South Africa FATF grey listing: What does it mean for businesses?

Despite recent efforts to increase compliance with international AML/CFT standards, South Africa has been placed on the Financial Action Task Force’s (FATF) grey list. The greylisting was announced in February 2023 after a comprehensive review of the country’s Anti-Money Laundering and Counter-Terrorism Financing (AML/CFT) measures and the degree to which it was compliant with the FATF standards.

In an earlier review, which took place in 2021, the FATF noted that despite a strong AML/CFT legal framework, South Africa had failed to meet 20 of its 40 recommendations, creating windows for money laundering and terrorism financing to thrive. Following the review, South Africa was expected to show marked progress by October 2022.

As 2022 ended, the country raced to meet the FAFT deadline culminating in  NEW AML/CFT policies signed into law by the National Treasury in January 2023. These policies, the Treasury claimed, addressed 15 of the 20 recommendations that it had failed to meet earlier. It was however, not enough to avoid greylisting, as the FATF in its statement, implied that despite making “significant progress”, South Africa had not yet demonstrated implementation of the recommendations.

What Does Grey Listing by the FAFT Mean?

As an intergovernmental AML/CFT organisation, the FAFT is constantly reviewing the status of member nations in compliance with its recommendations. Lists are a key tool used by the organisation to evaluate compliance. There are two types of FATF lists: the "blacklist" and the "grey list". Both lists are compilations of countries that the FATF has identified as having significant deficiencies in their AML/CFT regimes. However, the implications and consequences of being on either list vary significantly.

The blacklist lists countries the FATF has identified as having severe deficiencies in their AML.CFT regimes need to make more progress in addressing those deficiencies. Countries on the blacklist are considered high-risk jurisdictions and may face international sanctions and other penalties.

The grey list, also known as the "jurisdictions under increased monitoring" list, is a list of countries that the FATF has identified as having strategic deficiencies in their anti-money laundering and counter-terrorist financing regimes but that have committed to addressing those deficiencies. Countries on the grey list are subject to increased monitoring and are expected to take specific actions to address the identified deficiencies within a certain timeframe.

How could South Africa’s Grey Listing Affect Local Businesses?

Following its greylisting, the South African government has made several commitments to the FAFT, which it intends to fulfil by 2025 as it seeks removal from the grey list. These commitments indicate what local businesses can expect in the coming months. Some of the expected impacts from South Africa’s greylisting include:

• Increased oversight of Designated Non-Financial Businesses and Professions (DNFBPs). This means that companies in the gambling, real estate, trust, and company services industries will be required to step up KYC/AML compliance.
• Regulated entities will be required to verify up-to-date beneficial ownership information of the entities they do business with.
• Regulated entities can expect increased regulatory reporting as the government looks to clamp down on nefarious actors.

Beyond the local dynamics, there will also be a higher level of scrutiny on transactions between South African businesses and those in other countries due to the greylisting. Foreign organisations partnering with South African entities are likely to perform stricter due diligence checks to mitigate fallbacks. Stricter due diligence can take many forms, including additional documentation requirements and longer processing times, ultimately leading to higher fees on transactions. It may also make it more difficult for South African businesses to access international financial services like banking and insurance.

Furthermore, greylisting can negatively affect South Africa's reputation as a business-friendly country, which can lead to decreased foreign investment and reduced economic growth.

How can your business prepare for coming changes?

To prepare for the changes resulting from South Africa's greylisting, businesses must ensure that their compliance policies and procedures are up-to-date and aligned with international standards. Important practical steps would include:

KYC Compliance

Businesses must ensure they keep up with Know Your Customer (KYC) requirements as stated in the Financial Intelligence Center Act (FICA) — the primary regulation for AML/CFT prevention. FICA mandates accountable businesses to verify the identities of their customers and maintain customer identification and transaction information.

KYB Compliance

KYB (Know Your Business) is the equivalent of KYC for organisations that service businesses. For KYB, FICA requires accountable organisations to verify the identity of their client business, beneficial owners, and senior management.

AML Checks

Businesses are required to perform risk-based assessments of their customers by screening them against local and international sanctions, politically exposed persons, and adverse media lists.

Stay on the right side of compliance with Smile Identity

South Africa’s AML/CFT landscape is likely to change significantly in the coming months. As such, every business must stay on top of new compliance requirements.

Smile Identity offers the best-in-market solution for businesses looking to onboard users, verify identity, and perform KYC, KYB, and AML checks in South Africa.

With direct access to government databases, we can verify a user’s identity using their national identity number and a picture. We are also able to run AML checks to screen users against 1100 global and African sanctions, PEP, and adverse media watchlists.

In addition to all this, we maintain a local compliance team in South Africa dedicated to staying on top of regulatory changes to ensure that all our partners stay compliant.

Talk to one of our experts about how you can navigate AML compliance in South Africa today.