Grey days — Greylisting sets South Africa and Nigeria on long and daunting paths

The greylisting of South Africa last month by the Financial Action Task Force (FATF) has made waves in the country, occupying substantial media attention. South Africa became only the second G20 country to have been greylisted other than Turkey — an embarrassing fall from grace. Nigeria’s addition to the list seems to have gone relatively unnoticed, no doubt due to the past weekend’s national elections.

FATF is an intergovernmental organisation founded in 1989 on the G7’s initiative to develop global policy against money laundering. Since 2001, its mandate has expanded to include financing terrorism and nuclear weapons proliferation. Its 38 member states and jurisdictions — South Africa is the only African member — set standards that more than 200 countries have committed to implementing. 

Greylisting means that South Africa and Nigeria have been placed under enhanced monitoring of their measures to counter the financing of serious crimes. Greylisting is obviously better than blacklisting because it indicates that a country is attempting to comply. The three countries on FATF’s blacklist — Myanmar, North Korea and Iran — are effectively declared to be incorrigible. 

Nonetheless, most analysts believe greylisting has considerable negative effects on a country’s economy, including discouraging investment. Some, for example, require fund managers to apply greater diligence before investing in greylisted countries. An International Monetary Fund study estimates that countries have on average experienced capital outflows equal to 7.6% of GDP after greylisting. 

Even though the danger of being greylisted had been on South Africa’s radar for many months, and the government has tried to forestall it, it was no surprise that the FATF executive board ultimately greylisted the country on 24 February. 

The problem was not so much a lack of legislation but implementation. FATF’s statement made it clear — and Finance Minister Enoch Godongwana confirmed — that South Africa was greylisted because of a failure to adequately investigate and prosecute money laundering and terrorist financing. 

 

Read more in Daily Maverick here by Business Maverick editor Tim Cohen:  "There is only one shade of greylising -  and what this means for ordinary South Africans"

Illicit activity

Last year the United States (US) government imposed financial and other sanctions on four South Africans thought to be channelling funds to Islamic State in Mozambique and elsewhere in Africa. It was widely believed that the US had tried to jolt the South African authorities into action — but with little effect. 

South Africa has now agreed to implement FATF’s eight-point corrective action plan that includes “demonstrating a sustained increase in investigations and prosecutions of serious and complex money laundering and the full range of (terrorist financing) activities in line with its risk profile.”

The action plan also required South Africa to implement an updated and comprehensive national strategy to counter the financing of terrorism, and to issue targeted financial sanctions against terrorist financiers. 

State Capture