FATF puts South Africa, Nigeria on 'grey list'

This was despite desperate attempts by South Africa to pass several relevant laws late last year, as well as a high-level delegation sent to the FATF recently to make representations.

February 25, 2023 06:09 am | Updated 06:09 am IST - Johannesburg

A flag with the logo of the Financial Action Task Force, FATF.

A flag with the logo of the Financial Action Task Force, FATF. | Photo Credit: AP

Global anti-money laundering watchdog FATF on Friday added South Africa and Nigeria to its "grey list" of countries for failing to combat money laundering and terrorism financing, in a set back to Africa’s two largest economies.

The decision of the Paris-based Financial Action Task Force (FATF) indicates to global banks, financial institutions and investors that these countries are not fully compliant with anti-money laundering and terrorist financing standards.

This was despite desperate attempts by South Africa to pass several relevant laws late last year, as well as a high-level delegation sent to the FATF recently to make representations.

The FATF conceded that there had been significant progress by South Africa on many of the recommendations previously made to the country, but that more needed to be done in terms of increasing investigations and prosecutions related to cases of money laundering, as well as the seizure of assets which were the proceeds of criminal activities.

“When the FATF places a jurisdiction under increased monitoring, it means the country has committed to resolve swiftly the identified strategic deficiencies within agreed timeframes and is subject to increased monitoring. This list is often externally referred to as the ‘grey list’, FATF said in a statement issued after its meeting in Paris.

The FATF identifies additional jurisdictions, on an on-going basis, that have strategic deficiencies in their regimes to counter money laundering, terrorist financing, and proliferation financing, the statement said.

“In February 2023, South Africa made a high-level political commitment to work with the FATF and to strengthen the effectiveness of its anti-money laundering (AML) and combating financing of terrorist activities (CFT) regime.

“Since the adoption of (the recommendations) in June 2021, South Africa has made significant progress on many of (them) to improve its system, including by developing national AML/CFT policies to address higher risks and newly amending the legal framework, among other,” the statement added.

The FATF listed eight areas that South Africa still needed to work on in order to have its grey listing removed.

These include South African authorities applying effective, proportionate, and effective sanctions for noncompliance; showing a sustained increase in investigations and prosecutions of serious and complex money laundering; enhancing identification, seizure and confiscation of proceeds of crimes; and ensuring the effective implementation of targeted financial sanctions.

South African police, prosecuting authorities and judicial system have been hamstrung in recent years by limited budget allocations to carry out these tasks.

On Wednesday, during his annual Budget speech, finance minister Enoch Godongwana announced additional budget allocation to these authorities.

He also hinted at the time that the grey listing was to be expected and that the country had to “be prepared for this possibility.” Reacting to the FATF announcement, Mr. Godongwana pledged in a statement on Friday that South Africa would work “swiftly and effectively” to address all the issues listed by the FATF that were still outstanding.

"Government recognises that addressing the action items will be in the interest of South Africa, and that doing so is consistent with our existing commitment to rebuild the institutions that were weakened during the period of state capture, the effectiveness of which is essential to addressing crime and corruption," Mr. Godongwana said.

Analysts said the grey listing would affect foreign direct investment in South Africa and also make it more difficult for embattled state-owned entities such as national electricity supplier Eskom and public transport network Transnet to borrow funds abroad.

South Africa is the second G20 economy after Turkey to have been added to the FATF grey-list. Iran, North Korea and Myanmar are blacklisted.

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