Greylisting: what will this mean for South African businesses?
Category Commercial and Industrial News
Unless South African authorities can quickly devise and implement a plan to strengthen its efforts to combat money laundering, financial crimes and corruption, our nation runs the risk of being greylisted by the Paris-based Financial Action Task Force (FATF) early in 2023. 3Cube Property Solutions takes a look at the implications of greylisting and considers the measures that South African authorities would need to take to prevent our addition to the grey list.
Greylisting defined
In its simplest terms, greylisting (in an economic sense) is defined by Moneyweb as "a global attempt to prevent illicit funds from being channelled towards terrorism". Put another way, the grey list provides a barometer of the level of risk attached to companies and individuals in a particular country participating in cross-border transactions. The FATF has put together a list of 40 recommendations for protocols that fight against financial crimes and South Africa is currently either non-compliant or partially compliant with approximately half of these safeguards. A decision as to whether or not to greylist South Africa will be taken at the FATF conference in February 2023.
General implications of greylisting
If greylisted, South Africa will be seen as a less desirable investment destination, which will add to the impact of the negative outlook held by various international credit rating agencies. Greylisting has the potential to raise South Africa's cost of capital and damage our economy's links to global financial systems.
Greylisting will result in higher levels of due diligence being applied to South African companies and individuals who have offshore interests. If the country is greylisted, South African investors may find that they do not have access to certain markets which will not do business with people or organisations in greylisted countries.
Impacts on property practitioners
Real estate professionals - as well as other executives responsible for handling and moving large amounts of money - will come under greater scrutiny if South Africa's greylisting goes ahead. This comes as a result of commercial banks' failure to detect red flags during the State Capture years when money was moved from state-owned enterprises to various private bank accounts. In the eyes of the FATF, real estate agents can act as safeguards to counter the risk of financial crimes such as money laundering. The National Risk Assessment Report, compiled in 2019, states that the real estate sector has a medium to high risk of being exploited by money launderers.
In addition, greylisting is likely to affect South Africa's attractiveness to foreign investors, and this is likely to make it more challenging for local property practitioners to garner investments from international buyers.
How South Africa could avoid greylisting
To avoid joining countries like Pakistan, Turkey and the United Arab Emirates on the grey list, South Africa needs to show that it is serious about prosecuting individuals linked to State Capture. As a nation, we would also need to upgrade our security protocols that detect and prevent money laundering. In an effort to avoid South Africa landing on the grey list, Treasury has tabled amendments to various laws including the Trust Property Control Act, Nonprofit Organisations Act and the Companies Act.
What South Africans can do about greylisting
As individuals, we are powerless to prevent or delay the greylisting process. It is up to the government and treasury to implement the required security protocols. However, if you are thinking of initiating international investments, you can circumvent delays and administrative headaches by doing so before February 2023.
A positive spin on greylisting
In an opinion piece published in the Mail and Guardian, the head of Wits School of Governance, Mzukisi Qobo, points out that if the FATF's threat to greylist South Africa is viewed in a positive light, we can consider this an opportunity to "raise a sense of urgency about reforms and hasten the work to clean up corruption". While seen largely as a negative, South Africa's greylisting could herald the start of an era of greater accountability.
In considering the potential positives brought about by being greylisted, we can consider the example of Mauritius. The island nation was placed on the FATF grey list in February 2020. The government intervened and took the necessary steps to tighten financial protocols. As a result, Mauritius was removed from the grey list almost two years later.
Whether or not early 2023 sees us needing to embrace being on the grey list as part of our new normal, having the right premises will still be an important part of success for any business. You can contact 3Cube Property Solutions for all your commercial and industrial property requirements in Gauteng.
Author: 3Cube Property Solutions
