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50 Shades of Greylisting – How badly is South Africa screwed?

50 Shades of Greylisting

50 Shades of Greylisting – How badly is South Africa screwed?

Doing business in South Africa has always been a bit of an extreme sport, but in the light of our recent greylisting by the FATF, things might just have become even more hazardous.

The chickens of corruption, it would seem, have come home to roost.

As Jaco Visser writes in Business Live, “The hits just keep on coming, with the South African government having kneecapped its business sector and its citizens yet again. First, it was the government’s bungling over electricity, and complicity in the criminal deconstruction of Eskom. Now, by sitting on its hands when it comes to economic crime, its huge gamble with the country’s financial system has backfired.”

But perhaps, before we take a look at the implications of greylisting on our businesses and financial sector, let’s take a step back and unpack what this latest nail in the coffin of our economy actually means.

What is greylisting?

Greylisting is the recognition by the Financial Action Task Force (FATF) that a country has not fully complied with international standards around the prevention of money laundering, terrorist financing and proliferation financing.

The “not fully” there is significant, as greylisting (as opposed to blacklisting) means that although there are compliance issues, there is also a commitment to address the shortcomings within a specific time frame.

In South Africa’s case, the next mutual evaluation report will be discussed at the FATF’s Plenary meeting in October 2025, and it’s expected that we’ll be evaluated again in the fifth round during 2027/28.

In simple language, it’s undeniably a decision that puts us squarely in the international dog box, where we’re now cosied up with such countries as the DRC, Burkina Faso, Syria, South Sudan and Haiti, among others.

Not, perhaps, the most esteemed company to be in.

Why were we greylisted?

It’s important to note that although no country is fully compliant with all 40 of the FATF’s recommendations, South Africa performed particularly poorly in its 2021 mutual evaluation. This was conducted two years previously, in 2019, when we were struggling with the immediate aftereffects of state capture. As a result, we were deemed to have too many weaknesses in our legal framework and were found to fall short of no fewer than half of the recommendations.

We were given a year’s observation period in which to address the shortcomings. Despite significant progress, which resulted in 12 of the 20 issues being attended to, the sheer scale of the problem was too big to completely rectify in a short amount of time.

Even though South Africa has previously received much praise internationally for the sophistication of our financial and banking systems, it wasn’t enough, and we weren’t able to mitigate the extent of the damage caused by State Capture.

Sadly, it has now become all too easy to move dirty money through our financial system.

“The big issue is that we are so naïve,” says Ismail Momoniat, acting director-general at National Treasury. “We are suckers almost when it comes to dealing with highly organised criminal syndicates. When you look at State Capture and the Guptas, I think there were many red flags.”

Why then, did it take so long for the banks to close the Gupta accounts?

“The banks may say they were filing reports highlighting suspicious transactions, but what were the authorities doing?” asks Momoniat. “I think that’s where the big weakness was. If banks were acting, and did file suspicious transaction records, the authorities looked the other way.”

What impact will greylisting have on us?

This is, perhaps, the most divisive question.

As a greylisted country, South Africa will now be closely monitored by the FATF. Potentially, we face some serious problems, such as a ratings downgrade, reduced international trading opportunities, and a shrinking of our economy.

Being greylisted also damages our international reputation and can make it extremely for anyone operating financial accounts overseas, or whose business is dependent on foreign financial services providers.

Let’s face it, South Africa’s attractiveness as an investment destination is already compromised by issues such as:

  • Crumbling infrastructure

  • High tax rates

  • Unstable electricity supply

  • Corruption and

  • Strict exchange controls

Being greylisted is only going to add to this list of woes.

Stats from the IMF showed that greylisting negatively impacts a country’s capital flows and can affect GDP by as much as 7%.

In addition, it will likely become harder and more costly for South African companies to trade internationally because of the FATF’S recommendation that other countries apply rigorous due diligence before dealing with those on the grey list. This is a significant disincentive for them.

Other issues are likely to be:

  • Reduced access to international trade and financial systems.

  • Increased cost of capital.

  • Potential economic sanctions from the IMF and World Bank

  • International boycotts

  • Less direct foreign investment

  • Weakening of the Rand

  • Increase in inflation and interest rates

In the light of all this then, it’s somewhat puzzling when some financial experts say that greylisting on its own doesn’t presents a significant threat to the stability of the South African economy.

“Other factors, such as the low growth forecast and energy crisis, make the timing of the greylisting unfortunate,” says Thulani Kunene, Group Head of Compliance, Investec.

Investec Bank CEO Richard Wainwright agrees.

“I think in the short term the consequences will not be that bad and will be relatively immaterial,” he says. “The impact will really be felt if we don’t get off this list by 2025.”

And yet, we’re not due for a review until 2027 or even later.

So, although many may feel that South Africa is actually quite well prepared for greylisting and should be cushioned against many effects in the immediate term, unless we manage to get off the list sooner rather than later, we face significant long-term damage to our economic prospects.

What can South African companies do to mitigate this impact?

If you’re a private company in South Africa, your response largely depends on your plans for capital raising, strategic expansions or any other increase in the cost of doing business.

Those companies operating as financial intermediaries across jurisdictions may need to undergo an independent risk assessment to reassure their counterparties that despite what’s happening in South Africa as a whole, their company’s frameworks and controls are aligned with global standards.

But whichever way you look at it, there is no doubt this is a severe body blow for South Africa at a time when we’re already reeling on the ropes.

The SA Reserve Bank has warned that we could see outflows of capital and currencies, but perhaps the more immediate worry is the increase in administrative, transactional, and funding costs for the banking sector.

The only faint glimmer of hope is that in December, President Cyril Ramaphosa signed two key pieces of legislation:

  1. The General Laws (Anti-Money Laundering and Combating Terrorism Financing) Amendment Act and

  2. The Protection of Constitutional Democracy Against Terrorism and Related Activities Amendment Act

And yet, although this was commendable, it was clearly not enough, in the eyes of the FATF, to keep us off the grey list. Those same eyes will now be watching and waiting to see whether South Africa has not only the will, but also the ability to continue with what we’ve started, and more importantly, effectively manage the new structures in the longer term.