Whilst the decision by the Financial Action Task Force (FATF) plenary late February 2023 to put South Africa on the grey list is disappointing, this did not come as a surprise.
The good, the bad & the dubious
The FATF timelines were always tight. South Africa had a very short twelve months following the publication of the FATF Mutual Evaluation Report in October 2021 to make substantial progress in the improvements identified in the Covid-delayed 2019 mutual evaluation by the IMF. Despite a late flurry of activity from South African authorities, it is widely recognised that this came too late to clearly demonstrate systemic effectiveness in countering money laundering and combating terrorist financing.
The mutual evaluation report findings did recognise that good progress was and continues to be made in establishing a sound anti-money-laundering/terrorist financing legal and regulatory framework in South Africa. FATF highlighted eight strategic areas that require demonstrable improvement, including deficiencies in non-financial businesses and professions, lack of coordination between the South African Financial Intelligence Centre (FIC) and other financial intelligence centres and between law-enforcement agencies and the FIC to investigate, prosecute and confiscate assets that are proceeds of crime.
However, even now, the full impact of greylisting is still unclear.
A bad rap
Undoubtedly being on the FATF grey list tarnishes South Africa’s reputation as a world-class financial centre. Economists also widely predict that the impact on economic growth will be negative, given the higher hurdles for international funding and transborder transactions becoming more costly and time-consuming.
However, the question that our financial advisers are asking us is, “how will greylisting impact me and my clients who invest with Momentum Wealth International?”
Following the announcement by the FATF, our regulator, the Guernsey Financial Services Commission, as expected, removed South Africa from its list of countries that are deemed equivalent and on 13 March 2023 instructed businesses in Guernsey to review their relationship risk assessments for existing business relationships with South Africa. Guernsey businesses have until the end of the year to do this.
The key question for companies like Momentum Wealth International is: now that South Africa is on the FATF grey list, is all our business linked to South Africa automatically high risk? If this were so, the implication for our financial advisers and clients is that the due diligence process would be a lot more intrusive and burdensome.
For companies like Momentum Wealth International, whose clients are overwhelmingly South African, we need to consider what immediate action we need to take now that South Africa is on the FATF grey list. In simple terms, does the greylisting mean that relationships with South African clients will require extensive enhanced due diligence and enquiries?
Same same, but slightly different
We have carefully considered the position and we believe that South Africa being on the grey list does not automatically result in a more challenging due diligence process. We already conduct our client due diligence to Guernsey and international standards, so while we may now in some instances require additional information or documentation, such as where the funds being invested came from – for example savings from employment or the sale of an asset – this should not be difficult for our financial advisers to provide.
In many instances we already hold sufficient information and evidence of the activity that generated the funds being invested. It is possible that this will be the only additional documentation required and we will continue to conduct our own searches; in some cases this evidence can be found in the public domain. Bottom line: we expect there to be very little change to the existing client due diligence processes that our financial advisers are already used to.
So, in our opinion, the answer to the question “how will greylisting impact me and my clients who invest with Momentum Wealth International?” is: there should not be a significant impact.
But, notwithstanding this limited impact on our financial advisers and clients, it remains very important for the South African government, law enforcement agencies and businesses to coordinate efforts to demonstrate sustained improvements across the eight strategic areas identified so that South Africa can come off the grey list at the earliest opportunity and regain its place as a world-class financial centre.
