Good news about South Africa exiting the greylist

South Africa is close to exiting the greylist, having completed all the actions required by the Financial Action Task Force (FATF). 

All that remains is an on-site assessment by the FATF to verify that the implementation of anti-money laundering and counter-terrorism financing measures is being sustained. 

Former Director-General of the National Treasury, Ismail Momoniat, explained that this should be a relatively quick process, with South Africa almost guaranteed to be removed from FATF’s greylist. 

“It is a great relief. I think we are almost out of the greylist and we just face a two-day on-site visit to verify the 22 action items,” Momoniat told BizNews. 

“It is a very quick scan, apparently and is not as hard as what we have had to do over the past two years to get to this point.” 

With these 22 action items being completed before the end of June, South Africa is likely to be removed from the greylist at FATF’s next plenary meeting in October. 

FATF said in a statement that South Africa has undertaken a range of key reforms, including demonstrating a sustained increase in investigations and prosecutions of serious financial crimes. 

The country has also updated its terror financing activities in line with its risk profile to comprehensively counter the financing of terrorism. 

These improvements to the country’s anti-money laundering and counter-terrorism financing regime are key parts of strengthening law enforcement and prosecuting institutions that were weakened during the era of state capture. 

“Improvements in these domains are critical not just for getting off the greylist, but for strengthening the fight against crime and corruption, and for contributing to the integrity of the South African financial system,” the National Treasury said. 

Over the past few months, South Africa has had to show a sustained increase in investigations and prosecutions of serious financial crimes to complete its last two action items. 

While headed by the National Treasury, this required vast improvements within the South African Police Service, the State Security Agency, and the National Prosecuting Authority. 

Not getting off lightly

While this is good news for the country, South Africa has remained on the greylist far longer than initially expected. 

After being placed on FATF’s greylist due to an inadequate anti-money laundering and counter-terrorism financing regime in February 2023, the National Treasury planned to be off the list by mid-2024. 

The problems reach back even further than that, with FATF already highlighting significant gaps in South Africa’s ability to investigate and prosecute money laundering, corruption, and terrorism financing in 2021. 

The regulatory body pointed to weak enforcement of existing laws and limited convictions in high-profile corruption cases, particularly those linked to state capture, as key concerns for South Africa.

Momoniat explained that during the initial mutual evaluation, FATF found South Africa to be deficient in over half of its legal framework recommendations.

“We were found to be deficient in 20 of the 40 recommendations, and so we have had to make major adjustments to our legislative framework,” Momoniat said. 

Alongside this, FATF looks at effectiveness, which focuses on implementation, and this has proven to be a significant challenge. 

“It won’t surprise you to know that implementation is always a challenge in our country, and we failed on all eleven measures.” 

All of this happened before South Africa was placed on the greylist, with FATF giving it one year to make changes to avoid being put on the list. 

This means that South African financial institutions have faced increased scrutiny from global counterparts for five years. 

In its latest economic survey of the country, the Organisation for Economic Co-operation and Development (OECD) warned that the longer South Africa stays on the list, the worse the impact will be on the local economy. 

The OECD warned that remaining on the grey list past October 2025 may pose a significant risk to financial stability, as it increases scrutiny of local financial institutions by foreign counterparts. 

This raises processing, monitoring, and reporting costs. However, the OECD noted that the impact on South Africa’s financial markets appears to have been limited so far. 

The organisation stated that South Africa must address all strategic deficiencies in its anti-money laundering and terrorist financing measures by June 2025, with the possibility of removal in October 2025. 

It said that the swift implementation of these action items will help maintain the attractiveness of investing in South African assets.