Despite being a member of FATF since 2003, South Africa (“SA”) has failed to achieve the required level of compliance with international anti-money laundering standards. The Grey Listing is an international indicator that SA is no longer regarded as a safe investment destination.

8 conditions have been narrowed down by FATF and are yet to be met. Accordingly, laws need to be tightened, mainly regarding money laundering, terrorist financing and corruption. The global watchdog was seemingly unimpressed with the current take on anti-terrorism, but so called “state capture” ¹ has been indicated to be the final nail in the coffin. Subsequently FATF has especially requested assistance with extradition.

Although in the past few months leading up to the Grey Listing, SA has managed to pass some legislation regarding the above, the implementation and enforcement herein remains seriously lacking in SA. SA is not off to a convincing start with the Gupta’s extradition from Dubai failing whilst corrupt government officials remain within office.

The longer the Grey Listing status remains attached to SA, the more detrimental for the country’s reputation, currency, and capital borrowing cost.

The Finance Minister, Enoch Godongwana remains optimistic that we can look forward to removal within 2024. Experts are however not convinced. Until then SA can expect additional Due Diligence, transaction delays and higher costs as the new norm.

The Grey Listing factor is seen as the main contributor in the FSCA’s decision to step up on FIC Inspections. Accordingly additional pressure is now placed on accountable institutions to improve their compliance measures and to strengthen their efforts in combatting financial rime. The Regulator expects greater attention being given towards sanctions, domestic and foreign politically exposed persons, prominent influential persons and internal FIC training FIC.

Equally government is expected to step up to the challenge and to work alongside the Financial Services Industry (amongst others) to protect the integrity of SA’s Financial Industry and assist in reducing the global harm caused by financial crime.

In April 2023 SA has introduced the shared state forensic capability within FIC which will see specialised resources in forensic accounting, financial analysis and related services working together to support the work of law enforcement and other competent authorities in their pursuit of high priority criminal matters. Beneficial ownership have also been identified as a new focus along with FIC declaring more entities as accountable institutions.

Ultimately until such a time that more arrests and prosecutions are made, the Grey Listing status in SA will remain.

^1.Systemic political corruption in which private interests significantly influence a state's decision-making processes to their own advantage.

What is CIG doing?

Over the past 18 months CIG has been working through the potential impact of SA being placed on the Grey List. This work has focused upon mapping out the potential impact for our clients and our business activities, mitigation strategies and aligning our approach, that may be deployed, where circumstances permit, to reduce the impact upon our client base. Kindly note that management and mitigation of risk factors, whether jurisdictional or otherwise, will be approached on a case-by-case basis.

What if CIG can’t mitigate the Risk?

It remain sour goal to cause as little disruption for our clients and intermediaries as possible. Our appetite towards our SA clients and intermediaries is unchanged and we will endeavor to mitigate the jurisdictional risk associated with SA to the best of our ability. However, risk mitigation cannot be guaranteed in all cases. In those cases where higher risk factors are deemed to be persuasive, we will seek to undertake Enhanced Due Diligence (EDD).

What does EDD entail?

EDD goes further than obtaining basic due diligence, in cases that are deemed to present a higher residual risk, owing to persuasive higher risk factors that cannot be mitigated. EDD may involve:

• Going further to verify customer related information, by obtaining and assessing information from a wider variety of sources.

• Taking additional reasonable measures to establish (and verify, as necessary) source of wealth and source of funds of the customer and beneficial owner.

• Undertaking further research, in order to understand the background of a customer and their business.

• Gaining additional information from the customer regarding the purpose and nature of the business relationship.

Disclaimer: The views, thoughts and opinions expressed within this article are those of the authors and not those of any company within the Capital International Group (CIG) and as such are neither given nor endorsed by CIG. Information in this article does not constitute investment advice or an offer or an invitation by or on behalf of any company within the Capital International Group of companies to buy or sell any product or security or to make a bank deposit.