FATF grey listing will hurt all of us

If by now you do not know that South Africa faces a potential grey listing by the Financial Action Task
Force (“FATF”) you need to explore this topic with great urgency, because in some other way, it will
affect you. The grey listing of South Africa will have dire consequences for all in South Africa. From
the big corporates to the street vendor. From the richest to the poorest.

Upon grey listing South African business will be subjected to a higher level of due diligence
performed by a counterpart anywhere else in the world. Businesses doing business with their
counter parts in the UK and the European Union, will face higher prices and higher compliance costs.
International banks will add another layer of bureaucracy to engagements with South Africans. It will
become more expensive to do business elsewhere in the world. Lending and borrowing will become
more expensive. All of this will end up hurting the consumer more. International aid funders such as
the World Bank and EU will apply additional restrictions on support to South Africans. FATF
compliance is usually a requirement for funding from the International Monetary Fund (“IMF”).
Simply put, it will not be as easy to borrow money, and the money we borrow, will become quite
expensive.

Currently the estimated dent in our economy if grey listed stands at anything between 1% and 3% of
our GDP. This might not seem much, but for a country that is living on borrowed money, with
extremely low economy growth, with a growing unemployment rate, a 1% and 3% further decline in
economy activity will render us helpless. The gravity of the effect depends largely on the amount of
time spent on the grey list. The shortest time spent can range from 18 to 24 months, whilst longer
periods of 5 years can be expected if no real effort is made to get off the grey list.

The FATF released their report in 2021 and placed South Africa on notice that there are certain
recommendations (20 of 40) that South Africa is not compliant with or partially compliant. The
government has been given till end of October 2022 to put in place a clear and concise plan on how
the government intend to rectify this and prevent us from being grey listed. The FATF’s main
concern was the prevention of money laundering and the prosecution of those that participate in
money laundering. It is needed to say that little is wrong with our current laws relevant to money
laundering, but certain amendments could be made to some legislation, which has now been put in
process. The main culprit is the government’s lackadaisical attitude towards the prosecution of these
crimes, and the reasons for this is legio. From a lack of resources to internal corruption and bribery.
One thing is for certain, being grey listed will hurt all of us on all levels.

Our government have proposed amendments to various legislation to prevent grey listing, however
these amendments, although excellent amendments, seem a bit overzealous and might not have the
intended effect the government wants it to have. Some of the amendments will place severe and
unnecessary financial strain on entities such as trusts and NPCs, who will need to undergo enormous
administrative changes to be compliant with legislation, should these amendments come through.
Until such time we hold our breath until February 2023 when we will hear from the FATF if the plan
put froward by the government is sufficient to prevent grey listing, at least for now.

Drafted and compiled by Johann Hattingh – Corporate Governance and Compliance Advisor, Stratlaw
(Pty) Ltd – Strategic Legal Advisors.