What does South Africa’s Grey Listing mean?

Issue 2 2023 Financial (Industry), Security Services & Risk Management

Terence Naidu.

South Africa’s recent Grey Listing by the Financial Action Task Force (FATF) has caused a great deal of concern for South African businesses and individuals. This decision, made on 24 February 2023, has noted the country’s lack of progress in combatting money laundering and terrorist financing. The FATF is an international organization that works to set standards, strengthen global anti-money laundering and counter-terrorist financing efforts, and promote effective implementation of legal, regulatory and operational measures for these purposes.

The FATF’s decision to place South Africa on its Grey List is significant. South Africa is now one of only twenty-three countries on the list, along with Nigeria. The Grey List is considered a warning for countries that have failed to take adequate steps to address the FATF’s concerns about money laundering and terrorist financing.

The consequences of South Africa's grey listing by the Financial Action Task Force (FATF) could be severe for South African businesses and individuals. Here are a few ways in which it can affect them:

1. Increased costs: The first, and most pressing issue, is the increased risk of money laundering and terrorist financing that results in higher costs. The FATF's grey listing can increase the cost of doing both local and international business for South African companies, as banks and other financial institutions may raise their fees or impose regulations that are more stringent. This could lead to higher prices for goods and services, which can affect the cost of living for ordinary South Africans. Companies may also be required to perform more stringent due diligence procedures on their customers, and may need to report more transactions to the authorities.

2. Difficulty accessing finance: Financial institutions may become more cautious about lending money to South African businesses or individuals. This can make it more difficult for ordinary South Africans to access credit, whether for personal or business purposes. Banks may start to impose stricter requirements on customers, such as higher minimum balances and more stringent identity verification. Businesses may also be more reluctant to enter into transactions with South African citizens, making it harder for individuals to access credit and other financial services.

3. Impact on the economy: The grey listing can have an impact on South Africa's economy as a whole. It can lead to a decrease in foreign investment in South Africa. Foreign investors may be wary of doing business in a country that is perceived to have lax laws and regulations. This could lead to a decrease in the availability of capital, which could hamper economic growth and potentially cause job losses at a time when South Africa is faced with record high unemployment. All of these factors can indirectly affect the lives of ordinary South Africans.

4. Reputational damage: Being on the FATF's grey list can also have reputational consequences for South Africa in the international community. It can lead to a loss of confidence in the country's financial system, which can affect how the international community perceives South Africa. This could make it difficult for South African companies to do business abroad, as well as reduce the country’s attractiveness as a destination for foreign investment.

In summary, South Africa's grey listing can indirectly affect ordinary South Africans through increased costs, difficulty accessing finance, impact on the economy, and reputational damage.

The only piece of encouraging news is that South Africa can apply for removal from its Grey Listing after it implements the necessary reforms to comply with the international standards on combating money laundering and terrorist financing. The Financial Action Task Force (FATF) will assess the reforms and determine whether South Africa is eligible for removal from the list. The faster these reforms are implemented, the sooner South Africa can have its grey listing removed.

At the same time as South Africa and Nigeria were added to the FATF’s Grey List, Morocco and Cambodia were removed from the list for implementing the FATF’s necessary reforms. With the political will, South Africa can be removed from the Grey List.

As a reputable and responsible financial services provider, Truzo has already implemented strict controls when on-boarding its clients, with on-going transaction monitoring to ensure continuous compliance. Are your service providers doing the same?

For more information, go to www.truzo.com

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