What is grey-listing and how does it affect South Africa?

The term grey-listing is officially defined as ‘jurisdiction under increased monitoring’. Countries that fall onto the grey-list are under intense scrutiny and are monitored by the global money laundering and terrorist financing watchdog, the Financial Action Task Force (FATF). The countries that are grey-listed are compelled to work closely and actively with the FATF to address any deficiencies that they may have in the areas of money laundering, terrorist financing and proliferation financing. As of February 2023, South Africa was placed on FATF’s grey-list when they were unable to address the weaknesses set out by FATF in their financial regulation systems.

The FATF issued a report in 2021 which highlighted 40 areas of weakness that South Africa should address and then report back to the FATF as to how these shortcomings would be addressed by the state and private sector. Of these 40 areas, South Africa was deemed as being fully compliant in only three, largely compliant in seventeen and partially compliant in fifteen. There were then five remaining areas in which the FATF deemed South Africa to be non-compliant. These areas include, targeted financial sanctions related to terrorism & terrorist financing; non-profit organisations; politically exposed persons; new technologies; and reliance on third parties. 

 So what does this mean for South African businesses and what has the country done so far to address the issues raised by FATF? Since the announcement in 2021 that South Africa could be grey-listed the South African government, led by Cyril Ramaphosa, has worked hard to address the concerns that were raised by the FATF in its evaluation report. Beyond working with the FATF by participating in regular progress evaluations and submitting an action plan the government has passed several  Acts of legislation that are aimed at improving South Africa’s financial crime laws. This includes the passing of the General Laws Amendment Bill in December 2022 which looks at anti-money laundering and counter-terrorist financing. There has also been a widening of the Financial Intelligence Centre Act’s mandate so that it is able to include more effective monitoring and detection capabilities.  A key aspect, however, in getting South Africa off the list is increased cooperation between law enforcement agencies and financial regulators which has not been effectively done as of yet.

The impact that being placed on the greylist will have on South Africans is varied and has mixed concerns, with many thinking that the repercussions will not be immediate or acute. However, the groups that may be affected most are South African businesses and individuals that have offshore interests or are looking to invest offshore. South African companies and individuals with offshore interests will have an increased level of scrutiny and as a result, will be subject to higher levels of screening and due diligence. Banks will also face extra scrutiny in terms of any funds leaving or entering the country. There is also the possible risk that direct international investors may not be as willing to invest in the country now that it is grey-listed, as it undermines investor confidence. 

The Austen Morris Associates Global Group of Companies, however, has potential solutions for offshore investments for South African residents as well as ex-pats living in South Africa. Austen Morris Associates Global Group of Companies holds multiple investment licences and broad terms of business that allow us to invest for our clients internationally.  

South African residents have a R1m discretionary allowance per calendar year and can apply for a further R10m investment allowance (at time of writing. This system may change in Match 2024, where an Approved International Transfer ‘AIT’ may be introduced, essentially merging the concepts of offshore allowance and financial emigration). There are a few important aspects that need to be considered when making a decision on how best to invest offshore or to make use of the Foreign Investment Allowance (FIA) as a South African resident. – It is always advisable to consult with an experienced and qualified financial advisor who holds the correct licence to assist with the best solution for you. 

Austen Morris Associates Africa (Pty) Ltd is an authorised ­financial services provider, FSP Number: 43758.


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