While the decision by the Financial Action Task Force (FATF) to greylist SA was expected when it was announced on Friday — markets had largely priced in the news — it still is yet another self-inflicted blow to our country’s reputation as an investment destination. It will take a huge effort to remove SA from this list, and while the main reason for the greylisting is a lack of ability on the part of the government to investigate and prosecute cases of corruption and money laundering successfully, business must play its part and assist where it can.
According to a Business Leadership SA (BLSA) report released last year, the economic impact of greylisting is primarily from the increase in cross-border payment transaction costs as financial firms, including banks, apply enhanced due diligence to any SA client. This will mean a more invasive and extensive process of assessing the source of funds and the probity of clients, although many of these firms are already doing it.
While the specific requirements vary between jurisdictions, the UK and EU require banks and other accountable institutions to apply enhanced due diligence to any greylisted country. Due to this increased compliance burden some firms may elect not to do business with any SA company or individual to reduce costs and compliance risks. Should we remain on the grey list for an extended period, reputational effects will lead to a reduced appetite for investment exposure to SA.
Our report found that the economic impact of greylisting will depend substantially on how seriously SA is perceived to be working towards FATF compliance. If the remaining shortcomings are dealt with urgently — as they seem to be — the impact will be lessened.
Too late
It will now be prudent for companies to prepare for the enhanced due diligence that will accompany greylisting. Engagement with foreign service providers will go far to establish how their risk rating is affected by greylisting, what enhanced due diligence measures need to be taken and how they can prepare. The National Treasury noted that there were no items on the FATF action plan that relate directly to the preventive measures regarding the financial sector. This reflects the significant progress made in applying a risk-based approach to supervising banks and insurers.
We commend the SA authorities for their regulatory reform efforts aimed at helping avert our greylisting. Two pieces of key legislation — the General Laws (Anti-Money Laundering & Combating Terrorism Financing) Amendment Act and Protection of Constitutional Democracy Against Terrorist & Related Activities Amendment — were enacted. The Treasury headed a delegation of government departments and agencies that met the FATF in Morocco in January to deal with any outstanding questions it might have had.
Alas, all this was too little too late — the key legislation that was enacted still needs to be operationalised to pass the “use test”.
We are encouraged by the responses to the greylisting announcement by the Treasury and the Reserve Bank. According to the Treasury, the government recognises that tackling the action items as required by the FATF will be in SA’s best interests, and that doing so is consistent with its existing commitment to rebuild the institutions that were weakened during the period of state capture. The successful prosecution of the key actors in state capture will also be important.
Zondo commission
BLSA also commends the Reserve Bank for its assurance that it will further strengthen its risk-based supervision and enhance the dissuasiveness and proportionality of administrative sanctions issued. We welcome the Bank’s zero-tolerance approach to the abuse of the financial system by money launderers or terrorist financiers, and the reaffirmation of its strong commitment to disrupt money laundering, the financing of terrorism and its proliferation through the enhancement of its supervisory activities.
In last week’s budget speech finance minister Enoch Godongwana made the reassuring announcement that R1.3bn has been allocated to the National Prosecuting Authority to support the implementation of the recommendations of the Zondo state capture commission and the FATF. An additional R265.3m was allocated to the Financial Intelligence Centre to tackle organised and financial crime. We have the means to get ourselves out of this greylisting mess quickly — the ball is in our court to do the right thing.
We must take heart that Mauritius was able to get itself off the grey list in less than two years after implementing reforms. The danger lies in staying on the grey list for longer than that, as the negative effects on trade and foreign investment will increase, affecting our already very weak economic growth and high unemployment.
• Mavuso is CEO of Business Leadership SA.
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