At the second Plenary of the FATF, under the Presidency of T. Raja Kumar of Singapore, on February 24, 2023, the Financial Action Task Force (FATF) officially placed South Africa on its grey list, citing persistent shortcomings in its anti-money laundering and counter-financing of terrorism (AML/CFT) framework. The move followed a lengthy mutual evaluation that found South Africa deficient in 20 out of FATF’s 40 Recommendations, particularly those related to customer due diligence, beneficial ownership transparency, and prosecution of financial crimes.

The grey listing has serious implications for South Africa’s financial ecosystem. International banks and financial institutions may now impose enhanced due diligence (EDD) on transactions involving South African counterparties, while foreign direct investment may slow due to increased risk perception. For South African institutions, the move translates into more rigorous scrutiny and reporting obligations under global AML standards.

The government has responded by fast-tracking legislative reforms and promising to address FATF’s concerns within a year. Still, the stigma of being grey listed could affect the country’s access to global financial markets and increase borrowing costs.

For global compliance professionals, this development necessitates immediate adjustments to risk-based frameworks. Organizations must reassess geographic risk models, enhance transaction monitoring for South Africa-linked flows, and prepare client outreach for new EDD documentation. Institutions should also be alert to trade-based money laundering risks, as informal channels may become more attractive to circumvent scrutiny.

Source: Jurisdictions under Increased Monitoring – 24 February 2023
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