JOHANNESBURG—The world anti-money laundering organization Financial Action Task Force (FATF) has “gray-listed” Africa’s two biggest economies, Nigeria and South Africa.
The Paris-based task force stated that the action was taken because both countries hadn’t done enough to prevent illicit financial flows and terrorist financing.
Financial experts warn the gray-listing could be “devastating” to Nigeria’s and South Africa’s economies, both heavily based on extractive industries such as oil and gold mining, as it will reduce foreign direct investment.
The agency monitors governments to check that they’re following basic principles of financial regulatory oversight.
It stated that Nigeria and South Africa needed to show “a sustained increase in investigations and prosecutions of serious and complex money laundering”; that both had to “enhance identification, seizure and confiscation of proceeds of economic crimes”; and “urgency in implementing strategies to counter terrorism financing.”
The FATF stated that the countries should ensure the “effective implementation of targeted financial sanctions and to identify individuals and entities” suspected of funding terror.
Top South African economist Dawie Roodt told The Epoch Times: “Based on history, it’s going to be a tall order for both South Africa and Nigeria to conform to all of these conditions.
“I say this because both countries are characterized by kleptocratic elites whose main business is to use the state to launder money. However, they may well be successful in targeting terrorists to get the attention off themselves.”
The Nigerian army is currently battling several terror groups, including the Islamic “State” of West Africa Province and its sister organization, Boko Haram.
Last year, the U.S. government designated several South Africans as global terrorists who intelligence services stated were using front companies and so-called charities to fund ISIS activities, including insurgencies in Congo, Mozambique, and the Middle East.
The U.S. Treasury imposed sanctions on several South Africans and their businesses, stating that they had given “technical, financial, or material support” to the ISIS terror network.
Lakshmi Kumar, policy director at Global Financial Integrity, an anticorruption group in Washington, told The Epoch Times that the task force “had no choice but to punish” South Africa and Nigeria, especially because they hadn’t established “strong” beneficial ownership registries.
These registries require public disclosure of the identities of individuals who benefit financially from companies, even if they aren’t legal owners.
“This lack of progress toward a proper ownership registry makes sense, at least in South Africa’s case,” Paul O’Sullivan, a private investigator specializing in financial crimes, told The Epoch Times.
“The [governing] ANC [African National Congress] has hidden behind private firms to move money from corrupt deals all over the place since the 1990s, including to other parts of the world.”
Implications of Gray-Listing ‘Severe’
Financial expert Bongani Mahlangu described the implications of gray-listing for South Africa as “severe.”“There will be a reduction of capital flows coming to South Africa, so the integrity of the banking and financial system will be undermined. That makes it very difficult for our banks and financial systems to interact globally and even to some extent domestically as well,” Mahlangu told The Epoch Times.
South Africa’s Reserve Bank stated that the gray-listing is a “blow” to the country’s financial standing around the world and that it could have “wide-reaching consequences” for its financial system.
The bank warned of capital and currency outflows but stated that the more immediate issue is that it would increase transactional, administrative, and funding costs for the banking sector.
Mahlangu said being gray-listed by FATF indicates an “absence of the rule of law and so discourages investment.”
He noted that investors and potential investors in Nigeria and South Africa would now be subject to intensive due diligence checks in international banking and finance and that they’ll “loathe” the added red tape and pressure.
Citizens Will Pay Higher Taxes
Mahlangu said Nigeria and South Africa would pay higher rates when borrowing from organizations such as the World Bank and international financial institutions and that this could lead to citizens being taxed more.Acting director-general of South Africa’s Treasury, Ismail Momoniat, told The Epoch Times that the gray-listing of both Nigeria and his country is unfair.
“We need to reassess the process that leads to gray-listing,” he said. “Both economies have made great strides toward improving their systems, and in that context, it’s a bit perverse to be gray-listed.”
Momoniat pointed out that South African President Cyril Ramaphosa signed two laws to combat money laundering and terrorism financing in December 2022.
But economist Johann Els said the FATF clearly wants to see action and not “words on paper.”
“Those laws were passed at the very last minute in a desperate attempt to avoid sanction. On that basis, one cannot expect the FATF to hold off on the gray-listing, because it obviously needs to see that the laws will be implemented properly,” he told The Epoch Times.
In what could prove to be yet another blow to South Africa’s sinking economy, a group of House Republicans has introduced a bill seeking to punish the country for its recent joint military exercise with China and Russia.
The naval drills, involving warships from the three countries, unfolded over 10 days in the Indian Ocean off South Africa’s east coast.
The bill, spearheaded by Rep. John James (R-Mich.), demands a thorough review of U.S. relations with South Africa.
Some U.S. politicians from both the Democratic and Republican parties have grown increasingly angry about the South African government’s refusal to condemn Russia’s invasion of Ukraine.
Ramaphosa’s administration insists that it’s “neutral” in the conflict.
Should the bill pass, U.S. President Joe Biden would be mandated to take punitive action against South Africa, including possibly freezing it out of the African Growth and Opportunity Act.
The African Growth and Opportunity Act is a piece of legislation approved by the U.S. Congress in 2000. It sets “preferential” trade conditions with the economies of sub-Saharan Africa, thus giving them easier access to American markets for their goods, products, and services.
Professor David Monyae, a foreign policy expert at the University of Johannesburg, told The Epoch Times that the bill is “unreasonable” and “contrary to international law.”
“In the modern international order, one country cannot threaten another just because one country doesn’t agree with it,” he said.
“This bill makes the assumption that South Africa is a U.S. colony, and if you’re a colony, you follow what your master country says. That’s very disturbing.”
He said Washington would sanction South Africa “in various ways” should the bill pass.
“The U.S. has enormous power; it controls the International Monetary Fund, the World Bank. The U.S. has power to influence the direction of important multilateral institutions, and also the more than 600 American companies in South Africa," Monyae said.
“We’ve seen with recent visits by powerful U.S. politicians, including [Secretary of State Antony] Blinken, that this country’s important to the United States, and so is the United States very important to South Africa.
“Unfortunately domestic politics appear to be disturbing this relationship.”
But professor John Stremlau, international relations expert at Wits University and a former U.S. government official, said the bill shouldn’t concern South Africa very much.
“There are only a handful of moderate Republicans who sponsored this request for a review, and it’s important to note that under the U.S. Constitution, foreign policy matters are for the president, the executive branch, to handle,” he told The Epoch Times.
“This resolution, I don’t think can even pass the House of Representatives, frankly.”
Stremlau said, “At best, the bill symbolizes some American irritation” that one of Africa’s most significant countries isn’t on “the right side” of the Russia–Ukraine conflict.
“This bill, which I’ve read, is not only a fool’s errand, it means nothing, politically, in terms of the immediate consequences on U.S.–South African relations,” he said.
“There is perhaps a growing concern about South Africa’s so-called non-aligned policy as this war becomes more and more horrific for civilians in Ukraine and military assistance ramps up from the NATO powers, once the Ukrainians have shown their tenacity to fight for their national self-determination.”
But he noted that, whatever direction South African–U.S. relations go in the future, history will note “a point of deep irony and hypocrisy” that a government whose members once fought against “an oppressive, racist regime” for independence now appears to be allied with brutal authoritarianism.
