/ 24 February 2023

DA: Greylisting is indictment on government’s inability to combat financial crimes

Da Protest
Supporters of the largest opposition party 'Democratic Alliance' hold banners and gather to protest against the ruling party 'African National Congress' due to the recent power cuts in Johannesburg, South Africa on January 25, 2023. (Photo by Ihsaan Haffejee/Anadolu Agency via Getty Images)

South Africa’s official opposition the Democratic Alliance has called the country’s greylisting by the Financial Action Task Force (FATF) a damning indictment on the criminal justice system and the government’s inability to combat financial crimes.

DA MP Dion George said in a statement the move by the global financial watchdog had arisen primarily due to the inadequacy of South Africa’s legal framework and the failure by the authorities to prosecute those responsible for such offences.

“The greylisting has placed our nation at significant risk, as the rest of the world now views South African companies and individuals as high-risk counter-parties in global transactions. This development is entirely unacceptable, and it is incumbent upon our government to take immediate action to rectify this untenable position,” he said.

“We must restore confidence in our financial system and demonstrate to the international community that South Africa is a responsible and trustworthy partner in global trade.”

The rand took an immediate knock to R18.42 against the US dollar on news of the greylisting, its worst performance against the greenback since 2020. 

George said that the immediate effect of the greylisting was that South African clients would be subject to enhanced due diligence, which would increase the cost of doing business for local companies and individuals trading internationally, and those with bank or investment accounts abroad. 

The move will also complicate access to funding from non-profit organisations and multilateral development assistance, he added.

“Furthermore, South African banks will face increased costs in managing correspondent banking relationships and relationships with global infrastructure providers such as payment systems. This will have significant implications for South Africa’s economy, ranging from less than 1% to 3% reduction in GDP, depending on how quickly we can exit the greylist. 

“Our reputation will suffer from the negative publicity from the greylisting. This will affect South Africa’s international relationships in many ways, ultimately resulting in a reduced appetite for business relationships with South African associates.” 

In getting greylisted, South Africa joins countries such as Nigeria, Albania, Barbados, Burkina Faso, Cambodia, Cayman Islands, Gibraltar, Haiti, Jamaica, Jordan, Mali, Morocco, Myanmar, Panama, Philippines, Senegal, South Sudan, Türkiye, United Arab Emirates and Uganda.

FATF said the South African government had made high-level political commitment to work with it and the Eastern and Southern Africa Anti-Money Laundering Group (ESAAMLG) to strengthen the effectiveness of its anti money laundering and combating financial terrorism measures.

The DA said the gravity of the situation required that the government’s top priority must be to take swift action to restore South Africa’s reputation and regain the trust of the global community so that it could exit the greylist as soon as possible. 

George said the government must take a comprehensive and collaborative approach to address the remaining concerns of FATF by taking coordinated action across departments and institutions — from the prosecuting authorities to the Directorate for Priority Crime Investigation (the Hawks), the Financial Intelligence Centre, the department of home affairs, the South African Revenue Service, the police and others.

“The government must commit to rebuild institutional capacity, processes and systems in key parts of the supervisory, investigation and prosecution services. The DA will put pressure on the government to work closely with financial institutions and the security cluster to fulfil FATF’s remaining recommendations and send a clear message that our country will not act as a conduit for illicit financial activities,” he said.

He added that his party was committed to restoring the integrity of the country’s financial system and strengthening its position as a respected global player.