As South Africans fear that their country is about to be greylisted, the reality is that we’ve been facing international scrutiny for years, and our businesses and financial asset managers have had to jump through all kinds of hoops when doing work with offshore entities.
David Shapiro, a veteran stockbroker and financial analyst, says South Africa’s image from a financial security point of view has been under threat for years.
“We have experienced greylisting in other forms for some time. Foreign banks regard us as friends of the Guptas until we can prove otherwise. These institutions have treated us with caution for years. We must go to great lengths to open accounts for clients at some of the larger global banks. The interrogation is intense,” he says.
Nevertheless, greylisting is inevitable for South Africa, and businesses and organisations have to live with the stark reality of the country being scrutinised even further.
When a country is put on the grey list, it’s under increased monitoring by the Financial Action Task Force (FATF). The FATF is a global watchdog, based in Paris. In October 2021, the FATF published an evaluation of South Africa’s anti-money laundering measures which found exceptions in the country’s policies and efforts to combat money laundering and terrorist financing, highlighting areas where the financial system was highly susceptible to these crimes.
The FATF defines greylisting as a global attempt to prevent illicit funds from being channelled towards terrorism. Greylisting is an indication of the risk that the rest of the world attaches to a country’s companies and individuals as counterparties to transactions, according to the FATF.
The FATF oversees compliance for anti-money laundering and counter-terrorism financing measures. South Africa was unfortunately found to be partly compliant with 20 of the FATF’s 40 recommendations for a sound country. For years, South Africa was a shining example of excellent financial checks and controls. But conditions have waned tremendously in the past decade. Corruption is rife, and the government’s response has been slow, weak, and frustrating.
South Africa has a well-regulated financial system which plays its part in domestic and global transactions, and yet it’s under severe pressure.
The recommendations by the FATF follow an evaluation of South Africa, which found significant flaws, mostly related to state capture and the country’s inability to bring criminals to justice as a result of laundering. The global body will decide whether or not to greylist South Africa at its conference in February 2023. This greylisting is imminent, experts say.
Greylisting will necessitate greater due diligence on South African individuals and businesses alike, as well as more frequent and intrusive evaluations for anti-money laundering and terrorism funding risk.
This would put a massive dent in South Africa’s gross domestic product – by about 1% to 3% – because foreign investors would be discouraged from doing business with companies in South Africa.
South African clients’ risk rating will be elevated at many international institutions, especially those in the European Union and United Kingdom. South African banks will have to fork out more to manage correspondent banking relationships and relationships with global infrastructure providers, making costs higher.
On average, it takes countries five to 10 years to get themselves removed from the list. But it’s possible to reverse the decision in a shorter time. Mauritius was removed after less than two years on the grey list.
