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Grey-listing likely to be avoided

The debate on the omnibus General Laws Amendment Bill has spread to the public domain and is becoming quite heated, with an apparent misunderstanding of its importance by the Parliamentary Standing Committee on Finance.

The draft Bill is designed to bring South Africa in line with the requirements of the international Financial Action Task Force (FATF), which has identified a number of weaknesses in the country’s ability to effectively combat money laundering.

The FATF is the global watchdog for money laundering and terrorist financing. This inter-governmental body enjoys the commitment of more than 200 countries and jurisdictions to bring about national legislative and regulatory reforms via the so-called FATF standards with the aim to ensure a co-ordinated global response to prevent organised crime, corruption and terrorism.

Although National Treasury has been widely criticised for delaying the draft legislation on preventing grey-listing by the FATF, the statement by the Standing Committee Chairman, Joe Maswanganyi (who was a cabinet minister during Mr Jacob Zuma’s presidency), that the issue at hand is the problem of the executive and not of parliament, is strange indeed.

In the event of the extremely negative perspective on the consequences of grey-listing contained in a recent Intellidex report being correct, it is clear that the Standing Committee on Finance should rather adopt a stance of “all hands on deck”, as grey-listing could result in an increase in transaction costs for cross-border payments and also cause some reputational damage.

Outcome remains vague

The ultimate outcome of the FATF’s response to South Africa’s efforts to increase its effectiveness in combating money laundering is unclear. The inter-departmental committee dealing with this matter is led by National Treasury and a progress report has to be presented to the FATF panel of reviewers in November, which will be followed by a face-to-face meeting in January, where the panel’s conclusions will be discussed. A final decision is expected at the February 2023 FATF meeting.

Areas identified by Intellidex where improvements are needed with FATF compliance include data on the beneficial owners of trusts and additional supervision of non-government organisations, real estate agents, attorney firms and Krugerrand dealers. The suggestion by Intellidex that grey-listing could cost the economy somewhere between 1% and 3% of GDP, depending on the final verdict by the FATF, smacks of speculation and an element of scaremongering, as it may not even occur and if it does, it is unlikely to materially impact on the value of South Africa’s trade and investment flows.

It is useful to shift the debate on grey-listing to the foreign exchange market and the status of South Africa’s currency. According to Countries of the, the rand enjoys a top-20 ranking for the most traded currencies in the world and according to Statista, the rand was the 17th most active currency for international payments in 2021.

Furthermore, in the last pre-Covid comprehensive Global Competitiveness Report by the World Economic Forum, South Africa enjoyed a ranking of 19th out of 141 countries for the financial system pillar. The country’s fiscal metrics are also in good shape, with the net public debt/GDP ratio having stabilised in the 2022 budget at below 79% and forecast to decline to below 70% in 2023.

The members of the FATF review panel will no doubt be aware of the pivotal role played by South Africa in maintaining financial market stability in the sub-Saharan African region, especially via the South African Reserve Bank. They will also be aware of the depth and sophistication of South Africa’s capital markets and the fact that the country is slowly but surely undoing the harm done by state capture under the Zuma administration.

The South African government is clearly committed to improving its adherence to the FATF standards. The processes have begun to extend the jurisdiction of the Financial Intelligence Centre to include non-financial institutions; to improve the forensic investigation capacity of the Hawks; and to ensure that information on beneficial ownership of companies and trusts is adequately documented

Against this background it is highly likely that South Africa will be afforded more time to give effect to the recommendations of the FATF.

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