Here’s how ANC government dropped the ball with greylisting

The ANC government dropped the ball to prevent the greylisting of South Africa, although government is pointing to the substantial efforts of all stakeholders to prevent this.

This will probably result in an even greater loss of confidence in the country’s financial system along with our dismal sovereign credit status and weak prospects for economic growth.

Economic research group, Oxford Economics Africa, lays the greylisting at the door of the ANC that failed to address a list of priority areas to avoid greylisting.

The Financial Action Task Force (FATF) announced on Friday that South Africa has been identified as a jurisdiction requiring increased monitoring or in other words, the country was greylisted.

This means that the country is considered to have weak measures to combat money laundering and terrorist financing.

The FATF is an inter-governmental body that sets anti-money laundering standards and when it places a jurisdiction under increased monitoring, it means that a country has agreed to resolve its identified deficiencies within a specific time frame and is subject to increased monitoring during this period.

Nigeria was also put on the greylist, while Morocco was removed. South Africa is the second G20 nation after Turkey to be greylisted.

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Failure to address list of priority areas

Oxford Economics Africa says despite government’s urgency late last year, it failed to address a list of priority areas needed to avoid greylisting.

“We were doubtful that government’s efforts would be successful given its delayed reaction, ahead of the parliamentary recess, together with last year’s distracting and chaotic ANC national conference.”

Finance minister, Enoch Godongwana, hinted at this in his budget speech and financial institutions probably sensed the imminence of greylisting and prepared for it.

Oxford Economics Africa says the country’s largest banks’ risk management frameworks should allow them to navigate this new environment as these institutions currently operate in African countries that were greylisted in the past.

“Corruption flourished under the ANC’s rule and state capture become entrenched in South Africa. Confronted with damaging power outages, the country’s inclusion on the FATF’s greylist means foreign investors will likely view South Africa as a less attractive investment destination and make conducting financial transactions more difficult, while accessing international financing will likely become more onerous and expensive.”

ALSO READ: ANC blames state capture for SA’s greylisting, says steps being taken to solve problem

What greylisting means for South Africa

The Bureau for Economic Research (BER) at Stellenbosch University says although the FATF was at pains to state that inclusion on the so-called greylist ‘does not call for the application of enhanced due diligence measures to be applied to these jurisdictions’, practically speaking, this may well be the implication.

“If so, it will add to the compliance or transaction costs for local companies, including banks looking to source offshore funding. Although the FATF issued no preventive measures against the financial sector, the decision should have a limited impact on financial stability and the cost of doing business here, as well as dent investor risk perceptions towards SA.”

South Africa must now take certain steps to be removed from the greylist, such as a sustained increase in law enforcement agencies’ requests for financial intelligence from the Financial Intelligence Centre for its ML/TF investigations and a sustained increase in investigations and prosecutions of serious and complex money laundering activities.

The country must also enhance its identification, seizure and confiscation of proceeds and instrumentalities of a wider range of crimes and ensure the effective implementation of targeted financial sanctions and demonstrate an effective mechanism to identify individuals and entities that meet the sanctions criteria by the end of January 2025.

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Reserve Bank to strengthen supervision

The South African Reserve Bank (Sarb) said in a statement that it will further strengthen its supervision and further enhance the dissuasiveness and proportionality of administrative sanctions issued.

“The Sarb has a zero-tolerance approach for abuse of the financial system by money launderers or terrorist financiers and reaffirms its strong commitment to disrupt money laundering, the financing of terrorism and proliferation through the enhancement of its supervisory activities.

“We expect banks and other financial institutions within our purview to comply fully with all their obligations and apply a high standard of supervision that is necessary to safeguard and protect the integrity of the financial system.”

The Sarb echoes the sentiment of the FATF, which stated unequivocally that it “does not call for the application of enhanced due diligence measures to be applied to these jurisdictions. The FATF Standards do not envisage de-risking or cutting off entire classes of customers but call for the application of a risk-based approach”.

ALSO READ: SA preventing greylisting through two legislative amendments

Government committed to actively work with FATF

According to a statement from National Treasury, the FATF informed government that it recognised the significant and positive progress made by the country in addressing the 67 recommended actions or deficiencies highlighted and that the FATF assessed that the country needed to make further and sustained progress in addressing the eight areas of strategic deficiencies related to the effective implementation of Anti-Money Laundering and Combating the Financing of Terrorism laws.

The minister of finance informed the FATF President, Raja Kumar, that Cabinet considered the Action Plan and committed to actively work with the FATF and ESAAMLG to swiftly and effectively address all outstanding deficiencies and strengthen the effectiveness of its regime.

National Treasury says government already demonstrated its commitment to implement the recommended actions, including the speedy enactment of two major pieces of legislation which in turn amended six acts of parliament, the General Laws (Anti-Money Laundering and the Combating the Financing of Terrorism) Amendment Act and the Protection of Constitutional Democracy Against Terrorism and Related Activities Amendment Act to address some of the technical deficiencies identified in the Mutual Evaluation Report.