South Africa headed for FATF’s ‘grey list’ risk

Bank executives have cautioned that South Africa must take immediate action to address systemic rot in its law enforcement agencies if it wants to avoid being included in the so-called “grey list” of the international financial crimes watchdog. The Financial Action Task Force, located in Paris, has given South Africa until October to demonstrate that it has recovered from the dismantling of law enforcement under the previous president, Jacob Zuma.

If it is unable to persuade them during the talks in October, it may join Turkey as the second G20 country to be placed on the FATF’s watchlist of “jurisdictions under increased monitoring.” In February 2023, FATF is expected to announce its final verdict. The nations on the “grey list” include Yemen, Syria, and Panama.

According to Sim Tshabalala, the chief executive of Standard Bank, and Mike Brown, the president of Nedbank, the label prompts increased examination of financing and investment and might raise the cost of doing business in an already troubled economy.

“You’re not going to fall off the cliff, but it is going to add to the increased cost of doing business. I’m sure it would cause more inflation, higher interest rates and higher unemployment,” Tshabalala said. “Even wealthy South Africans would find it harder to invest offshore.”

Before Zuma stepped down from office in 2018, the so-called “capture” and looting of the state that led to South Africa’s biggest-ever corruption scandal included the weakening of police, prosecutors, and financial watchdogs as a significant chapter. Last year, the FATF issued a warning, stating that “significant gaps in financial intelligence exist” and that South Africa’s delayed progress in examining state capture and retrieving looted assets counted against it.