South Africa has been greylisted. What does this mean?

Mar 6, 2023 | News

The Financial Action Task Force (“FATF”) is a global inter-governmental body that promotes policies and sets international standards relating to the combating of money laundering, terrorist financing, and the financing of weapons of mass destruction. There are 37 member countries of which South Africa is one.  They use peer reviews to assess a country’s compliance to the set of agreed international anti-money laundering standards.

This mutual evaluation includes an assessment of the effectiveness of a country’s implementation of the standards. In October 2021, South Africa received the findings of its peer review which was conducted in 2019 (when many financial institutions and law-enforcement agencies were at their weakest following state capture findings). South Africa was put under a one-year observation period to address the recommendations of the review which were to strengthen the country’s financial systems and thereby restore integrity within the global financial system.

Whilst South Africa did make significant progress during the observation period, passing two major Amendment Acts in 2022, reducing the 67 recommended actions from the peer review to 8 strategic deficiencies, the FATF found in its re-evaluation that more progress is still required.

As a result, on 24th February 2023 at a meeting by the FATF’s Plenary, South Africa was placed on the FATF’s list of Jurisdictions under Increased Monitoring, often referred to as “grey-listed”. A grey-listed jurisdiction is one that has adopted a plan and is actively working with the FATF to address its strategic deficiencies.

What does this mean for investors? The standards of the FATF are not intended to cut-off entire classes of customers engaging in cross-border investing and banking but it will mean being subjected to higher levels of customer due diligence by financial institutions outside of the country. It means being subjected to more thorough processing and vetting, particularly in understanding the source of funds when making an investment or banking transaction. Some foreign institutions may apply these enhanced due diligence requirements retrospectively. This will mean providing additional supporting information for existing investments in order to comply with laws for clients from high-risk jurisdictions.

There is no doubt that being grey-listed is going to make investing offshore more onerous and the increased requirements will raise the cost of doing such business for all involved. Our best hope is that South Africa addresses the strategic deficiencies identified to enable being removed from the grey-listed jurisdictions within the shortest time possible.

Jacqui Meyer, Finance Director – 27 February 2023