South Africa Greylisted 2023 by Financial Action Task Force

South Africa Greylisted 2023 by Financial Action Task Force

What is meant by the FATF “grey list”

The Financial Action Task Force (FATF) grey list, also known as the “grey list” or “list of jurisdictions under increased monitoring,” is a list of countries or territories that the Financial Action Task Force (FATF) has identified as having strategic deficiencies in their anti-money laundering and counter-terrorist financing (AML/CFT) regimes.

Being on the FATF grey list means that a country or territory is not doing enough to combat money laundering, terrorist financing, and other financial crimes. It can have significant economic consequences for the country, as it may lead to a reduction in foreign investment, increased scrutiny of financial transactions, and difficulty in conducting business with international partners.

The FATF is an intergovernmental organization that sets global standards for AML/CFT and regularly conducts mutual evaluations of countries’ AML/CFT regimes. Countries that fail to meet the standards set by the FATF are placed on the grey list and are required to take action to address the deficiencies in their AML/CFT regimes. Once the country has made sufficient progress in implementing the necessary reforms, it may be removed from the grey list.

Why south Africa was greylisted

South Africa was greylisted by the Financial Action Task Force (FATF) in October 2021 due to concerns over the country’s ability to effectively combat money laundering and terrorist financing.

The FATF is an intergovernmental organization that sets global standards for combating money laundering, terrorist financing, and other financial crimes. In 2017, South Africa underwent a mutual evaluation by the FATF, which found that the country had significant weaknesses in its anti-money laundering and counter-terrorist financing regime.

Following the evaluation, South Africa developed an action plan to address the deficiencies identified by the FATF. However, in June 2021, the FATF found that South Africa had not made sufficient progress in implementing the action plan and therefore decided to place the country on its greylist.

Being on the FATF greylist can have significant economic consequences for a country, as it can deter foreign investment and make it more difficult for banks and financial institutions to operate internationally. South Africa is currently working to address the concerns raised by the FATF and to be removed from the greylist as soon as possible.

What are the effects of South Africa being Greylisted

South Africa being “greylisted” by the Financial Action Task Force (FATF) can have several effects, including:

1. Negative impact on the economy: Greylisting can lead to a decline in foreign investment, as investors may view the country as having a higher risk of financial crime. This can lead to a slowdown in economic growth and job creation.
2. Restrictions on financial transactions: Greylisting can also result in increased scrutiny of financial transactions, with banks and financial institutions requiring additional documentation and verification before conducting transactions. This can lead to delays and added costs for individuals and businesses.
3. Limitations on international trade: The greylisting status can also result in restrictions on international trade, as other countries may view South Africa as having a higher risk of financial crime. This can lead to a decline in exports and imports, negatively impacting the country’s trade balance.
4. Damage to reputation: Greylisting can damage a country’s reputation and image, which can have a long-lasting impact. This can negatively affect tourism, international relations, and diplomatic efforts.
5. Increased pressure to implement anti-money laundering measures: Being greylisted can also result in increased pressure on the government to implement stronger anti-money laundering measures to address the concerns of the FATF. While this can be a positive development, it can also be a challenging and time-consuming process.

What is the duration countries remain on the grey list before they are removed?

The length of time it takes for a country to be removed from the FATF grey list varies and depends on several factors, such as the severity of the deficiencies in the country’s anti-money laundering and counter-terrorist financing regime and the country’s willingness and ability to implement the necessary reforms. Countries that make significant progress in addressing the deficiencies may be removed from the grey list in as little as 12 to 18 months, while others may take several years or more. The FATF regularly reviews countries on the grey list to monitor their progress and determine whether they have made sufficient progress to be removed.

What are the 8 areas of strategic deficiencies identified by FATF that need to be addressed by South Africa?

The Financial Action Task Force (FATF) identified eight areas of strategic deficiencies that South Africa needs to address to comply with international standards on anti-money laundering and countering the financing of terrorism (AML/CFT):

1. Effective implementation of AML/CFT measures: South Africa needs to ensure that its AML/CFT measures are effectively implemented across the country, including by law enforcement agencies, financial institutions, and designated non-financial businesses and professions.
2. Financial sanctions: South Africa needs to improve its implementation of targeted financial sanctions and ensure that designated persons and entities are effectively identified and sanctioned.
3. Terrorism financing: South Africa needs to strengthen its measures to detect, investigate, and prosecute terrorism financing, including by enhancing cooperation between law enforcement agencies and financial intelligence units.
4. Cash smuggling: South Africa needs to improve its measures to detect and prevent the cross-border movement of cash, particularly related to illicit activities.
5. Beneficial ownership: South Africa needs to enhance its measures to ensure that accurate and up-to-date information on beneficial ownership is available for all legal entities, including companies, trusts, and foundations.
6. Non-profit organizations (NPOs): South Africa needs to strengthen its measures to prevent the abuse of NPOs for terrorism financing and ensure that they are subject to effective oversight and regulation.
7. Wire transfers: South Africa needs to improve its implementation of the FATF’s international standards on wire transfers, including by ensuring that originator and beneficiary information is accurately and completely transmitted with wire transfers.
8. Risk assessment and supervision: South Africa needs to strengthen its risk-based approach to AML/CFT supervision and ensure that supervisory authorities have the necessary resources and powers to effectively supervise financial institutions and designated non-financial businesses and professions.

What are the next steps to implement the action plan by FATF?

Following South Africa’s greylisting by FATF, the country will need to focus on improving its AML/CFT system to meet the FATF’s requirements in these areas. However, the country’s efforts to combat money laundering, terrorist financing, corruption, and other financial crimes will also continue to strengthen for the benefit of the country, its economy, its financial system, and its citizens’ safety and security. The government’s objective of continuously improving the integrity of the financial system is not only to meet FATF requirements but also to regulate the financial sector effectively. The National Treasury is actively working to enhance anti-money laundering and combat terror finance systems in the financial sector, mitigating risks related to this sector, including emerging risks such as crypto-related risks. The significant economic risks of being on the grey list are primarily linked to the loss of banking and payment services crucial for trade, remittances, and other transfers and economic growth.