Financial crime watchdog puts South Africa, Nigeria on 'grey list'

The Financial Action Task Force (FATF), an international financial crime watchdog, has recently added South Africa and Nigeria to its 'grey list' of countries under special scrutiny to implement standards to prevent money laundering and terrorism financing. Peter Attard Montalto, the Managing Director at Intellidex, shared his insights on the decision in an interview with CNBC Africa's Godfrey Mutizwa. Montalto expressed that the move was not a surprise, emphasizing that the market should have been prepared for this development. He highlighted that the focus now needs to shift towards taking necessary steps to get off the grey list at the earliest possibility. The decision by FATF has prompted reactions in the markets, with the South African rand experiencing significant volatility. Montalto pointed out that while the bond market has remained relatively stable, the currency has faced downside pressure. He attributed this reaction to investors' concerns and the lack of a comprehensive whole-of-government approach to address the issues leading to the grey listing. Discussing the challenges ahead, Montalto emphasized that the road to compliance with FATF standards is not a quick or straightforward one. He outlined that meeting the requirements for removal from the grey list necessitates sustained efforts and tangible progress across various sectors, particularly in the criminal justice system. He underscored the importance of consistent compliance with all 40 areas of the FATF code to successfully get off the list. Montalto also commented on the statement issued by the South African Reserve Bank (SARB) following the decision, noting that the central bank has been proactive in addressing compliance issues. He mentioned that the SARB has been advocating for a whole-of-government approach, indicating its commitment to combatting financial crimes and meeting international standards. Regarding the timeline for South Africa's potential removal from the grey list, Montalto suggested that it is unlikely to happen within six months. He stressed the need for sustained evidence of compliance and substantial efforts to address the identified deficiencies. While acknowledging the possibility of achieving compliance within a year, he expressed skepticism about the country's ability to expedite the process without significant interventions. In addition to the market reactions, Montalto discussed the potential long-term impact of the grey listing on South Africa's economy. He highlighted concerns about correspondent banks downgrading their assessments of South Africa, which could lead to tighter financing conditions and increased costs for businesses engaging with international partners. While immediate effects may be limited, the prolonged presence on the grey list could negatively impact GDP growth. Furthermore, Montalto addressed the implications of geopolitical considerations on South Africa's economic relations, citing a US Congressional resolution that raised concerns about the country's military collaborations with China and Russia. He noted growing unease among foreign investors and highlighted the significance of aligning foreign policy decisions with economic interests to avoid adverse consequences. In conclusion, Montalto raised questions about the alignment of South Africa's foreign policy with its economic objectives, warning that discrepancies could jeopardize the country's relationships with key trading partners. He emphasized the need for a pragmatic and economically rational foreign policy approach to mitigate risks and enhance economic stability. As South Africa navigates the challenges posed by the grey listing, strategic reforms and concerted efforts will be essential to safeguard its financial integrity and restore investor confidence.