In February 2023, South Africa was placed on the FATF grey list. What does it mean for South African expats in Asia?
South Africa placed on FATF grey list
Trouble has been brewing on the financial front for South Africa since 2017. That was when the Financial Action Task Force, the global watchdog which fights against money laundering and terrorist financing, first put the country under review. In 2019, it raised some serious red flags concerning South Africa’s weak AML (anti-money laundering) and CFT (Countering the Financing of Terrorism) regimes.
A 2021 FATF report recognised that ‘South Africa has a solid legal framework for combating money laundering and terrorist financing’ but highlighted continuing shortcomings. A failure to sufficiently address these saw South Africa placed on FATF’s grey list in February 2023, joining countries plagued by war (Yemen) and political turmoil (Haiti) as well as notorious tax havens (Cayman Islands). Eight strategic deficiencies were highlighted and the country will now be subject to increased monitoring.
What does the FATF grey listing mean?
Financial services companies in South Africa will face additional compliance requirements and responsibilities. South African investors with investments in the country can expect fees to rise due to the increased cost of ensuring compliance. In addition, they should expect delays in executing and completing financial transactions.
The grey listing is not expected to prevent South African expats from investing offshore however due diligence will almost certainly be reinforced on monies being transferred out of South Africa. Financial institutions will strengthen their KYC (Know Your Customer) processes and increase checks to verify the source of funds originating from South Africa. This will affect individuals transferring money following the sale of a property or shares in the country and those who receive dividends from South African companies or distributions from trusts held there.
The news clearly constitutes a blow to the reputation of South Africa as a global economic power. Appearing on the grey list could put a brake on investment into the country and make it harder for South African companies to do business internationally. Some companies and financial institutions may choose to halt business with South Africa altogether. You’ll find a more in-depth analysis of the potential impact of that here.
A FATF grey listing does not impose specific restrictions in terms of disinvestment. Each country, institution, business or individual can decide what action they will take.
What happens next?
Economists are divided on what will happen next. The best possible outcome, and the aim of the National Treasury, is that the issues highlighted by the FATF are resolved so South Africa can be removed from the grey list in 2025. The general consensus is that this timeframe is unrealistic. The worst case is that a failure to improve will see South Africa downgraded further to FATF’s blacklist. This is unlikely.
What should South African expats do?
Panic decisions are always to be avoided and we advise against any knee-jerk reaction to this news. For now, we are advising South African expats to be prepared for longer delays in making transfers in and out of the country and to make an appointment with their financial adviser to discuss any concerns regarding their investments and financial planning.
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