Earlier this year, South Africa became one of 26 countries identified as having serious issues with the strength of their anti-money laundering and anti-terrorist financing regimes.
These countries are listed by the Financial Action Task Force (FATF) on what is referred to as the ‘Grey List’.
In simple terms, South Africa’s addition to the Grey List means there is going to be added difficulty when doing business, particularly outside of the country, explains Oak Group chairman Mark Chasey.
Financial institutions and professional services used by South Africans, such as banks, lawyers, accountants, brokers, and wealth managers, are now going to demand more KYC (Know Your Customer), perform more background checks, and spend more time complying with the measures triggered by the Grey Listing. Unfortunately, this will invariably mean more cost.
The good news, Chasey says, is that the South African government is committed to getting the country off the Grey List by strengthening its domestic framework of controls to mitigate the risk of money laundering. The aim is to have this done by January 2025, after which things will hopefully return to normal.
Why is South Africa on the FATF Grey List?
South Africa is a full member of the FATF, an inter-governmental organisation charged with developing policies and setting international standards to combat money laundering and terrorism financing (AML).
The country’s approach to AML was assessed by FATF in 2019 and the results “weren’t great”.
“South Africa was found to be non-compliant in five, and only partly compliant in 15, of the 40 categories considered as part of the review. FATF had no alternative but to place South Africa on its Grey List after the country failed in several fundamental areas.”
He says the country was found to need improvements in the way it supervises casinos, real estate agents, and dealers in precious metals and jewels – all of which are known to be favoured conduits for laundering money. The authorities’ ability to access beneficial ownership data was seen as weak, and the communication between the country’s law enforcement and financial intelligence agencies needs improvement. There is now an expectation of increased investigation and prosecution for money laundering.
Although simplifying the issue as there were other findings made, Chasey says it essentially comes down to this: “South Africa needs to tighten its AML controls, implement them more effectively, and increase the success with which it foils money laundering and terrorist financing. Until they've done that, South Africa will stay on the Grey List...It’s not the end of the world, but it is far from ideal.”
Countries on the FATF Grey List
Other countries on this list include Albania, Mozambique, South Sudan, Syria, Yemen, and Nigeria.
The addition of Nigeria to the Grey List alongside South Africa this year means the continent’s two largest economies have been found to have serious AML deficiencies – it’s hardly an ideal look for Africa, he states.
Countries on the Grey List commit to resolving the issues of concern within an agreed-upon timeframe. A review of South Africa’s listing will be conducted in January 2025
What does being greylisted mean for South Africans?
Basically, Chasey says, this is just one more problem the country could do without.
“It’ll be a nuisance for all whilst business continues outside of the country’s borders. More seriously, any form of economic restriction will have wider consequences. An increase in the complexity of cross-border transactions and operations will damage financial flows and the country’s ability to invest. I hate to say it but the only net result I can see from this is that GDP will suffer.”
Being on the Grey List will see financial institutions around the world conducting additional AMP compliance checks when working with South African customers and businesses. KYC requests will become more detailed and there will be a greater focus on the source of wealth and funds.
“This is a direct result of the failings identified by FATF in the country’s AML regime. The risk of South African wealth being linked to money laundering must now be considered higher and, therefore, there will be a demand for more checks and validation to reduce this risk.”
In terms of leveraging offshore jurisdictions, Chasey, who is a South African, elaborates: “Guernsey, for example, where Oak Group is headquartered, is regulated by the Guernsey Financial Services Commission (GFSC). The GFSC has now removed South Africa from the list of countries it deems to have an AML framework equivalent to its own. This has triggered a requirement that all regulated financial institutions on the island must review their exposure to South African clients and businesses. Updated risk assessments will need to be performed and KYC and monitoring checks in compliance will be implemented. The same will be true of most national financial regulatory regimes around the world.”
The time it takes, and costs involved, will increase, so South Africans must be prepared to supply:
- Up-to-date certified documentation
- Detailed documentation
- Evidence of financial history
- Evidence of current business dealings
He thus advises people to take the time to understand what is being asked by financial institutions and accept that they’re asking for this information not because they’re being difficult but because they now have to.
“Try to give the most up-to-date accurate documentation and information to help save time in the long run.”
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