Potential FATF grey listing of South Africa would result in more inflation and higher unemployment

Senior bank executives from several of the biggest institutions in South Africa have issued warnings about the possible effects of a FATF grey listing on the nation.

As a potential grey list judgment by the international banking watchdog approaches, their concerns come as the nation works to strengthen its anti-financial crime defenses.

Sim Tshabalala, chief executive of Standard Bank, told the Financial Times that adding South Africa on the list of "jurisdictions under increased monitoring list”, would “add to the increased cost of doing business."

"I’m sure it would cause more inflation, higher interest rates and higher unemployment," he continued. "Even wealthy South Africans would find it harder to invest offshore.”

The watchdog's forthcoming October meeting will determine if South Africa will be included on the list of prospective grey countries; a final decision is anticipated at the plenary meeting in February 2023.

In a "relay race" to improve the country's reputation, Mike Brown, the president of Nedbank, cautioned that "the weakest part of the South African system, by far, is the investigative and prosecutorial legs."

The Governor of South Africa's Central Bank reportedly pleaded with officials to take measures to save the nation from being put to the FATF's "grey list" in August.

After FATF gave the nation till October to strengthen its AML/CFT defenses, Lesetja Kganyago cautioned lawmakers that the ramifications of a grey listing would be "massive" in terms of their effects on the economy.

If it does not, South Africa may be added to the list of 23 countries with "strategic deficiencies," along with Pakistan, Syria, South Sudan, Turkey, and Myanmar.

"We have got to be able to treat this with urgency and demonstrate significant progress so that we could actually prevent a grey listing, or if we should be grey listed, we can come off that grey list within 12 months," he stated.

"The country’s risk premium has already risen and not purely on this, so the implications for the economy are massive," he continued.

The Director General of the South African National Treasury issued a warning in July, stating that unless the country could "perform a few miracles," it was "almost certainly headed to be grey listed."

The sooner we take action, the better for us, Ismail Monomiat remarked at the joint sitting of the standing and select committees on finance of the South African Parliament. He also cautioned that the country was "well behind" current worldwide AML and CFT standards.

The FATF published a 238-page report in October outlining the shortcomings in South Africa's AML defenses at the time. The group stated in the executive summary that the nation had "suffered from a sustained period of ‘state capture’ which helped to generate substantial corruption proceeds and undermined key agencies with roles to combat such activity."

The organization came to the conclusion that South Africa has "serious shortcomings" in putting an effective system in place and failing to prosecute significant cases, despite having a "solid legal framework" to combat money laundering and terrorism funding.

By fLEXI tEAM