In early 2023, South Africa was added to a list of countries identified as having serious issues with the strength of their anti-money laundering and anti-terrorist financing regimes; the FATF ‘Grey List’. Who decided this, what does it mean and what are the impacts for South Africans and the financial institutions they use?
According to Oak Group Chairman, Mark Chasey, the addition of South Africa to the Grey List means there is going to be added financial difficulty when doing business, particularly outside the country. The financial institutions and professional services used i.e., banks, lawyers, accountants, brokers, wealth managers are going to perform more background checks and spend more time complying with the measures triggered by the Grey Listing. Unfortunately, this will invariably mean more cost.
“The good news is the South African government are committed to getting the country off the Grey List by strengthening their domestic framework of controls to mitigate the risk of money laundering. The aim is to have this done by January 2025, after which things will hopefully return to normal – or as normal as it gets for South Africa anyway,” he says.
What is the FATF Grey List?
South Africa is a full member of FATF, short for the Financial Action Task Force. It’s an inter-governmental organisation charged with developing policies and setting international standards to combat money laundering and terrorism financing (AML). The country’s approach to AML was assessed by FATF in 2019 and the results weren’t great. South Africa was found to be non-compliant in 5 and only partly compliant in 15 out of the 40 categories considered as part of the review.
FATF had no alternative but to place South Africa on their Grey List after the country failed in several fundamental areas. South Africa was found to need improvements in the way they supervise casinos, real estate agents and dealers in precious metals and jewels – all of which are known to be favoured conduits for laundering money. The authorities’ ability to access beneficial ownership data was seen as weak, the communication between country’s law enforcement and financial intelligence agencies needs improvement with an expectation of increased investigation and prosecution for money laundering.
“Essentially it comes down to South Africa needing to tighten its AML controls and to implement them more effectively, increasing the success with which it foils money laundering and terrorist financing. Until they’ve done that, South Africa will stay on the Grey List. It’s not the end of the world, but it is far from ideal.”
Who is on FATF Grey List?
The Grey List itself is for countries assessed under the FATF AML framework where issues have been identified and where the country has committed to resolve these within an agreed timeframe.
While South Africa is not on the Blacklist (think North Korea and Iran), the Grey List also includes Albania, Mozambique, South Sudan, Syria, Yemen, and Nigeria.
The addition of Nigeria to the Grey List alongside South Africa this year means the continent’s two largest economies have been found to have serious AML deficiencies – it’s hardly an ideal look for Africa.
Implications of the FATF Grey List
“This is just one more problem the country could do without. It’ll be a nuisance for all whilst business continues outside of the country’s borders, but more seriously, any form of economic restriction will have wider consequences,” he says. “An increase in the complexity of cross-border transactions and operations will damage financial flows and the country’s ability to invest. I hate to say it but the only net result I can see from this is that GDP will suffer.”
The day-to-day impact of dealing with financial institutions outside (and even inside) the country
As a result of South Africa on the Grey List, financial institutions around the globe will be required to conduct additional AML compliance checks when working with South African customers and South African-originated business. Expect KYC requests to become more detailed, with a greater focus on the source of wealth and the source of funds. This is a direct result of the failings identified by FATF in the country’s AML regime and the risk of South African wealth being linked to money laundering must now be considered higher and therefore there will be a demand for more checks and validation to reduce this risk.
Leveraging an offshore jurisdiction
Guernsey, for example, where Oak Group is headquartered is regulated by the Guernsey Financial Services Commission. The GFSC have now removed South Africa from the list of countries it deems to have an AML framework equivalent to its own. This has triggered a requirement that all regulated financial institutions in the island must review their exposure to South African clients and businesses. Updated risk assessments will need to be performed and KYC and monitoring checks in compliance will be implemented. The same will be true of most national financial regulatory regimes around the world.
Due to the Grey Listing, the time it takes and costs involved will increase, so be prepared to supply up-to-date certified documentation, detailed documentation, evidence of financial history, and evidence of current business dealings.
“To a fellow South African, I would advise take the time to understand what is being asked by financial institutions, accept that they’re asking for this information not because they’re being difficult but because they now have to. Try to give the most up-to-date accurate documentation and information to help save time in the long run,” he concludes.