I’m sat in my office on a Monday morning; rowdy kids can be heard making their way to school and there is the sound of distant rush hour traffic. What I’m not hearing though is any feedback from the government regarding their plans to prevent South Africa being added to FATF’s grey list. But what’s also surprising is the lack of noise from the industry about the government’s lack of noise. The silence, it seems, is deafening!
What are the FATF's plans?
In October 2021, The Financial Action Task Force (FATF) published its ‘AML & CFT Measures - South Africa’ Evaluation report, the result of assessments that took place between 2019 and 2021. The 230+ page report highlighted areas of concern including corruption, tax related crimes and fraud. It concludes that, should South Africa not increase its ability to detect and prosecute financial crimes, there is a risk of the country being placed on their ‘Grey List’.
The FATF is an inter-governmental watchdog who formulate international policy to control the flow of money and thereby curb organised crime. They maintain two public lists, one black and one grey, which detail countries with strategic deficiencies in their anti-money laundering (AML) & countering the financing of terrorism (CFT) measures.
What does being on the list mean?
The black list identifies countries or high-risk jurisdictions which “are not actively engaging with FATF to address these deficiencies”. Currently only Iran and North Korea are on this list.
The grey list meanwhile includes jurisdictions “under increased monitoring” but that “are actively working with the FATF to address strategic deficiencies in their regimes”. This is a longer list of just over 20 countries, including Albania, Cayman Islands, Morocco, Yemen and Zimbabwe. Should the South African authorities fail to improve their capacity to track and prosecute money laundering and terrorist financing within 18 months, South Africa will be added to the grey list.
Why the silence?
Given South Africa’s penchant for corruption, not to mention its economic and political struggles, the findings of this report should hardly come as a shock. What has been surprising to me is the apparent lack of progress and lack of communication from the government on their plan of action.
The SA National Treasury and the Financial Intelligence Centre released a media statement following the news confirming that it would be taking ‘remedial steps within 18 months to address deficiencies identified in the mutual evaluation report’. The statement goes on to say that the government is fully committed to implementing the recommendation of the report.
We’re just past 4 months into the 18-month timeframe and with the exception of the initial media statement and a few recent LinkedIn posts on parcel scams and financial flows associated with wildlife trading, it’s been radio silence from the government! Even when researching for this article, internet searches produced minimal content. Should we be interpreting this silence as a sign of the inevitable?
Should we be concerned?
If South Africa is added to the list, it will significantly impact its international risk profile and negatively affect trade between local financial institutions and their overseas counterparts. Other potential impacts would include a decline in foreign investment and possible de-risking, where banks end relationships with clients based in high-risk jurisdictions, essentially to save on significant compliance costs.
The impact on the economy could be substantial. According to a February 21 research paper published by an Islamabad think tank, the estimated national economic loss since Pakistan was placed on the grey list in 2008 is as much as $38 billion.
Is there a silver lining?
I’m a glass-half-full guy, so the positive may be that SA is forced to improve in order not to be taken off the list. The list is updated regularly; Mauritius, for example, was added to the list in 2020 and was removed just over a year later after it implemented a number of reforms. Regardless, the Financial Services industry need to start preparing! Most importantly, we need to educate and communicate with our clients and train our staff, particularly the onboarding teams. We need to start embracing enhanced Due Diligence procedures and re-evaluate and amend the risk matrix, if need be.
With the impact of this listing affecting not only financial services, but also banks, estate agents and gambling institutions, to name a few, it’s these industries that are eagerly waiting for news on progress.
However, given the current radio silence and that 18 months is simply too short a time to address major issues such as corruption, I suspect that we’ll need to start getting out those biros in anticipation of the piles of extra due diligence forms that we will soon be needing to complete.
Disclaimer: The views, thoughts and opinions expressed within this article are those of the author, and not those of any company within the Capital International Group (CIG) and as such are neither given nor endorsed by CIG. Information in this article does not constitute investment advice or an offer or an invitation by or on behalf of any company within the Capital International Group of companies to buy or sell any product or security or to make a bank deposit.
