What does it mean to be Greylisted? 

When a country is Greylisted, it means that it has been identified by the Financial Action Task Force (FATF) as a country that is not fully compliant with its anti-money laundering and counter-terrorist financing (AML/CFT) standards, but is committed to making the necessary changes to comply with the criteria.

Countries on the FATF’s Greylist face increased scrutiny and pressure to implement the necessary reforms to meet international standards. This can have implications for the country’s economy, reputation, and ability to participate in the global financial system.

What is the role of the FATF?

The FATF is an intergovernmental organisation that aims to combat money laundering, terrorist financing, and other threats to the global financial system. As a FATF member, South Africa must comply with the organisation’s guidelines, especially as it was placed on the Greylist in February 2023.

When South Africa underwent its initial mutual evaluation report, it was found that 67 recommended actions needed to be taken. However, by the time the FATF made its Greylisting decision in February 2023, noteworthy progress had been made, and only 15 actions remained open. These 15 actions are linked to eight strategic actions and demonstrate that South Africa has made positive strides towards meeting international AML/CFT standards. South Africa has pledged to address the remaining eight strategic actions by January 2025, with regular updates to be provided. This creates an opportunity for the FATF to review the country’s Greylisting at set intervals.

The recommendations laid out by the FATF

The Financial Action Task Force (FATF) has made a set of recommendations for South Africa to combat money laundering, terrorist financing, and other threats to the international financial system. These suggestions are aimed at enhancing the country’s anti-money laundering and counter-terrorism financing (AML/CFT) regime and strengthening the integrity of its financial system.

South Africa’s major FATF recommendations are to:

• Enhance the transparency of beneficial ownership – this involves requiring companies to disclose the identities of their beneficial owners, which can help to prevent the misuse of legal entities for illicit purposes.
• Implement customer due diligence measures – identifying and verifying the identity of customers and beneficial owners, as well as monitoring their transactions for suspicious activity.
• Criminalise money laundering and terrorist financing – which serves as a strong deterrent to would-be criminals.
• Improve international co-operation – enables countries to work together to combat cross-border money laundering and terrorist financing.
• The implementation of targeted financial sanctions – this involves restricting the financial activities of individuals or entities associated with terrorism or other illicit activities.
• Regulate virtual asset service providers – given the increasing use of cryptocurrencies and other virtual assets for illicit purposes.
• Enhance the transparency of beneficial ownership – crucial in identifying individuals and entities involved in illicit activities.

CIPC and Ultimate Beneficial Ownership Register.

 To comply with FATF recommendations, the General Laws Amendment Act of 2022 amended several important pieces of legislation in South Africa, including the Companies Act of 2008. The establishment of a UBO (Ultimate Beneficial Ownership) register by the Companies and Intellectual Property Commission (CIPC) is a key part of this effort. The UBO register requires all companies incorporated in South Africa to provide information on the individuals who own or control them, including their full name, identity number, residential address, and the nature and extent of their ownership or control.

The UBO register will provide law enforcement agencies and other relevant authorities with access to up-to-date information on corporate ownership and control, which will assist in the detection and investigation of financial crimes such as money laundering and terrorist financing. Additionally, it is expected to prevent the misuse of legal entities for illicit purposes and promote transparency in corporate governance.

Overall, the establishment of a UBO register is a significant step forward in South Africa’s efforts to comply with international AML/CFT standards and strengthen its financial system against the risks of financial crime.

The implications of Greylisting

According to experts, South Africa is well-prepared for the potential implications of being Greylisted by the FATF. While there may be some short-term increases in costs and complexity, the country’s forecasts and preparations in the financial sector should provide some cushioning for consumers and businesses. However, if South Africa fails to successfully implement its exit plan, the long-term economic prospects of the country may be negatively affected. Despite this, many believe that the Greylisting will raise the standard of compliance in the country and have a limited impact on financial stability and the cost of doing business with South Africa. Overall, while there may be challenges, South Africa has the potential to successfully navigate this process and emerge stronger in its efforts to combat financial crime.

Here are some potential implications for South Africa:

1. Negative impact on the economy: Being Greylisted can make it harder for South Africa to attract foreign investment and access international financial markets. This could lead to a reduction in economic growth and job creation, which could further exacerbate the country’s already high unemployment rate.
2. Higher borrowing costs: Greylisting can lead to higher borrowing costs as investors demand higher yields to compensate for the increased risk. This could make it more expensive for the South African government and businesses to borrow money, which could further slow economic growth.
3. Damage to the country’s international reputation: Being Greylisted can damage South Africa’s international reputation, making it harder for the country to attract tourists and do business with other countries. It could also affect the country’s ability to participate in international organizations and initiatives.
4. Increased regulatory scrutiny: Greylisting can result in increased regulatory scrutiny and oversight from international organizations, such as the Financial Action Task Force (FATF). This could result in additional compliance costs for South African businesses and financial institutions.

Reduced access to financial services: Greylisting can lead to reduced access to international financial services, such as payment systems and correspondent banking relationships. This could make it harder for South African businesses to conduct international transactions and could also impact individuals who rely on remittances from abroad.