South Africa Placed on Global Greylist By FATF for Anti-Money Laundering Deficiencies: Potential Impacts on Business and Investment

The Financial Action Task Force (FATF), a worldwide anti-money laundering body that establishes global standards to prevent money laundering and terrorism financing, has placed South on a greylist of countries that pose a high risk of engaging in such activities. As a result of this decision, South Africa will now be in the same category as nations such as Syria, Haiti, Yemen, and Mozambique.

The judgment made by the FATF sends a message to banks, financial institutions, and investors throughout the world that the country is not completely compliant with the requirements for combating money laundering and supporting terrorist organizations. The watchdog made the decision to add and South Africa to the grey during a meeting in Paris, when it was also determined that they would be put to the list.

Although South Africa is making headway on a number of the actions that were recommended to it in order to improve its system, there is still more work to be done in order to increase the number of investigations and prosecutions of money laundering, as well as the seizure of assets due to criminal activity. The Financial Action Task Force (FATF) highlighted eight areas that require immediate attention to improve.

It is anticipated that the implementation of greylisting will raise the cost of conducting business in South Africa by mandating increased due diligence from commercial enterprises. It may also be more difficult for South Africans to transmit money overseas or conduct business with foreign financial institutions. In the past, the greylisting has resulted in a reduction in the amount of foreign investment. Following a country’s designation as greylisted, capital flows, foreign direct investment, and portfolio inflows often go into a downward spiral, according to a report published by research firm Intellidex the previous year.

The decision did not surprise anybody because South Africa’s Finance Minister had previously stated in his budget address that the country need to be “prepared for the prospect” of being placed on a greylist. Godongwana stated that South Africa will endeavor to “swiftly and effectively fix any existing flaws and increase the efficiency of its anti-money laundering and counter-terrorism funding system” in response to the statement that was made on Friday.

The news is a blow to the credibility of the South African government, which has been working to fix deficiencies brought to light by the FATF. According to some analysts, this may also indicate that South African customers of multinational financial institutions may be subject to increased due diligence examinations. It might also make it more difficult for South Africa to gain funds and help from official lenders and international development organizations.

According to Sanisha Packirisamy, an economist at Momentum Investments, when the global FATF places a jurisdiction under increased monitoring (also known as the grey list), it indicates that the country is actively working with the FATF to address apparent strategic deficiencies in its regimes designed to combat financial crimes. This information was provided to Business Report by Sanisha Packirisamy. She also said that the undermining of democracy by the previous administration in South Africa was to blame for the deterioration of the country’s criminal justice system.

Local idiosyncrasies, such as a greylisting event, may be overshadowed by high and sticky global inflation, tighter global financial conditions, and a rising risk of recession in key markets. Because global themes are likely to be a larger determinant of the outcome for SA financial markets, global themes are likely to be a larger determinant of the outcome.

Business Report was able to speak with Hayley Parry, a Money Coach and Facilitator at 1Life’s Truth About Money, before the FATF made their decision. During their conversation, they explored the potential effects that South Africa might face as a result of being placed on the greylist.

After the Financial Action Task Force (FATF) added South Africa to the global grey in an official capacity, the rand dropped to R18.42 on Friday (24 February). Since October of last year, this is the worst performance for the rand since then. It is anticipated that the judgment would decrease foreign investment, greater expenses associated with conducting business, and an increase in the number of due diligence checks conducted on South African customers of multinational financial institutions.

The government of South Africa has pledged to collaborate with the Financial Action Task Force (FATF) in order to improve the anti-money laundering and counter-terrorist financing measures currently in place in the country. To be removed from the grey and to restore the country’s image among global banks, financial institutions, and investors, however, prompt and efficient action is essential.

Back to top button