Standard Bank CEO Sim Tshabalala says SA’s potential greylisting by the Financial Action Task Force (FATF), an intergovernmental body that assesses countries’ ability to combat illicit financial activity, would be worse than a sovereign credit downgrade.
“The consequences of being greylisted are worse than downgrading,” Tshabalala told The Clement Manyathela Show on Radio 702 on Thursday.
“The rand will weaken, inflation will spike, interest rates will go up ... it will be more expensive to buy food, pay for petrol, buy homes, buy cars. The country can’t afford it.”
The Paris-headquartered FATF gave SA 18 months to tackle shortcomings in its ability to prevent financial crimes, which were outlined in a mutual evaluation report published in October 2021. The report found SA compliant with only three of FATF’s 40 benchmark recommendations to combat illicit financial activity.
It was noncompliant with five recommendations, partially compliant with 15 and largely compliant with 17.
The report gave SA a first deadline of October 2022 to tackle three of the 40 benchmark recommendations — these relate to terrorist financing, customer due diligence and reporting suspicious transactions — as well as 11 immediate outcomes covering areas such as international co-operation, supervision, beneficial ownership and money laundering prosecutions.
Greater scrutiny
If SA fails to demonstrate sufficient progress in tackling its deficiencies in combating money laundering and terrorist financing by the October deadline, the FATF could recommend SA be placed on a greylist of countries that are subject to increased financial scrutiny.
SA would join a list of nations that includes Albania, Burkina Faso, Cambodia, Haiti, Pakistan, South Sudan, Syria, Turkey, the United Arab Emirates and Yemen if its efforts to tackle its regulatory weaknesses are deemed inadequate by the final deadline of February 2023.
“I am deeply, deeply concerned because of the negative impact that greylisting would have,” Tshabalala said. “We become a pariah if we don’t act.”
Nevertheless, Tshabalala added that “all is not lost” and that SA had the capacity to prevent being greylisted by the FATF provided it approached the issue with sufficient urgency to ensure legislation was passed that tightened SA’s laws against money laundering and terrorist financing before October 1.
Citing a speech by finance minister Enoch Godongwana at the Africa Investors Conference earlier in 2022, Tshabalala said the cabinet, the Financial Intelligence Centre and the relevant government ministries understood what needed to be done. “It can be done by October — we can do it,” said Tshabalala. “I think parliament understands what needs to be done.”
Competitive advantages
Tshabalala also said during his interview with Radio 702 that while he got despondent about SA’s prospects at times, he was still optimistic about its future. He added that SA had several competitive advantages, which ranged from its prodigious mineral wealth to the quality of its universities and institutions, that were the “envy of many countries.
“I believe in trying to see things glass half full — be realistic about the negativity, but the glass is half full,” he said.
Tshabalala added that despite the gloomy global backdrop, Standard Bank had upgraded its 2022 economic growth forecast for SA to 2.3%, up from a previous estimate of 2%. He also called on the government to rapidly implement structural economic reforms to ramp up economic growth.
“If we got those structural reforms right as a country, we could be growing at 4% to 5%,” he said.
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