What our FATF exit teaches us about effective reform - BLSA

The announcement last week that South Africa has successfully exited the Financial Action Task Force grey list is cause for genuine celebration. More importantly, it offers critical lessons about what works when we get serious about reform.

When grey listing was a serious risk already in 2022, BLSA commissioned research showing the economic impact could range from under 1% of GDP if we reacted fast and credibly, to 3% of GDP if we were slow and unwilling to meet FATF standards. We warned that the reputational damage would be significant, including enhanced due diligence requirements for all transactions between South Africans and the rest of the world, potential loss of foreign banking relationships, and reduced appetite for investment.

The good news is that we have managed to keep the impact to the bottom end of that estimate, thanks to our determined and credible effort over the last 32 months in which we have successfully addressed all 22 action items that were set out by FATF and earned our way off the list. This is no small feat, particularly given that several of these items required demonstrating sustained improvements over multiple reporting periods and genuine effectiveness, not just rules being changed but actually enforced.

The FATF exit demonstrates something we often forget in South Africa: when we combine political will, technical competence and sustained focus, we can deliver world-class results.

Several factors were critical to this success:

First, there was clear accountability. National Treasury chaired an interdepartmental committee that coordinated the process, reported regularly to cabinet, and maintained laser focus on the action plan. The FATF is a peer-based mechanism, so we knew who was going to judge us and how we needed to satisfy their requirements. There is a clear gameplan because other countries are affected if South Africa’s institutions are captured by money launderers and terrorist financiers.

Second, there was collaboration between the government and business. Banks and other accountable institutions worked closely with the committee, allocating resources to support the training of criminal investigators and other interventions. BLSA entered into a memorandum of understanding with the National Prosecuting Authority to provide private sector investigation and analysis skills. Through the Business Against Crime initiative, we channelled resources and expertise to support the criminal justice system. Overall, these collaborations helped improve state capacity.

Third, there was a sustained effort by law enforcement. The Directorate for Priority Crime Investigation (Hawks), State Security Agency and NPA demonstrated sustained increases in investigations and prosecutions of serious and complex money laundering and terror financing. This was the hardest part of the action plan, requiring not just policy changes but operational transformation.

Fourth was the technical excellence of regulators. The Financial Intelligence Centre, South African Reserve Bank, Financial Sector Conduct Authority, Companies and Intellectual Property Commission, and other agencies upgraded their systems, applied effective sanctions, and ensured timely access to beneficial ownership information. The technical work was demanding, but they delivered.

Fifth, there was transparency and regular reporting. The authorities provided regular updates, showing progress against each action item. This transparency built confidence both domestically and with FATF that we were serious about compliance.

We must be honest about why we found ourselves on the grey list in the first place. Grey listing was a consequence of the state capture era, which saw the deliberate undermining of commercial crime investigation and prosecution institutions. The FATF’s concerns were one element of the price we paid for that destruction.

The fact that we have now rebuilt these capabilities – and in some cases built them beyond where they were before – is a testament to the quality of leadership in key institutions. But it also shows what happens when we confront the consequences of state capture head-on rather than pretending they don’t exist.

As I wrote when we released our report on the risks of FATF grey listing in October 2022, we needed stringent anti-money laundering rules and supervision anyway. The FATF process provided impetus to get our commercial crime-fighting system up to scratch. These reforms strengthen our financial system, improve business confidence and contribute to the integrity of South Africa’s economy.

Now we must apply the lessons elsewhere. The FATF exit offers a template for how we should approach other critical reforms. We must have clear, measurable targets, no moving goalposts, and the test of success must be about effectiveness. There must be proper accountability and transparent reporting on progress. Regular updates maintain pressure and built confidence. Sunlight is the best disinfectant – and the best motivator.

We must enable collaboration between partners with common interests. In the FATF example, government welcomed business support rather than viewing it as interference. Partnership accelerates delivery. There also has to be sustained political commitment. Multiple FATF assessments confirmed that South Africa’s political leadership remained committed to implementation. This consistency mattered enormously.

Finally, don’t just fix policies – fix operations. The action items required demonstrating sustained operational improvements, not just passing new laws. We delivered on implementation, not just plans.

These principles should guide our approach to energy sector reform, logistics transformation, water infrastructure and other critical areas where structural change is needed.

More broadly, this success should give us confidence. We’ve proven that we can achieve important policy reforms that make a real difference. We’ve proven it with FATF compliance. We’ve proven it by ending load shedding. We can prove it again in other domains.

The question is not whether we have the capability to reform – this week’s announcement confirms that we do. The question is whether we will apply the same discipline, urgency and collaborative approach to other pressing challenges.

I am confident we can. The FATF exit shows the way forward. Now we need to replicate this success across the economy.

The international community has taken note of what we’ve achieved. Large foreign investors still see us as the strongest economy in Africa. Our financial system is trusted to handle foreign investor exposures. This week’s announcement strengthens that foundation.

But reputation is built on consistent delivery. The FATF exit must be followed by continued progress on economic reforms, infrastructure investment and improved state capacity. Business stands ready to play its part in this national effort, just as we did in supporting the path to FATF compliance.

When we work together with clear objectives and sustained commitment, South Africa can deliver. This week proved it once again.

Busiswe Mavuso is the chief executive of Business Leadership South Africa.

*** The views expressed here do not necessarily represent those of Independent Media or IOL.

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