On 24th February the Financial Action Task Force (FATF) placed South Africa on the greylist, which means that South Africa is now placed under increased financial monitoring. This has transpired as it is seen that the country has a weakness in enforcing and prosecuting offences, as well as cases relating to money laundering and terrorist financing.
What are some of the consequences that can be faced because of this:
- Access to international trade and financial systems may be constrained, specifically in the UK, US, and Europe. The internal regulatory requirements of these jurisdictions insist on enhanced due diligence for all entities and transactions originating from countries on a greylist.
- “In other jurisdictions, greylisting had a negative impact on GDP. The cumbersome requirements of being a high-risk jurisdiction are expected to result in a decline in foreign direct investment in the short to medium term. Empirical results suggest that capital inflows decline on average by 7.6% of GDP when countries are greylisted.
- Individual investors from South-Africa may face delayed execution times when processing transactions with an offshore investment house, due to these jurisdictions being required to take extra care and caution when dealing with customers from greylisted countries.
- Offshore investment houses will most likely request additional documentation that previously was not required, such as salary/income slips, certified/verified documents, ect. to establish source of wealth.
- Offshore investment houses might increase fees or levy a fee for doing business with investors from South-Africa.
For South-Africa to be removed from the greylist, it must be able to prove that existing inefficiencies and weakness have been addressed and that stricter measures are in place in terms of AML/CTF.
The duration of South-Africa remaining on the greylist remains unknown, all will depend on how promptly South-Africa can implement and prove to the FATF that they have addressed and improved on the weaknesses and inefficiencies identified.