The South African financial system was once rated among the best in the world. In recent times, however, our reputation has taken a bit of a beating.

And the world has noticed. And there are consequences. South Africa is currently under review to be placed on the “Grey List” by FATF.

In today’s article I’ll break down why this is happening and what it means for you and your investments.

Firstly, who are FATF and why do they have the power to put us on the “Grey List”?

FATF, or the Financial Action Task Force, was created in 1989 to help pressure countries around the world to fight money laundering. After 2001 this was expanded to include fighting terrorism. That wasn’t the only expansion of power that FATF picked up. For instance, it was initially created with a limited life span but, after numerous renewals of its mandate, it eventually became “open ended”.  It has also expanded the number of members as well as the number of “recommendations” that members are required to follow.

It’s currently one of the most influential global government structures that most people have never heard of…

One of FATF’s main sources of power is the ability to place countries on a couple of lists, the Grey List and the Black List. There are currently only two countries on the Black List, namely Iran and North Korea. Countries on the Black List are effectively totally cut off from the global financial system.

The Grey List is not as bad, basically it means you’re being monitored more closely. That said, it does discourage investment and trade, and creates an incentive for countries to comply with FATF rules.

Why is SA in danger of being Greylisted?

FATF wants to stop money from dodgy sources entering the global financial system. So, it wants every country in the system to have laws in place to prevent money laundering. SA’s laws were seen to be too weak. Enforcement of laws were also shown to be lacking.

The South African government has tried to fix things. We have seen several changes to the law pushed through recently and we have even seen a ramping up of enforcement. Some might argue the arrests of former Eskom executives is related to this.

The action that has been taken so far MAY be enough to keep us off the Grey List, but right now it’s still very uncertain. If we’re added, it’ll likely be a couple of years (at least) before we can get off again.

What does this mean for you?

The impact of being greylisted is bad, but we don’t quite know how bad. According to a variety of experts it could be anything from very minor, to much, much worse than a credit ratings downgrade.

What is fairly likely is SA residents will find it more difficult to open offshore accounts. Citizens of “Grey Listed” countries always face greater scrutiny.

As mentioned earlier South Africa is under review. The review period ends in October and a decision on our statutes is expected around February 2023. 

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