There is an 85% probability that South Africa will find itself in the crosshairs of the Financial Action Task Force (FATF) come February, according to a new report.
However, if the government is seen to be urgently making serious efforts to comply with the FATF’s anti-money laundering requirements, the country’s greylisting may be short lived. If a country lands on the grey list, it means the international financial crimes watchdog has identified strategic deficiencies in the country’s systems to counter money laundering and terrorist financing.
The report — which was compiled by Intellidex on behalf of Business Leadership South Africa and released to the public on Wednesday morning — outlined the potential economic impact of the greylisting.
In its benign scenario, Intellidex estimates that less than 1% of GDP per year will be lost during the greylisting period. A severe scenario, in which South Africa is perceived as being inactive in addressing the FATF’s concerns, the estimated loss would be up to 3% of GDP per year.
In the event that greylisting is sustained, the report noted, and global confidence in South African efforts to address FATF recommendations is low, the reputational impact will have a material effect on investment flows and financing costs. International banks will also be more likely to reject South African clients on compliance cost and risks.
“Given South Africa’s relatively high integration in the global financial system and the high proportion of economic activity that depends on this integration, greylisting will have an order of magnitude greater GDP impact and over a longer period.”
October marks a year since the FATF published its evaluation of South Africa’s anti-money laundering and counter-terrorist financing measures. In it, the FATF pointed to a number of holes in the country’s framework and efforts to combat money laundering.
South Africa failed in 20 of the 40 FATF standards and in all 11 of the measures to combat money laundering.
Work is under way to make the country’s anti-money laundering legislation more robust, with the country’s lawmakers labouring to pass a number of eleventh-hour legislative amendments.
One piece of legislation, the General Laws Amendment Bill, was only introduced into Parliament on 29 August, with the deadline for public submissions set for this week. If the cabinet can approve the amendments before February, when the FATF will decide South Africa’s fate, it will go far in the way of preventing the greylisting.
However, in public hearings on Tuesday, parliament’s standing committee on finance showed resistance to the treasury’s rushed effort to pass the amendment bill.
Speaking at the release of the report on Wednesday, Intellidex senior researcher Nxalati Baloyi noted that the standing committee is prioritising other laws — such as the Tax Administration Laws Amendment Bill and the Taxation Laws Amendment Bill — which must be passed before the medium-term budget policy statement later this month.
Of South Africa’s high chance of greylisting, Intellidex chair Stuart Theobald said: “We think that it is important to hope for the best but also to prepare for the worst.”
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