BUSISIWE MAVUSO: Scoring the equaliser after the greylisting own goal of will take some doing

POSTED ON: February 28, 2023 IN by Admin

By Busisiwe Mavuso

We must take heart that Mauritius was able to get itself off the grey list in less than two years after implementing the necessary reforms.

While the FATF’s decision to grey list the country was expected when it was announced on Friday – and while markets had largely priced it in – it still comes as a yet another self-inflicted blow to our country’s reputation as an investment destination. It’ll take a massive effort to remove South Africa from this list and while the main reason for the grey-listing was a lack of effective ability by government to successfully investigate and prosecute cases of corruption and money laundering, business must play its part and assist authorities where it can.

According to a report BLSA released last year, the economic impact of grey listing is primarily from the increase in transaction costs for cross-border payments as financial firms around the world, including banks, will apply enhanced due diligence to any South African client. This will mean a more invasive and extensive process of assessing the source of funds and probity of clients, however many of these firms are already doing this.

While the specific requirements vary between jurisdictions, both the UK and EU require banks and other accountable institutions to apply enhanced due diligence to any grey-listed country. Due to this increased compliance burden, some firms may elect not to do business with any South African company or individual to reduce costs and compliance risks. Should we remain on the grey list for an extended period, reputational effects will lead to a reduced appetite for investment exposure to South Africa.

Our report found that the economic impact of grey listing will depend substantially on how seriously South Africa is perceived to be working towards FATF compliance. If the remaining shortcomings are being addressed with urgency – as they seem to be – the impact will be lessened.

It will now be prudent for companies to prepare for the enhanced due diligence that will accompany grey listing. Engagement with foreign service providers will go a long way to establishing how their risk rating is affected by grey listing, what enhanced due diligence measures need to be taken and how they can prepare. Importantly, National Treasury noted that there were no items on the FATF action plan that relate directly to the preventative measures in respect of the financial sector. This reflects the significant progress made in applying a risk-based approach to supervising banks and insurers.

We commend South African authorities for the efforts they made around regulatory reform that was aimed to help avert our grey listing. Two pieces of key legislation (the General Laws (Anti-Money Laundering and Combating Terrorism Financing) Amendment Act and Protection of Constitutional Democracy Against Terrorist and Related Activities Amendment) were enacted and last month, National Treasury headed a delegation of government departments and agencies that met with the FATF in Morocco to deal with any outstanding questions that the FATF might have had. Alas, all this was too little too late and the key legislation that was enacted still needs to be operationalised to pass the “use test”.

We are encouraged by the responses to the grey listing announcement by both Treasury and Reserve Bank. According to Treasury, government recognises that addressing the action items as required by the FATF will be in the best interests of the country, and that doing so is consistent with its existing commitment to rebuilding the institutions that were weakened during the period of state capture.  We are sure that the successful prosecution of the key actors in state capture will also be important.

BLSA also commends the SA Reserve Bank for its assurance that going forward it will further strengthen its risk-based supervision and suitably enhance the dissuasiveness and proportionality of administrative sanctions issued. We welcome the SARB’s zero-tolerance approach when addressing the abuse of the financial system by money launderers or terrorist financiers and the reaffirmation of its strong commitment to disrupt money laundering, the financing of terrorism and proliferation through the enhancement of its supervisory activities.

As BLSA, we have supported improvements to the criminal justice system and other institutions to better regulate, supervise and investigate commercial crime and we have entered into a memorandum of understanding with the NPA to support access to private sector investigative and analysis skills to improve capacity.

In last week’s Budget speech, Finance Minister Enoch Godongwana made the reassuring announcement that R1.3bn had been allocated to the NPA to support the implementation of the recommendations of the State Capture Commission and the FATF. An additional R265.3m was allocated to the Financial Intelligence Centre to tackle organised and financial crime. We have the means to get ourselves out of this grey listing mess as quickly as possible– the ball is in our court to do the right thing.

We must take heart that Mauritius was able to get itself off the grey list in less than two years after implementing the necessary reforms. The danger lies in staying on the grey list for longer than that as the negative effects on trade and foreign investment will increase impacting our already very weak levels of economic growth and high levels of unemployment.

• Mavuso is CEO of Business Leadership SA. This article first appeared in Business Day.

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