so determined political will needed – and learning from Mauritius: report”

The greylisting of Pakistan, which began in 2008 and ended in 2019, is estimated to have led to cumulative real GDP losses of about $38-billion. Findings from market research and analytics group Intellidex showed that Pakistan’s greylisted status between 2012 and 2015 triggered a cut in economic growth of between 1% and 2%.

Should South Africa be added to the grey list, according to National Treasury, it will take a number of years to get off it and could have a long-lasting and devastating impact on the economy for years to come.

According to the FATF, South Africa has major deficiencies in the following areas, among others:

• The prosecution of State Capture crimes and convictions;


• Identification of terrorist financing and money laundering;


• The ability to predict and prepare for offences; and


• The management of know-your-customer and politically exposed people protocols.

• Cabinet’s approval of the General Laws (Anti-Money Laundering and Combating Terrorism Financing) Amendment Bill, which is currently sitting in Parliament;


• The establishment of the Anti-Money Laundering Desk under the jurisdiction of the National Prosecuting Authority;


• The introduction of a new legislative tool by the South African Revenue Service to investigate unexplained wealth;


• The proposed amendments to various pieces of legislation to comply with the FATF recommendations; and


• An additional bill on its way is the Protection of Constitutional Democracy against Terrorist and Related Activities Amendment Bill, 2022. If passed, it will introduce sweeping changes to various statutes including the Trust Property Control Act, the Non-profit Organisations Act, the FIC Act and the Companies Act.

• Implemented a comprehensive risk-based supervision framework as a strategy to monitor financial institutions and designated non-financial businesses, such as real estate brokers, banking and securities, and jewellery stores;


• Enhanced the transparency of legal persons and enlisted national coordination, as well as regional and international cooperation, which means authorities are working closely together to combat money laundering and financial crime;


• Improved the process of detecting threats of fraud, prosecuting criminals, and confiscating illegal proceeds; and


• Implemented an anti-money laundering and counterfinancing of terrorism data collection system, which aims to continuously improve risk detection.