As anticipated, the Financial Action Task Force (FATF) has added South Africa to the list of jurisdictions under increased monitoring, the greylist, with immediate effect, following its annual meeting which concluded on 24 February 2023. Now that South Africa has been greylisted, the FATF will work with the country to address identified strategic deficiencies.
What does greylisting mean for South Africa and the local market?
We do not expect the greylisting to seriously impede foreign investment in South Africa. Private sector companies in our country are well regarded and have long-established financial links, which will continue to operate. Trade between South Africa and the rest of the world will continue, especially as the world needs our raw materials. Legitimate investment abroad by South Africans will continue. However, the news is expected to impact sentiment and business confidence, and there will be an adjustment period as individuals and entities digest the practical implications – which are discussed further below.
The key to reducing the adverse impact of greylisting is a convincing commitment by government to continue working with the FATF to address the issues that have been raised. The impact on the country will depend on how long we remain on the greylist, as the severity increases over time. Mauritius, by way of example, got off the greylist within 18 months by displaying the necessary commitment.
In its announcement, the FATF acknowledged the significant progress South Africa has made since the adoption of its Mutual Evaluation Report in June 2021. The FATF also provided an overview of its remedial action plan. It is encouraging that the FATF also recognised the high-level political commitment to strengthening the effectiveness of the country’s Anti-Money Laundering and Countering the Financing of Terrorism measures.
South Africa has committed to addressing the eight areas of strategic deficiency highlighted in the FATF’s greylisting announcement by no later than the end of January 2025.
What are the implications for investments on the Offshore Investment Platforms?
It is somewhat reassuring that the measures implemented by the financial services sector were not noted as part of the deficiencies which resulted in the greylisting. However, this does not mean that the sector will not be impacted. Following the FATF’s decision, international fund managers and their administrators will review their distribution practices in South Africa, based on their own internal risk-based approaches. This could result in additional due diligence requirements.
Approaches may vary, however, and some fund managers may require additional documentation from our clients.