Firstly, what is FATF? The Financial Action Task Force (FATF) is the global money laundering and terrorist financing watchdog. The inter-governmental body sets international standards that aim to prevent these illegal activities and the harm they cause to society.
Last October, the FATF published an evaluation of South Africa’s anti-money laundering measures, which found holes in the country’s policies and efforts to combat money laundering and terrorist financing and its financial system was vulnerable to these crimes.
The FATF recommended that South African authorities develop policies to address these higher risks of money laundering and terrorist financing. It also suggested policy makers provide the Directorate for Priority Crime Investigation (the Hawks) with more staff, especially financial investigators and forensic accountants.
In the wake of this, the treasury and the Financial Intelligence Centre have started reviewing South Africa’s anti-money laundering and counter-terrorist financing legislation. The amendments to Fica will widen its scope by including more categories of institutions and businesses that must report suspicious transactions.
Later this month, parliament will hold public hearings on various amendments to the Financial Intelligence Centre Act (Fica), bringing the country one step closer towards avoiding the feared “greylisting”.
The amendments, needed to ensure that South Africa meets international anti-money laundering standards, were the subject of a panicked meeting of parliament’s finance standing committee in June.
At the June meeting, acting treasury director general Ismail Momoniat explained that his department and the Financial Intelligence Centre (FIC) are very worried about the prospect of South Africa being put on the grey list. “Given the grey listing that we face, the sooner we do things, the better,” he said.
What FATF grey listing would mean for SA?
The possible grey listing of South Africa will likely hamper investment and international financial transactions in the country, which it can ill-afford.
Possible threats to the country and its financial system from a grey-listing include:
- Higher transactional, administrative, compliance, auditing and funding costs for banks operating in South Africa, which would face increased inspections by regulatory authorities.
- South Africa may be placed on the European Union’s blacklist and the United Kingdom’s list of high-risk countries. A high-risk classification means access to commercial loans, Internal Monetary Fund (IMF) borrowing and financial aid would be limited, or more stringent access requirements imposed.
- Banks’ ability to conduct cross-border transactions would be restricted, hampering imports and exports, which can lead to a decline in gross domestic product. While banks and other financial institutions would not be immediately shut out of international markets, over the medium to long term, the impact on South Africa’s economy and financial system would become progressively worse.
Further impacts include reputational damage to South Africa, that could be negative for investment and the currency. There could be a downgrade of the country’s investment and credit ratings.
Grey listing can reduce a country’s capital flows by as much as 7.6%, according to an IMF working paper.
South Africa does not have enough savings and revenue to meet its budget deficit, which includes social grant payments, public sector wages and social and economic development programmes.
Hopefully, even at this eleventh hour, South Africa will be able to show that it is tightening up on the requirements needed to avoid being grey listed.