On the 24 February 2023, South Africa was placed in the Financial Action Task Force’s (FATF) grey list. This is a list of countries/jurisdictions where the FATF exercises enhanced monitoring with regards Anti-Money Laundering (AML) and Combating the Financing of Terrorism (CFT) legislation and the effectiveness of the implementation of the laws. There were 12 key areas identified where South Africa needed to improve and these related to the strength of our processes as well as institutions regarding AML and CFT. The table below lists the countries on the FATF’s monitoring lists:
What is FATF?
The (FATF) is the global money laundering and terrorist financing watchdog. It sets international standards that aim to prevent these illegal activities and the harm they cause to society. (Source: FATF)
What does it mean for South Africa and what is our plan?
Whilst not having specific adverse consequences, this classification does signal that greater scrutiny and caution needs to be exercised by other countries/institutions when dealing with South African entities at large. Foreign institutions are therefore likely to exercise enhanced due diligence in the processing of transactions, vetting clients, verifying the sources of funds, and tracking their use. This has the effect of undermining the credibility of the country and tarnishing its reputation. Further, the enhanced vigilance will increase the cost of doing business for local entities when engaging with foreign counterparts.
Drawing from our rest of Africa research, we have seen Mauritius being subjected to a similar fate. That country instituted swift actions and was promptly removed from the list in less than two years. The South African government has outlined a plan of action and allocated budget of R41bn towards these efforts. We believe that this plan should be implemented over the next few months. South Africa has requested to be formally reassessed in June of this year and this could pave the way for a reversal of the listing by 2024. In terms of the FATF process, the shortcomings identified need to be rectified by the end of January 2025.