On 24 February 2023, the Financial Action Task Force (FATF) announced that South Africa has been placed on the FATF grey list. After being under review since October 2021, the FATF found that South Africa fell short, with 8 components not complying with the requirements, these findings forced the hand of the FATF to grey list South Africa.
What is greylisting?
When a country is placed on the FATF grey list, it means that it has deficiencies in its Anti-Money Laundering (AML) and counter-terrorism financing regime and that it is considered a risk to the international financial system. This designation is not as severe as being placed on the FATF "blacklist," but it still carries significant consequences.
What are the consequences of being placed on the FATF grey list?
One of the most significant consequences of being placed on the FATF grey list is that it makes it more difficult for a country to access international finance. This is because banks and other financial institutions are hesitant to do business with countries that are on the FATF grey list. Financial institutions that do business with grey listed countries may face increased regulatory scrutiny, which can lead to fines and other penalties.
How long will this situation last?
On average, grey listing ends after 3 years of efforts by a listed country to fix the issues. There are positive exceptions e.g. Mauritius was listed in February 2020 for similar reasons and was off the list by October 2021. South Africa has to be delisted by the end of January 2025 and there is always the possibility this might happen sooner.
How does this affect South African Investors?
Investors are still able to invest offshore and for those investors who are already invested offshore, we expect no significant changes. NFB’s offshore funds and institutions that we use are highly compliant and are in jurisdictions with already stringent measures.
That being said, we are expecting that South African investors who are looking to invest offshore will be subject to greater administration processes. This means investors will have to provide more information about the source of the funds as well as having to go through greater measures to prove the identity of the investor. We foresee the process of FICA AML to be done more frequently than what was done in the past.
The increased scrutiny will require more effort and potentially lengthen the process of offshore investing. This will most likely lead to an increase in the cost for South African investors.
At NFB we will assist our investors in this additional administration process and engage with the intuitions to minimise any disruptions and the impact on our clients. The impact on South Africa being grey listed is still unknown, once we have a better view of changes in regulations and processes, we will be sure to keep you updated.