South Africa is on the brink of being removed from the global financial crimes watchdog’s “grey list” after a major prosecutions push, said the governor of its central bank, despite concerns about the backlog of white-collar crime cases.
The Paris-based Financial Action Task Force (FATF), which tracks whether countries are preventing money laundering and terrorist financing, in 2023 placed South Africa on its list of jurisdictions under increased monitoring, known as the “grey list”, citing 22 deficiencies.
It said South Africa should take actions ranging from fighting unlicensed money transfers to introducing a framework for financial sanctions.
Lesetja Kganyago, governor of the South African Reserve Bank since 2014, said South Africa had even risked being added to a list of “high-risk” jurisdictions that also includes North Korea, Iran and Myanmar.
“It wasn’t quite an existential crisis but there was a risk of moving from a grey list to a black list,” Kganyago told the Financial Times in an interview. “So there was a sense of urgency, and as the central bank, we threw resources at it, including bringing in international experts to assist.”
Last month, the FATF determined that Africa’s most industrialised country had “substantially completed its action plan”, showing a “sustained increase in investigations and prosecutions of serious and complex money laundering cases”.
In the year to March 2024, South African courts handed down verdicts in 98 cases involving money laundering, up from 65 three years earlier. But progress has been slower on complex commercial cases, where the 333 convictions were about 10 per cent less than the year before.
Kganyago said the last remaining step to removal from the grey list would be an on-site assessment by FATF in October to check that “the necessary political commitment remains in place”.
He said South Africa expected to exit the list “now that we’ve addressed all the issues, unless the physical visit picks up discrepancies — but even [then] it should be things that we would be able to sort out.”
The country’s listing increased the cost of cross-border deals and deterred would-be investors from capitalising on positive business sentiment since a coalition government led by the African National Congress and pro-business Democratic Alliance took the helm a year ago.
Standard Bank chief executive Sim Tshabalala said removal from the list would not trigger major market moves in the short term, but “over the longer period, capital flows will increase and it will be easier to raise money”.
“It will also boost the investor sentiment, because it’s a real sign that South Africa is on the mend,” he said.
Under former president Jacob Zuma, police, prosecutors and financial watchdogs were severely weakened as state coffers were plundered in a chapter that led to South Africa’s biggest-ever corruption scandal.
The FATF had previously warned that slow progress in investigating and recovering looted state assets counted against South Africa. Debate has raged about capacity constraints at its prosecuting authority, which has battled to jail key perpetrators of so-called state capture.
Questions remain about the country’s handle on complex fraud and money laundering cases as no senior politicians alleged to have been involved in the scandal have so far been prosecuted.
Meanwhile Steinhoff, the furniture retailer whose €6.5bn accounting fraud was South Africa’s largest ever corporate fraud, collapsed in 2017 but no attempt was made to bring criminal charges against chief executive Markus Jooste until 2024. VBS Mutual Bank collapsed in 2018 after R2bn was stolen, according to a report prepared for the central bank; while some individuals have pleaded guilty, the wider case remains mired in the courts.
Kganyago said prosecuting corruption and fraud had been tough, partly because of alleged culprits seeking to delay the legal process.
Still, the expected removal from FATF’s list meant some international companies that excluded South Africa as an investment prospect might now rethink that, said Hendrik du Toit, the chief executive of Ninety One, Africa’s largest asset manager.
“In recent years, some companies like HSBC, BNP Paribas, and [others] exited from South Africa, and I wouldn’t have been surprised if the grey listing was part of the reason.”
But while the grey listing was important “on the margin, it would not have been the main factor, which is getting the economy working properly”, he added.
Wandile Sihlobo, chief economist at the Agricultural Business Chamber of South Africa, said removal from the grey list was one of two major goals for the country, alongside lobbying the US for better access to its markets for South African goods — a target now in flux as US President Donald Trump weighs up new tariffs.
“These steps are fundamental to the revival of the South African economy,” said Sihlobo.
South Africa’s economy has remained sluggish, with GDP growth of 0.6 per cent in 2024 — a frustration for analysts who expected a greater electoral dividend after the formation of the coalition.
Du Toit said, however, that “there have been a range of improvements. The ports are beginning to work, for one thing. And you see this not just in equity prices, but in the currency, which has strengthened against the dollar. There is a sense of momentum.”
Mauritius, South Africa’s fellow financial centre in the region, is seen as a model after a reform drive followed its own grey-listing in 2020 and secured its removal from that list and an EU blacklist a year later.
Kganyago said being on the grey list had changed the economics of investing in South Africa, not just for long-term foreign direct investors, but also for portfolio investors with a shorter timeframe.
“If you were a portfolio investor and you took a decision to be overweight South African assets for the next 18 months, for example, the returns you would get would have to be adjusted for this enhanced due diligence.”
Removal from the dirty money list would lower the risk premium required to invest in South African assets, he said.
Asked whether it was frustrating that the political will aimed at the grey listing had not been marshalled to pursue other problems in South Africa’s economy, Kganyago said only that: “Frustration is not part of a central banker’s toolbox.”
There were other indirect positives to come from the episode, said Tshabalala, the Standard Bank chief executive. “Executing [our removal] within a period of two years is extraordinary. It shows when you’ve got the right framework, we’ve got competent people . . . South Africa can be world class.”