South Africa was put on the Financial Action Task Force (FATF) “monitored jurisdictions” list on Friday, 24 February. This list is commonly referred to as the greylist. 

The decision is a disappointment to the South African government, which went all out to try to satisfy the task force by passing – in record time – two sets of legislation that tighten South Africa’s regulatory environment. It also set up monitoring bodies to put the legislation into action.

By adding South Africa to the greylist, the FATF did so in the most circumlocutionary way, making it sound as though it was a kind of compliment. The task force said the countries that were now “under increased monitoring” (South Africa and Nigeria) were “actively working with the FATF to address strategic deficiencies in their regimes to counter money laundering, terrorist financing, and proliferation financing”. (Proliferation financing is about nuclear proliferation.)

Well, good for us, sort of. But South Africa’s financial markets, like the rest of us, were not fooled. The rand, the stock market, and the bond market all lost value quickly after the announcement was issued.

The rand, for example, went from an exchange rate of R18.20 to R18.40 to the dollar in a very short space of time. Doesn’t seem like much, but that puts the rand within shooting distance of its worst-ever value of R19.03 just as the Covid-19 pandemic broke out in early 2020.

The announcement is obviously an embarrassment. South Africa is actually a member country of the FATF. The member countries are what we would call “the West” plus China and Russia, although Russia’s membership has now been suspended.

South Africa and Turkey are the only member countries on the greylist, but there are 25 in total – all the world’s dodgy states, except for North Korea and Iran, which are condemned absolutely.

So that is the country, but what effect does it have on ordinary South Africans? In the most generic sense, it just pours a bit of tar into the financial system. 

Banks dealing with South Africa and South African citizens and residents now have to be extra careful. That takes time and effort, which adds costs. How much more is not quite clear, but clearly some.

The same applies to businesses and fund managers who move money around at a furious rate. Once again, the increased expense will gradually filter down to customers in most cases.

In its response, National Treasury noted that there were no items on the action plan that related directly to South Africa’s financial sector, which it said was a reflection of “significant progress in the application of a risk-based approach to the supervision of banks and insurers. National Treasury, therefore, expects that the increased monitoring will have limited impact on financial stability and costs of doing business with South Africa.”

Allow me to decode this piece of financial jargon. The private sector is up to date; the problem is with the public sector. Obvs.

And this tallies with my own interaction with South African banks and government institutions because South Africa’s banks have been on to this for years now, which is why they have started to refuse to bank certain individuals – much to the annoyance of other dodgy people who are worried they might be caught in the net. 

As to it not affecting the costs of doing business in South Africa, well … I’m not so sure about that, but we will see.

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What needs to be done?

So, what are the problems South Africa has to fix? Actually, these are very revealing. You have to read a bit between the lines, but in its outline of what needs to be done there is one big clue: a provision that is not repeated in many of the other greylisted countries. And that it is this: South Africa needs to demonstrate “a sustained increase in outbound MLA requests that help facilitate ML/TF investigations and confiscations of different types of assets in line with its risk profile.”

OK, that needs decoding too. MLA requests are requests for “mutual legal assistance” and ML/TF is short for money laundering/terrorism financing. 

So, my guess is that what has been happening here is that a whole bunch of  countries have been asking South Africa for assistance, as international diplomacy requires, and their requests have been put into a basket marked “I really can’t be bothered”. And doesn’t that sound just like our beloved security forces and police?

There are a host of other requirements too, including a demonstration not only that it has laws on the statute books but that it actually implements those laws. And doesn’t that sound like they have their finger on the pulse of one of South Africa’s inherent character?

The immediate consequences of greylisting will probably be invisible to most South Africans; most banks were probably expecting the news just to be on the safe side. But if South Africa stays on the list for a few years or more, they will become much more evident.

Finance Minister Enoch Godongwana has said South Africa will remain on it and was studying what Mauritius did to get off the list. I certainly hope so. BM/DM