BUSINESS NEWS - Has South Africa been served with yet another "final dumpling on the turd" or, put differently, been cast the final straw on the camel's back in its inability to, among others, fight corruption and money laundering? 

The Zondo Commission, more recently allegations of corruption at Eskom by former CEO André de Ruyter, the dire situation at most of our municipalities, the Lichtenberg case being at the forefront and failing political leadership inclusive of coalition politics even in the Western Cape.

Greylisting of South Africa on 24 February by the Financial Action Task Force (FATF), a global intergovernmental body that promotes policies and sets international standards relating to the combatting of money laundering, terrorist financing, and the financing of the proliferation of weapons of mass destruction, has reference. 

Looking at various sources and commentaries inclusive of National Treasury, the following are the two most impactful consequences for South Africa:

1. The reputational damage to South Africa, as its effectiveness in combatting financial crimes like corruption and money laundering as well as terror financing are deemed to be below international standards, and

2. Related implication arises from consequential action taken regarding cross-border transactions; particularly possible action taken by foreign banks that provide correspondent banking services.

The South African of November 22 reflected on this eventuality as an indication of the risk that the rest of the world will attach to South African companies and individuals as counterparties to transactions. 

This will put a massive dent on South Africa's GDP by about 1%-3%, in that foreign investors would be discouraged from doing business in South Africa. 

Furthermore, South African clients' risk rating would be elevated at many international institutions, especially those in the European Union bloc and the United Kingdom. This will hamper prospects of doing business internationally for both South African companies and individuals owing to exorbitant premiums. 

Moreover, South African banks will have to fork out more on managing correspondent banking relationships and relationships with global infrastructure providers, owing to high costs. In essence, money will become very expensive (high interest rates) and business ventures with offshore partners will become descriptive from their side: they will set the terms and conditions. 

The latter is not necessarily a bad thing.

Due to more stringent due diligence processes undertaken on South Africa-based organisations and individuals, doing legitimate business with offshore partners could become lengthy - which will have an impact on cashflow in the short to medium term.

Offshore capital investments into now potential lucrative infrastructure projects could be rethought and/or reprioritised until the government has addressed the eight outstanding deficiencies. South Africa has until the end of January 2025 to address the eight remaining deficiencies. 

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Do our political powers have any intention of implementing consequence management in addressing these through, among others, corrective implementation of the eight outstanding discrepancies, or do we read into the non-addressing of these over the past four years that the government wishes to protect individuals, organisations or organs of state to continue with these crippling practices?

Moonstone reported in their article of 13 October 2022 Research report advises South Africans to prepare for greylisting that a comprehensive and credible effort to address the FATF's concerns must be mounted to exit the greylist as soon as possible, and preparation by the private sector to engage with foreign counterparts to minimise the impact of enhanced due diligence must be sought.

Allan Gray in an article of 27 February 22, The consequences of South Africa's greylisting, report that following the FATF's decision, international fund managers and their administrators will review their distribution practices in South Africa, based on their own internal risk-based approaches. 

This could result in additional due diligence requirements, the outcome of which investors will have to wait to see the potential impact.

Old Mutual Wealth reported in their article of 27 February 2023, Greylisting: what it means and how we have responded, confirm the good standing of the South African Financial Services industry in that they are encouraged by the recognition from FATF of the progress made by the Prudential Authority in the application of a risk-based approach to supervision. As a result, there are no action plans that relate directly to preventive measures in respect of the financial and insurance sectors.

PSG have responded to their clients on 24 February 2023 that the announcement of South Africa's greylisting on 24 February 2023 is likely to impact financial services institutions and their clients with investments offshore. 

We want to reassure you that the greylisting should not hold a risk to the safekeeping of your assets or how your investments are currently managed. It may, however, add more onerous administrative requirements when placing money offshore or withdrawing funds from your offshore investments.

As individuals and private sector organisation it is recommended that we take the lead and engage with our banks, insurance organisations, business partners, offshore investors, etc, to ensure our own sustainability and to exert pressure on all political leaders and the National Treasury to expedite addressing the eight deficiencies timeously.

Dr Dennis Farrell is managing advisor for business and HR at Alfa & Omega Networked Business Solutions

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