Government adamant that greylisting is not the end of the road

On 24 February, the Financial Action Task Force (FATF) greylisted South Africa over concerns in the country to battle against money laundering and terrorism financing.

This can have major implications for South Africa. It will become increasingly difficult for South Africa to get international loans, and any company that wants to invest in South Africa or do business with a South African company will look at the country – or possible South African business partners – with increased scrutiny.

This may seem like a major blow to South Africa, which it may well turn out to be; however, President Cyril Ramaphosa feels that we have a plan to cope with the decision taken by the task force.

Let us take a closer look at the decision as well as Ramaphosa’s sentiments that South Africa has a plan.

Greylisting

The EWN article points out that the FATF said it was keeping a watchful eye over the country.

It further noted that South Africa had made a high-level political commitment to work with the force.

The EWN article adds that the country had been under pressure to strengthen its financial controls – with fears over the illicit transfer of funds.

But the FATF has released a report from its second plenary – saying that South Africa has made significant progress on many of the recommended actions to improve its systems.

The EWN article points out that this includes developing national policies to address higher risks and newly amending the legal framework.

It also noted that South Africa will work to implement its action plan by – among others – assisting in investigations and the confiscation of different types of assets in line with its risk profile.

Godongwana weighs in on the Greylisting

The EWN article points out that Finance minister Enoch Godongwana said an action plan has been tabled before Cabinet to address the FATF’s concerns following its decision to greylist South Africa.

The country joins a long list of other countries under increased scrutiny by the global financial watchdog. These include Nigeria, Burkina Faso, the Democratic Republic of Congo (DRC), Syria, Turkiye and the Philippines.

The article adds that while Godongwana admits the country’s policies still need to be tightened up, he seems adamant measures will be put in place to deal with the illicit transfer of funds, money laundering and terrorist funding.

A mutual evaluation report compiled by the FATF in 2021 identified more than 60 deficiencies in South Africa’s laws to combat the illicit flow of funds.

The EWN article points out that in the latest assessment, the force made further calls for South African officials to address eight other deficiencies.

These include ensuring that competent authorities can apply sanctions to offenders, improving the country’s financial intelligence structures, as well as tightening search-and-seizure measures.

The article adds that while South Africa admits systemic shortcomings, Godongwana said he’s committed to addressing the loophole swiftly.

South Africa has until January 2025 to address the outstanding issues.

Godongwana believes the rating will have a limited impact on financial stability and the cost of doing business with South Africa.

SARB doubles down on policy

The EWN article points out that the South African Reserve Bank (Sarb) said it will double down on its no-nonsense policy against the abuse of the country’s financial systems.

The Sarb echoed Finance Minister Enoch Godongwana’s reassurance to the FATF that the country’s authorities are hard at work to deter financial crimes.

The central bank said that following intensive engagements with the FATF over the progress made by South Africa since the publication of its mutual evaluation report in October 2021, the country continued to move forward.

The article adds that South Africa has been addressing 67 recommended actions or deficiencies highlighted in the report.

Some of the work already done by Sarb’s Prudential Authority include improving the frequency of inspections in the sector.

But the FATF said the country still needs to make further and sustained progress in addressing eight other areas of strategic deficiencies.

The EWN article points out that the central bank has called on commercial banks and other financial institutions to fully comply with all their obligations to protect the integrity of the financial system.

This includes maintaining a high standard of supervision.

The central bank also said it will intensify its efforts to combat all financial crimes and ensure compliance with global standards.

Meanwhile, economist Jannie Rossouw told EWN that the government’s slow response to address the shortcomings in the legislation is to blame for the decision.

“To get South Africa greylisted is a negative development, it’s been expected for a while and the real sad part is we saw this coming and government did nothing that is the really concerning part. This has been rumoured about for months and the government just dragged its feet.”

We have a plan to combat the greylisting

Another EWN article points out that President Cyril Ramaphosa said that South Africa’s greylisting was less dire than some would suggest.

In his weekly newsletter, the president said that it was an opportunity for the country to strengthen the fight against financial crimes.

The article adds that President Ramaphosa said that he was aware that placing South Africa on the FATF’s list of nations facing increased monitoring had caused much concern about the state of the country’s financial institutions, law enforcement agencies and investment environment.

But while he recognised that the situation was concerning, Ramaphosa said that it was not that dire.

The EWN article points out that Ramaphosa said that the fundamentals were in place to address the issues raised by the FATF and government knew what it needed to do to get off the list.

South Africa has been party to the global anti-money laundering watchdog for 20 years as part of its commitment to combating criminal activity domestically and across the world.

The article adds that the president said that government was determined to do what it needed to get off the list as quickly as possible.

But what does this mean?

My four-year-old son is at that stage where, if you give him and instruction or tell him something, he asks: and what does that mean?

So, what does this greylisting mean for South Africa?

• It means that we now have the opportunity to deal with one of the unseen impacts of state capture, the controls that deal with money laundering. We put so much effort and focus into the Zondo Commission of Enquiry that we neglected to focus on this important governance aspect;
• It draws attention to what turnaround professionals have been saying for a long time.  There needs to be tighter governance controls in South Africa. This needs to start from Government and its controls to the governance of accounting practices in South Africa. Issues like Steinhoff should never have taken place. The greylisting is a perfect platform to address this serious issue; and
• South Africa is starting to open its doors for business. We are starting to see signs of policy being cleared to make way for the promises made by Ramaphosa last year that the private sector will need to play an increased role in driving economic development in the country. The privatisation of Transnet as well as the statement by Godongwana that Eskom will have to hand over some power stations to private operators is evidence of this. We need to resolve our greylisting issues so that we can attract top private investors into the country.

You say that you have a plan Mr President, lets see it in action.