What are the Financial Action Task Force lists?
The FATF publishes both a grey list and a black list that detail countries with deficiencies in anti-money laundering and countering the financing of terrorism.
The black list identifies countries or high-risk jurisdictions which “are not actively engaging with the FATF to address these deficiencies”. Currently only Iran and North Korea are on the FATF black list.
The grey list identifies jurisdictions that are “under increased monitoring” but “are actively working with the FATF to address strategic deficiencies in their regimes”. Currently, this list includes Albania, the Cayman Islands, Yemen, Pakistan and Zimbabwe.
How might South Africa end up on the Financial Action Task Force grey list?
If South Africa doesn’t improve its capacity to track and prosecute money laundering and terrorist financing within the 18 months grace period provided, i.e., by April 2023, it will be added to the FATF grey list.
What would happen if South Africa is grey-listed by the FATF?
Some fear that being grey listed by the FATF will have a bigger negative impact on South Africa’s economy than the slip from investment grade to junk status.
If South Africa is added to the FATF grey list, it will have a significant impact on its international risk profile. It will also have a negative effect on trade between its local financial institutions and their overseas counterparts.
For example, the EU requires that EU financial institutions treat grey-listed countries and their financial institutions with extra scrutiny. This could lead to additional compliance costs at the very least. A recent estimate came in at £500 per annum per client. Such an increase may result in a decline in foreign investments and de-risking where financial intuitions choose to terminate relationships with clients in high-risk jurisdictions.
How can a country get off the FATF grey list once added?
It is possible to get off the grey list if a country really wants to do so. Mauritius was placed on the grey list in March 2020, but implemented the required FATF recommendations and managed to get itself off the grey list just over a year later. However, the first prize for South Africa would be to avoid being added to the grey list in the first place.
By Morné Bezuidenhout, CFP®
B.Com LLB
