South Africa greylisted by global anti-money laundering watchdog – Financial Action Task Force

South Africa has been placed on a global financial watchdog’s grey list, indicating shortcomings in tackling illicit financial flows. The decision was announced on Friday by the Financial Action Task Force (FATF).

South Africa and Nigeria were featured under the “high-risk and other monitored jurisdictions” section. Jurisdictions on this list have committed to resolving the identified strategic deficiencies within agreed timeframes.

The FATF is a global inter-governmental body that promotes policies and sets international standards relating to the combating of money laundering, terrorist financing, and the financing of the proliferation of weapons of mass destruction.

The greylisting of a country means that its government has adopted an action plan to address deficiencies identified during its mutual evaluation, with FATF monitoring implementation.

South Africa did poorly in its 2021 mutual evaluation, with too many weaknesses in its legal framework and being deemed to be inadequately compliant with 20 of FATF’s recommendations.

As a result, South Africa was put under a one-year observation period in October 2021. A January 2023 assessment found that South Africa had made significant and positive progress, reducing the 67 recommended actions to eight strategic deficiencies.

The most significant implication of a country being greylisted is reputational damage, as its effectiveness in combatting financial crimes like corruption and money laundering, as well as terror financing, are deemed to be below international standards.

The second and related implication arises from consequential action taken with regard to cross-border transactions, particularly possible action taken by foreign banks that provide correspondent banking services.

FATF does not require enhanced due diligence measures to be applied, but rather that all jurisdictions take account of it in their risk analysis.