South Africa has been grey listed by the Financial Action Task Force (FATF), which experts say is a devastating development that will further harm South Africa’s ailing economy, and compound the unemployment crisis.

The global anti-money laundering watchdog sets global standards to combat money laundering and terrorist financing.

The FATF made its decision at the FATF Plenary meeting which took place in Paris, France earlier today, 24 February 2023.

The decision was not entirely unexpected. Delivering the Budget in Parliament on Wednesday, Finance Minister Enoch Godongwana said SA should be “prepared for the possibility” of grey listing.

Commentators believe the move comes as the General Laws Amendment Bill on Anti-Money Laundering and Combatting Terrorism Financing was introduced too late, and the reforms recommended by the FATF report were not implemented with sufficient urgency.

Due to South Africa’s grey listing, South African businesses will face even more barriers to growth as the cost of doing business internationally is set to increase. Analysts estimate  South Africa’s economic growth may slow down by an additional 1-3% per year.

In a statement, government said it noted the FATF’s decision to list South Africa as a “jurisdiction under increased monitoring”.

Treasury says following intensive engagements with the FATF in 2021, they informed the South African Government that it recognized the significant and positive progress made by the country in addressing 67 recommended actions or deficiencies.

It also assessed that the country needed to make further and sustained progress in addressing the eight (8) areas of strategic deficiencies related to the effective implementation of South Africa’s Anti-Money Laundering/Combating the Financing of Terrorism (AML/CFT) laws as set out in the FATF’s statement.

These action items requiring attention by South Africa were adopted by the FATF Plenary on 24 February 2023, and the country is expected to address these deficiencies by no later than the end of January 2025.

The 8 areas of strategic deficiencies identified by the FATF require South Africa to:

1. Demonstrate a sustained increase in outbound Mutual Legal Assistance requests that help facilitate money laundering/terrorism financing (ML/TF) investigations and
   confiscations of different types of assets in line with its risk profile;
2. Improve risk-based supervision of Designated Non-Financial Businesses and Professions (DNFBPs) and demonstrating that all AML/CFT supervisors apply effective, proportionate, and effective sanctions for noncompliance;
3. Ensure that competent authorities have timely access to accurate and up-to-date Beneficial Ownership (BO) information on legal persons and arrangements and applying sanctions for breaches of violation by legal persons to BO obligations;
4. Demonstrate a sustained increase in law enforcement agencies’ requests for financial intelligence from the Financial Intelligence Centre for its ML/TF investigations;
5. Demonstrate a sustained increase in investigations and prosecutions of serious and complex money laundering and the full range of TF activities in line with its risk profile;
6. Enhance its identification, seizure and confiscation of proceeds and instrumentalities of a wider range of predicate crimes, in line with its risk profile;
7. Update its TF Risk Assessment to inform the implementation of a comprehensive national counter financing of terrorism strategy;
8. Ensure the effective implementation of targeted financial sanctions and demonstrating an effective mechanism to identify individuals and entities that meet the criteria for domestic designation.

The Minister of Finance has informed the FATF President, Mr Raja Kumar, that the South African Cabinet has considered the Action Plan and committed to actively work hard to swiftly and effectively address all outstanding deficiencies and strengthen the effectiveness of its AML/CFT regime.

Godongwana says government recognises that addressing the action items will be in the interest of South Africa, and to rebuild the institutions that were weakened during the period of state capture.