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“South Africa will likely be greylisted”

South Africa has an 85% chance of being placed on a global greylist, this is according to a new report commissioned by Business Leadership South Africa.

According to News24, The FATF’s decision on whether to greylist SA, poses a serious danger over the economy.

The Financial Action Task Force (FATF) is an international organization charged with ensuring that countries take necessary steps to prevent and address money laundering and financing terrorism.

Twenty of FATF’s forty recommendations were found to be either partially or completely disregarded in South Africa’s most recent mutual evaluation, which took place in 2019. On February’s plenary meeting, the body will vote for a final resolution

The international community’s perception of South African businesses and individuals as a potential security risk is reflected in their placement on greylists.

Many of SA’s problems stem from its weak criminal justice system and the lack of prosecution for money laundering and terrorism financing, while others are related to legislative shortcomings being processed in Parliament with the hope of becoming law before February.

Depending on how soon South Africa is able to remove itself from the greylist, the report’s economic impact could be anywhere from less than 1% to 3% of GDP. To mitigate this effect, South Africa must show that it is committed to complying with FATF’s standards.

All South African clients at many international financial institutions, especially in the European Union and the United Kingdom, will be categorised as higher risk as a direct result.

Here’s what the report has to say: “Enhanced due diligence will be applied to all South African clients, which means more frequent (typically annual instead of every three years) and comprehensive assessments of AML and CFT risks.

As a result, businesses and individuals in South Africa who engage in international trade and maintain financial assets outside of the country will face higher fees when transacting with foreign institutions. Specifically for South African banks, the costs of managing correspondent banking relationships and connections to global infrastructure providers like payment systems will rise.”

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Access to funding in the nonprofit sector and in bilateral funding arrangements with other countries, like South Africa’s Just Energy Transition Partnership (JETP) transaction with international partners, will be made more difficult as a result of the increased scrutiny.
The report concludes that, given the high likelihood of greylisting, the best that can be done is to lessen the impact of the process and work toward removing the domain from the greylist as soon as possible.

Continues to be insufficient

Intellidex suggests a coordinated “comprehensive and credible effort” at the highest government level be made to address FATF’s concerns. Intellidex suggests that the Presidency undertakes the most difficult task of building institutional capacity across a wide range of areas and departments, including the prosecuting authorities, the Hawks, the Financial Intelligence Centre, the Department of Home Affairs, the police, SARS, and others.

Businesses and individuals in the private sector should also get ready for the increased scrutiny that will come with greylisting. They need to work with foreign service providers to learn how their risk rating will change, what additional precautions will be taken (if any), and how they can get ready.

While the report acknowledges that South Africa has made progress in some areas since the mutual evaluation, including prosecutions, arrests, and asset forfeiture related to state capture, it also notes that South Africa will not be able to make progress in many other areas in time for the February meeting.

As for industries not currently regulated by the FIC, like real estate agents and lawyers, Intellidex acknowledged that efforts are underway to pass the necessary legislation. Even so, it seemed unlikely that this would have become pervasive by February.

It will also take some time for the FATF requirement that South Africa enhance monitoring to facilitate the easier discovery of beneficial owners to take effect. Thirdly, while the NPA and Hawks have taken some steps to hire more forensic accountants and investigators, these efforts are still insufficient.

On Wednesday, at the report’s release, Intellidex chairman Stuart Theobald made the following remarks: “We acknowledge that it is still possible to comply with FATF’s recommendations; however, we assess the likelihood of doing so as low.

We anticipate that it will be extremely challenging to make progress on the aforementioned issues in time for the February FATF plenary, and as a result, we expect South Africa to be greylisted.”

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