What is Grey Listing:
The Financial Action Taskforce, which is an intergovernmental agency that combats all forms of money laundering and terrorist financing (AML/CTF). Being on the grey list means that the FATF has found that the controls that are in place, are weak/insufficient to combat money laundering and terror financing. The FATF has two adverse lists, namely the Grey List and the Blacklist. Such a country is subjected to increased monitoring and must deal with adverse economic consequences for trade and transactions with other countries. There are currently 23 countries on the FATF grey list, including countries such as Syria, Uganda, Turkey, South Sudan. There are 2 countries on the Blacklist: North Korea and Iran.
Why Is South Africa at Risk of being Grey Listed:
The FATF had their mutual evaluation in October 2021. The evaluation contains over 40 compliance rating categories. South Africa was found to be non-compliant in 5 categories, partially compliant in 15 categories, largely compliant in 17 and fully compliant in 3. The following was cited by FATF “South Africa’s has poor track record in investigating and convicting money laundering and terrorist financing crimes as well as the increased levels of financial crimes since the last evaluation was done in 2009”.
What is to follow?
FATF conducted a review during October regarding progress made in combating money laundering and terror financing. The FATF will then have their meeting in February 2023 to decide whether South Africa will be placed on the Grey List.
National Treasury and the SARB in August released a draft omnibus bill to address the inefficiencies in current legislation to combat money laundering and terror financing. This bill amends the following:
- Financial Intelligence Centre Act
- Non-profit Organizations Act
- Trust Property Control Act
- The Companies Act
- Financial Sector Regulations Act
What are the implications:
According to research done by the IMF (International Monetary Fund), the grey listing impacts a country’s capital flows negatively. Below are some of the average declines found in the research:
- GDP declining by 7.6% (Average)
- Foreign Direct investments declined by 3.2% of GDP (Average)
- Portfolio inflow declined of 3.3% of GDP (Average)
It has also been found that these flows tend to reverse quickly after the actual grey listing. Furthermore, it is expected that South Africans investing offshore will be subjected to stricter Due Diligence and increased cost from product providers in certain regions.