SA is Placed on the Grey List

This Newsletter has covered the attempts by SA to avoid being put on the Financial Action Task Force (FATF)’s international Grey List of countries that do not reach the standards considered necessary to prevent money laundering. In 2021 FATF informed SA that it did not have adequate regulations in place to ensure the transparency of banks and companies in order to prevent money laundering or the financing of international terrorism. The government then embarked on an ambitious programme of revisions of the Company Law and other relevant regulations to make company ownership more transparent and stricter (as we reported in the December Newsletter). However, FATF has informed the government that, despite these new legal changes, SA has failed to implement the necessary regulation, and that therefore SA is now placed on the Grey List. The FATF spelt out 8 areas where SA has to improve. According to an information paper from Treasury (https://www.treasury.gov.za/comm_media/press/2023/2023022501%20FATF%20Grey%20Listing%20Fact%20Sheet.pdf) it will take at least 3 years to get off the Grey List. So what does this mean for ecommerce?

Although in theory all the controls are in place to cover remittances from abroad, it is likely that companies (or individuals) holding a bank account abroad or paying for goods abroad will need to do more to justify both transfers outside as well as transfers into SA. This will add an extra layer of administration to e-shops doing business cross-border.

The government is particularly concerned that foreign investors will be less interested in SA. It will also further weaken the Rand, which is good for exporters but bad for importers and for the country’s economy as a whole. The fact that the FATF has zeroed in on SA’s lack of implementation may make it even more difficult to prove that SA should not be on the Grey List in the future, as it will require a complete change in the culture of law enforcement, particularly when dealing with prosecutions. One of FATF’s requirements clearly states that South Africa must enhance “its identification, seizure and confiscation of the proceeds and instrumentalities of a wider range of predicate crimes, in line with its risk profile”.

Meanwhile, it is no surprise that SARB has now announced plans to tighten regulations in the country’s payment ecosystem, citing the need for financial stability in the face of disruptive and innovative technologies.

And if you think SA has problems, recently the European Union has threatened to blacklist Kenya over corruption and money laundering, revisiting an old problem Nairobi has struggled to contain.