South Africa Greylisted by Global Anti-Money Laundering Watchdog

The Financial Action Task Force (FATF), a global anti-money laundering watchdog, has officially ‘greylisted’ South Africa due to the country’s inability to adequately mitigate against illicit, irregular, and illegal financial flows. The FATF has taken the stance to categorize South Africa as a ‘jurisdiction under increased monitoring,’ with the nation seen as having insufficient and inadequate measures to prevent potential money laundering and terror-financing activities.

Following the FATF’s decision to ‘greylist’ South Africa, Dawie Roodt, chief economist and director at Efficient Group, expressed his view that the financial industry will be affected directly. Moreover, Roodt believes South Africa is at significant risk of being downgraded by credit agencies, having identified that “countries that end up on the FATF greylist also ended up being downgraded.” However, much to the relief of many South Africans, this is not expected to harm the country’s economic well-being significantly.

With 2022 predominantly marked with persistently high inflation and ongoing rate hikes, most local banking shares performed relatively well amidst the increasing interest-rate environment. However, the FATF’s recent decision to place South Africa under increased monitoring did no favours for local banks, who saw their share prices drop following the announcement. ABSA (JSE: ABG), Capitec (JSE: CPI), FirstRand (JSE: FSR), Nedbank (JSE: NED), and Standard Bank (JSE: SBK) all saw their share prices fall by more than 2% on Friday while the Rand slipped by more than 1% against the U.S. Dollar to reach its weakest level since November 2022.

National Treasury expects a limited impact on the country’s financial stability, expressing its view that “the costs of increased monitoring will be [substantially] lower than the long-term costs of allowing the economy to be [further] contaminated by the proceeds of [financial] crime and corruption.” Prospectively, South Africa needs to make further and sustained progress in rectifying strategic deficiencies related to preventing anti-money laundering activities. Treasury stated that the country is expected to address these deficiencies within its regime by the end of January 2025. Despite recent progress in preventing financial crime and strengthening its policies to curb money laundering activities, the FATF and South Africa have acknowledged that “further improvements” are indeed necessary.

While being added to the FATF’s ‘greylist’ can be seen as a “reputational knock for the South African economy,” it is not all doom and gloom for the rainbow nation. The FSCA recently expressed their stance to “remain more committed than ever in supervisory efforts to combat money laundering and terrorist financing.” At the same time, the Reserve Bank has committed to strengthening supervision and enhancing policies to “dissuade criminals who aim to misuse South Africa’s financial system for nefarious purposes.”

Sources: Bloomberg, Businesstech, Moneyweb, IOL, Trading View 

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