Financial greylist threat: Here’s how it will affect the man on the street

The South African government has been doing all it can to avoid being greylisted by the global money laundering and terrorist financing watchdog the Financial Action Task Force (FATF), but it seems as if their efforts might just be in vain.

Intellidex research predicts that if things remained as they are, there is an 85% chance of the greylisting materialising, despite government’s last-ditch scramble to avoid it.

Last week, National Treasury made one last call to organisations and members of the public for submissions to Parliament’s Standing Committee on Finance (SCOF) on the General Laws (Anti-Money Laundering and Combatting Terrorism Financing) Amendment Bill.

But it seems as if Treasury might have arrived a little late to the party, with the SCOF coming down on them for late submissions.

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The country will meet with the International Financial Action Task Force soon where it will report back on progress made according to its recommendations.  

What is greylisting and who controls this list?

The Financial Action Task Force (FATF) is an intergovernmental organisation that develops policies to combat money laundering. After the September 11 terror attacks, the FATF’s mandate was expanded to include terrorism financing. 

According to Future Growth Asset Management, the FATF maintains two lists: namely, a black and a grey list. Countries on the black list face sanctions by financial institutions on the basis that they are considered havens for money laundering and terrorism financing.

Currently, only Iran and North Korea are on the black list. Countries are typically put on the grey list if serious deficiencies are found in their anti-money laundering and terrorism financing policies and systems.

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At present, there are 23 countries on the FATF’s grey list, and if South Africa is greylisted, it will join the likes of Uganda and Yemen.

What will happen to SA if it is grey-listed?

Basically, being greylisted is like receiving a bad credit rating as a country – only worse.

It’s like a pending criminal record dangling over our heads.  

According to Nedbank, the possible greylisting of South Africa by FATF would cause material reputational damage to South Africa’s financial system, hamper investment and international financial transactions in the country.

All of which the country can ill-afford as this could lead to a further downgrade of the country’s credit ratings, which are already at a non-investment grade.

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What does it mean for the ordinary South African?

According to Busisiwe Mavuso – CEO for Business Leaders South Africa – if South Africa is greylisted, this will also eventually filter down to adversely affect the ordinary South African.

In an interview with Moneyweb, she said: “It means that the job crisis that we’re trying to address as a country could actually be dealt a severe blow. It means you are less attractive.

“It means that the funding, even from domestic companies – if you’re looking at the fact that the JSE is about 60% foreign-owned, your BMWs, whatever companies are operating here in South Africa that are actually headquartered somewhere else – have to actually get permission from their headquarters in Germany or Switzerland, or whatever the case is, to continue investing in South Africa.”

“And if Germany and Switzerland and whatever [country] say: it’s going to be too difficult, you guys are greylisted now and it increases our compliance. Increased compliance means that we need to part with more money as business. We don’t want the red tape. We don’t want to be seen to be operating in a country that is a high risk,” she explained, adding that one does not know what decisions existing companies are going to have to make, due to the pressures that they might be getting from their principals.

ALSO READ: National Treasury amends laws as parts of FATF recommendations to prevent greylisting

Nedbank said that banks’ ability to conduct cross-border transactions will also be restricted, hampering imports and exports, which could lead to a decline in SA’s gross domestic product, and higher costs for clients as compliance and due diligence costs will increase.

However, the bank advised that clients in good standing and banks will not be shut out of international markets.

All the increased costs of doing business will, however, filter down through various supply and value chains, further increasing the cost of living, hiking inflation, and possibly also interest rates.

How can the country mitigate this?

Banking systems need to work in the recommendations put forward to avoid being greylisted.

The FATF suggested that all regulatory authorities should subject beneficial owners to fit and proper assessments. All regulatory authorities should also verify that directors, senior management and beneficial owners or their associates are not criminals.

The FATF also recommended that all regulatory authorities should do better in prioritising and scoping on-site supervision based on money laundering or terrorist financing risks, which could be informed by offsite monitoring and findings from previous inspections.

What has been done so far?

So far, Treasury has proposed the amendment to seven standing laws.

These include:

• The Trust Property Control Act, 1988
• The Nonprofit Organisations Act, 1997
• The Financial Intelligence Centre Act, 2001
• The Companies Act, 2008
• The Financial Sector Regulation Act, 2017

There was also the General Laws (Anti-Money Laundering and Combating Terrorism Financing) Amendment Bill and the Protection of Constitutional Democracy Against Terrorist and Related Activities Amendment Bill.

Government has also been in consultations with the financial sector to address shortcomings related to the areas of concerns including terror financing and money laundering.

NOW READ: Government must pull up its socks if we wish to remain off the greylist

Meanwhile, Nedbank – after it was fined R35 million by the South African Reserve Bank for its failure to report cash transactions of significant amounts, amongst after administrative shortcomings, just two months ago – has since pulled up its socks and worked to address the mishap.

The bank has since reported that it now has a comprehensive risk management and compliance programme in place, which is in line with international standards and which they continue to significantly invest in and continuously enhance to combat money laundering and terrorist financing.

“This is a highly complex, high-volume environment and while we, and other banks, are likely to make some administrative errors from time to time, that require remediation and attract regulatory scrutiny and so a risk of penalties.

“We are confident that our risk management and controls to combat actual money laundering and terrorist financing are robust. We also continue to strongly support the remediation efforts to prevent South Africa from being greylisted by FATF,” the bank said in a statement.