South Africa on a deadline

South Africa has until June 2025 to prove to the Financial Action Task Force (FATF) that it has addressed the 22 action items in its Action Plan to be removed from the institution’s greylist. 

Following the latest reporting period, South Africa is now deemed to have addressed or largely addressed 20 of the 22 action items. 

If the final two actions are addressed in the current reporting period from March 2025 to June 2025, the country could be removed from the greylist by October 2025. 

South Africa was added to the FATF’s greylist on February 24, 2023, due to shortcomings in its anti-money laundering (AML) and combating the financing of terrorism (CFT) measures.

In its latest update, the FATF said that South Africa has made a high-level political commitment to aligning its practices with global requirements since February 2023. 

South Africa has taken steps towards improving its AML/CFT regime, including implementing and updating its supervisory risk assessment tools. 

The country has also enhanced the capacity of relevant authorities, particularly SARS and the Financial Sector Conduct Authority (FSCA). 

SARS has made significant changes to its process of clearing funds transfers outside the country. This has implications for high-net-worth individuals and businesses. 

South African tax residents can still take up to R1 million out of the country, no questions asked. However, any amount above that must go through SARS’ new Approval of International Transfer clearance process. 

This process is much more thorough and stringent than its predecessor, with applicants required to provide more information and additional documentation. 

In effect, getting money into and out of South Africa is much more difficult.

Despite these efforts, FATF said that South Africa should continue to work on implementing its Action Plan, with a specific focus on six areas –

1. Demonstrating a sustained increase in outbound mutual legal assistance requests to adi investigations.
2. Demonstrating that all AML/CFT supervisors apply effective sanctions for non-compliance.
3. Ensuring that competent authorities have timely access to accurate information.
4. Demonstrated a sustained increase in investigations and prosecutions of money laundering. 
5. Enhance its identification, seizer, and confiscation of proceeds of financial crime.
6. Ensuring the effective implementation of targeted financial sanctions.

The National Treasury said that FATF’s extension of the reporting cycle for South Africa relates to the action items for prosecutions for serious and complex money laundering and terror financing. 

It explained that the extension reflects the fact that these are the most demanding goals of every country’s systems. 

The impact of greylisting

The impact of greylisting has been heavily debated in South Africa, with many saying that it has no effect on local companies or institutions. 

This is mainly due to South Africa already having a relatively high-risk premium, with the country’s addition to the greylist not doing much to move the needle. 

In effect, foreign companies and institutions were already applying additional due diligence to financial flows into and out of South Africa before it was put on the greylist. 

However, some CEOs and members of the National Treasury have outlined the impact of greylisting on the country’s financial institutions. 

In late 2023, Treasury director-general Duncan Pieterse said the country’s greylisting had increased the cost of its debt and its risk premium. 

However, Pieterse said much of the impact of the greylisting had already been priced into local assets before the FATF’s decision in February. 

South Africa’s increased risk premium has also been exacerbated by the government’s widening fiscal deficit and growing debt burden.

While Standard Bank CEO Sim Tshabalala said being on the greylist would not directly impact the bank’s business, he explained that it is part of South Africa’s death by 1,000 cuts. 

Tshabalala said the negative impact of South Africa’s repeated missteps is adding up and will make it more difficult for the country to grow.

Greylisting makes it more challenging to conduct correspondent banking with global partners, as “we are getting more and more questions,” Tshabalala said. 

Regular trade transactions have become more complex as partner banks require more forms and paperwork. This makes these transactions less efficient and more expensive for Standard Bank. 

Correspondent banks are forced to ask more questions of South African banks and companies performing international transactions as regulation pushes them to gather more information now that South Africa is on the FATF’s greylist. 

Issues such as greylisting “are a death by 1,000 cuts – they all add up”, Tshabalala said.