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Gary Davids

Investment Analyst

As has been widely reported in the media, South Africa has been included on the grey list of the Financial Action Task Force (FATF). This move by the FATF is sure to have economic consequences, but what does it mean for investors? In our view, South Africa’s greylisting was long-anticipated, and therefore to a large extent had been ‘priced in’ by financial markets already.

The FATF decided in February 2023 to place South Africa on a list of countries under increased monitoring – commonly known as the grey list – as the country is deemed to have inadequate anti-money laundering (AML) and counter financing of terrorism (CFT) controls in place.

While the FATF has recognised the significant progress made by our government in addressing the recommendations highlighted in its Mutual Evaluation Report of 2021, and despite several new laws fast-tracked in 2022, the view is that further improvements are needed to correct shortcomings in the fight against financial crime.


The FATF is an intergovernmental watchdog that helps formulate policy to control the flow of money globally while stamping out organised crime. The organisation works to generate the political will to bring about national legislative reforms to combat money laundering and terrorist financing.

The FATF maintains two public lists of countries with weak AML and CFT regimes:

  • ‘Jurisdictions under increased monitoring’ that ‘are actively working with the FATF to address strategic deficiencies in their regimes’ – the so-called grey list
  • ‘High-risk jurisdictions subject to a call for action’ that are not actively engaging with the FATF to address these deficiencies – known as the black list.

Countries on the FATF grey list are those that have committed to swiftly resolving identified strategic deficiencies within agreed time frames while being subject to increased monitoring. South Africa is now one of 23 countries on the grey list. There are currently only three countries on the black list: Iran, North Korea, and Myanmar.


The FATF doesn’t impose direct obligations on its members to act against greylisted countries. Members are, however, asked to take the FATF assessment into account in their risk analysis or due diligence before conducting business in a greylisted country. The European Union has directed its member countries to ensure that relevant institutions apply enhanced due diligence to high-risk countries, which includes those on the grey list. A similar ruling has been introduced in the UK.

The most recent FATF Mutual Evaluation Report on South Africa found that our large local banks are relatively more developed in terms of their money-laundering risk and mitigation measures, while smaller financial institutions outside the banking sector are problematic. National Treasury recently noted that ‘there are no items on the action plan that relate directly to the preventive measures in respect of the financial sector. This reflects the significant progress in the application of a risk-based approach to the supervision of banks and insurers’.

The report cited concern about state capture and corruption, which were highlighted as key threats, as was a lack of progress on South Africa’s ability to bring criminals to book.


Being greylisted carries with it reputational risk – it signals to investors that a country is at risk of being exposed to money laundering and terrorist financing, which is likely to have negative consequences for the South African economy. However, estimating the extent of the impact is difficult – it depends on how quickly the country can meet the FATF requirements for being taken off the list. It has taken other greylisted countries on average two years to be removed. For example, Mauritius was on the list for 20 months, and was removed only after an extensive and committed campaign to meet the FATF requirements.


In general, the implications for South Africa of being greylisted include:

  • A strain on relationships with foreign banks and investors, who may reallocate resources to reduce exposure to a country deemed riskier than it had been previously. This could lead to capital and trade outflows for South African companies. Enhanced monitoring and due diligence of local businesses will increase the cost of doing business with these companies.
  • Increased costs to ensure compliance with the FATF requirements. Failure to address inadequacies will result in fines for financial institutions by the South African Reserve Bank, and increased spend will be required to ensure compliance.


In our view, South Africa being greylisted has been considered by the market over a prolonged period, and this long-anticipated event had been priced by local equity and bond markets before the actual announcement. We don’t view it as being worse than a credit ratings downgrade – investors are already aware of the local political and macro environment as well as the perceived risks of doing business in South Africa, including the associated costs.

While greylisting may have a negative impact on local gross domestic product and capital flows, what is in our view more important is the progress South Africa now demonstrates, and the country’s commitment to addressing the eight areas of strategic deficiencies identified by the FATF to be removed from the list within the next 24 months. We need to take swift action as a country – a prolonged grey list tenure would be more detrimental than the initial inclusion.

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Carl Schoeman has spent 19 years in Investment Management.

Carl Schoeman

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