South Africa was greylisted due to endemic corruption

South Africa was greylisted due to endemic corruption and the impact of greylisting on the country’s financial system makes it clear why government should get its act together to end it as soon as possible.

The Financial Action Task Force (FATF) greylisted South Africa in February, due to its failure to comply with FATF standards and measures to combat illicit financial flows, terrorist funding and potential threats to the integrity of the global financial system.

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“This step is the consequence of the endemic corruption, generally referred to as ‘state capture’, which has long prevailed in the country,” Bianca Botes, director at Citadel Global and Theunis Ehlers, director of Citadel Fiduciary, say as they consider the impact of this move.

“While this will not immediately affect the current credit ratings that are already low, failure to meet the deadlines set by the FATF may induce ratings agencies to downgrade the country even further,” Botes warns.

Greylisting means more scrutiny for SA

Greylisting subjects the financial services sector to increased scrutiny and stricter regulations to ensure that it addresses the deficiencies in its anti-money laundering and counterterrorism financing systems. It serves as an early indication that the country’s financial system is at risk of misuse for illegal purposes.

The logical consequence is detrimental to South Africa’s international reputation as it is seen as a high-risk jurisdiction for financial transactions, making countries hesitant to engage in financial and law enforcement cooperation.

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“There are even more far-reaching repercussions than the country’s reputation. South Africa is now required to develop and implement an effective action plan to eliminate the weaknesses in the financial services sector,” Botes said.

“SA must upgrade its anti-money laundering and counterterrorism laws and regulations, implement improved supervision of financial institutions and enhance the country’s ability to investigate and prosecute money laundering and terrorism cases. If SA fails to achieve this within the FATF’s timeframe by the end of January 2025 it will have serious economic knock-on effects.”

Investor confidence

The greylisting also has a negative impact on investor confidence.

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“Foreign investors and financial institutions will be hesitant to conduct business with SA and this will mean reduced foreign direct investment and potential capital outflows.

“South Africa’s access to international financial networks could be restricted, posing challenges to local banks conducting cross-border transactions, which in turn will negatively affect trade and economic activities,” she says.