The Financial Action Task Force (FATF) is highly likely to demote SA to its greylist in early 2023, according to a prediction in a report commissioned by Business Leadership SA (BLSA).
BLSA released the report conducted by research and consultancy firm Intellidex on Wednesday. It warns of adverse outcomes including a bad rap for SA and higher costs for international transactions.
A year ago, the FATF published its assessment of SA’s anti-money laundering safeguards. It found SA’s policies and measures to combat this and terrorist financing were poor.
Greylisting will reflect SA’s vulnerabilities, 20 of which the FATF identified as deficient, including identifying transactions involving politically exposed persons.
Stuart Theobald, chair of Intellidex, said three researchers worked on the report. They expect SA business will suffer after a greylisting as EU and UK banks must conduct more vigilant due diligence on SA transactions.
BLSA expected this greater compliance burden and associated costs would cause some overseas firms to cut ties with SA businesses and individuals.
“Greylisting will also complicate access to bilateral and multilateral development funding,” said BLSA’s advisory report.
CEO Busi Mavuso said SA was at risk of long-term economic damage as a consequence of a greylisting.
Theobald agreed, saying: “For the average person there is no obvious material impact on them, but what happens is the whole economy becomes less productive and there is a dispersed consequence that affects everybody.”
Investigations into commercial crime, prosecution and measures to combat money laundering and terrorist financing must be world-class, said Mavuso.
Intellidex spoke to local and foreign banks, foreign governments and to SA departments and institutions that are required to comply with FATF regulations.
Theobald expects greylisting will affect SA unlike most of the almost 89 countries the FATF has added and removed from the greylist since 2000.
“We have a lot of foreign money that flows into the bonds market and the stock exchange, and those flows are much less sensitive to FATF greylisting. Portfolios are not really as sensitive to FATF greylisting as banks,” he said.
BLSA gave the National Prosecuting Authority (NPA) credit for 29 state capture cases and securing preservation orders for more than R5.5bn.
It noted the Reserve Bank and Financial Services Conduct Authority (FSCA) introduced new supervision checks to satisfy FATF standards.
BLSA praised the “considerable progress” made on joint investigations into corruption involving the NPA, Hawks, Financial Intelligence Centre (FIC) and the revenue service.
Theobald was heartened by increased political will to tackle the problems: “There’s quite a bit of political momentum now that it’s close to crunch time.” However, he said it was “too little too late” to duck a greylisting.
“It’s still really important that we limit the economic impact, and the way we do that is to convince the world that we’re going to get off it as soon as possible,” he said.
BLSA pressed the same point, arguing that “global counterparts will be more willing to maintain their relationships with SA clients” if steps were taken towards FATF compliance.
Intellidex proposes three concrete steps SA can take. First, it should collect and share data on the beneficial owners of trusts and companies.
Second, the Hawks must up their game and make more progress in investigating commercial crimes, money laundering and terrorist financing.
Third, if the FIC is to do more to combat money laundering and terrorist financing, it must receive more money and resources.
Moreover, the FIC must be supported to monitor nonfinancial entities such as estate agents, attorneys and Krugerrand dealers for dubious transactions.
“It is second prize that we are going to have to limit the consequences. That ministers are really focused on it now is a good thing,” said Theobald.
Graviton Financial Partners, a member of the Sanlam group, said that it takes countries an average of five to 10 years to be promoted off the greylist. There are exceptions. Mauritius was removed in under two years.
In August, Fitch’s head of ratings in the Middle East and Africa thought it “quite unlikely that such a greylisting will have an impact that is sufficient to change the rating, or even the outlook on SA’s rating”.
Last year, an IMF study found greylisted countries suffered an average drop in capital flows of 7.6% of GDP. The FATF plenary will meet in February to make a decision.
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