SA investors to count the cost of grey listing

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By Iniel van Zyl*

South Africa being placed on the grey list of international countries with porous fraud and money laundering controls is another own goal we can ill afford. Exactly what this means for you as an investor remains to be seen, however, we can acquire a fairly good idea from what’s happened in other parts of the world.

Mauritius famously managed to get itself removed from this list in under two years when this process can typically take up to five or more years. Finance minister Enoch Godongwana has said publicly he believes South Africa will be removed by mid-2024.

Whatever that time frame, we’re going to have to tolerate increased scrutiny and delays whenever dealing with (most) foreign banks and financial institutions. Once placed on this list, any financial dealings are viewed with greater circumspection and it’s only natural that firms in compliant countries will take extra measures to protect themselves.

So, what does this mean for you?

No need to panic

For the most part, your offshore investments and finances will remain intact and unchanged, although your dealings going forward will probably change.

As you might have noticed, markets hardly changed after the grey listing was announced, with the JSE All-share down about 1% in the week that followed. The Rand also didn’t go into a free-fall. All of which means the news was already priced into the market in expectation of the announcement.

So, your offshore investments will remain safe, and the bottom hasn’t fallen out of the local market or the currency.

This is not to say being placed on the list won’t affect the country. It will almost certainly hurt the direct foreign investment case, but so has the downgrade to junk status more than five years ago. As ordinary South Africans, we’re aware of the junk status, but that hardly influences our every investment decision – and neither should the FATF grey listing.

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Your call is important, please be patient

One unavoidable consequence of the grey listing is that future dealings with companies, especially financial institutions, are going to become more onerous. How onerous? That will depend on each case, however, expect to complete additional forms and provide more detailed evidence of your financial dealings – especially regarding the source of funds to be utilised for investment purposes.

This additional paperwork will add to the delays, which will be compounded by investigations into every transaction that will be subject to greater scrutiny. What this means is that where previously you would expect an outbound money transfer to take a week or two, this could now take substantially longer (some even suggest three to six months).

Fortunately, most local institutions had already bolstered their due diligence processes in anticipation of the enhanced scrutiny that clients would have to face. So, the additional paperwork and checks are probably embedded into your processes when dealing with South African financial services firms.

The one other important party that has cracked down and is requesting greater visibility of your source of funds is SARS – it is vital to ensure you have all your paperwork in order to satisfy their enquiries.

There is a cost to be paid

Apart from the delays and possible frustration with the lengthier processes, the increased due diligence could also add to your costs.

Certain international institutions may request hard copies of the documentary evidence you have to provide. This means the documentation needs to be verified by a Notary which comes at an additional cost for investors to bear.

You also need to budget more time to complete transactions and to provide evidence in the correct format in order to satisfy all the parties involved from the foreign banks to SARS.

Grey listing also has aftershocks

All efforts to combat criminal and terrorist financing should be applauded. What that means, though, is that certain checks and balances have to be in force if we’re to prevent illicit money flows.

So, even though there will be added scrutiny while South Africa is on the grey list, it also means that many of these checks and balances will remain in place.

Take the example of Mauritius which was placed on the grey list in February 2020. Legislators acted swiftly to remedy their shortcomings, and the country was removed from the list in October the following year. As a consequence of new measures introduced, buying property as a foreigner is tremendously onerous and lengthy.

Not only must you show you can afford the purchase of the property, but you also have to verify how you are able to afford the purchase in the first place. And this process alone can take as long as a year to complete.

So, expect and prepare for changes because of the grey listing however, it is not the end of the world. You’ll be able to transact as you did before, although it will demand greater patience and determination -which is a lot like long-term investing: worthwhile in the end.

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