Paris-based FATF said the two countries were added to its list following a review. Photographer: Waldo Swiegers/Bloomberg
International financial crime watchdog the Financial Action Task Force (FATF) on Friday said it was adding South Africa and Nigeria to its so-called "grey list" of countries under special scrutiny to implement standards to prevent money laundering and terrorism financing.
The FATF is an inter-governmental organisation that underpins the fight against money laundering and terrorism financing by setting global standards and checking if countries respect them.
Paris-based FATF said the two countries were added to its list following a review.
Being added to the grey list is a reputational knock for the South African government, which has been trying to address shortcomings identified by the FATF.
Analysts say it could also mean South African clients at international financial institutions will be subject to enhanced due diligence checks. It could also complicate South African attempts to access funding and support from multilateral development institutions and official lenders.
Momentum Investments economist Sanisha Packirisamy, told Business Report that when the global FATF places a jurisdiction under increased monitoring (ie the grey list), it means that the country is actively working with the FATF to address apparent strategic deficiencies in its regimes designed to tackle financial crimes.
“In our view, much of the responsibility for the weakening of South Africa’s (SA) criminal justice system lies with the previous administration’s subversion of democracy. During this period, the capacity of SA’s tax authority, intelligence agencies and crime-fighting and law enforcement bodies were incapacitated. SA was given until November 2022 to prove it is remedying the country’s structural deficiencies when it comes to anti-money laundering and countering the financing of terrorism,” she said.
“Global empirical studies show mixed results on the impact of a greylisting event on a country’s capital flows, being greylisted could further impair the economy’s links to the global financial system, raise SA’s cost of capital and create an additional disincentive for offshore companies to deal with SA,”Packirisamy further added.
“Nevertheless, with global themes likely to be a larger determinant of the outcome for SA financial markets, local idiosyncrasies, such as a greylisting event, may be overshadowed by high and sticky global inflation, tighter global financial conditions and a rising risk of recession in key markets,” she further said.
Hayley Parry, Money Coach and Facilitator at 1LIfe’s Truth About Money also spoke to Business Report ahead of the decision by the FATF and discussed the potential impact the greylisting could have on South Africa.
Listen to Parry talk about the matter below:
Reuters / Additional reporting by Ashley Lechman