By Darren Taylor
JOHANNESBURG—The world anti-money laundering organization Financial Action Task Force (FATF) has “grey-listed” Africa’s two biggest economies, Nigeria and South Africa.
The Paris-based task force said 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 would reduce foreign direct investment.
The agency monitors governments to check that they’re following basic principles of financial regulatory oversight.
It said 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 to show “urgency in implementing strategies to counter terrorism financing.”
The FATF said 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 (ISWAP) and its sister organization, Boko Haram.
Last year, the United States government designated several South Africans as global terrorists who intelligence services said 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, saying they had given “technical, financial, or material support” to the ISIS terror network.
Lakshmi Kumar, policy director at Global Financial Integrity an anti-corruption group in Washington, told The Epoch Times 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 identity of individuals who benefit financially from companies, even if they’re not legal owners.
“This lack of progress towards a proper ownership registry makes sense, at least in South Africa’s case,” said Paul O’Sullivan, a private investigator specializing in financial crimes.
“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,” O’Sullivan told The Epoch Times.
The World Bank said “anonymous” companies are used in the majority of corruption cases it reviews and that “beneficial owners” hide behind shell companies and use intricate money trails to move billions of dollars around the world.
Implications of Grey-Listing ‘Severe’
Financial expert Bongani Mahlangu described the implications of grey-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 said the grey-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 said the more immediate issue is that it would increase transactional, administrative, and funding costs for the banking sector.
Mahlangu said being grey-listed by FATF indicates “absence of the rule of law and so discourages investment.”
He added 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 they’ll “loathe” the added red-tape and pressure.
“That means the cost of investment increases. Also you find there’s a credit downgrade, and when there’s a credit downgrade it increases the cost of credit, more especially when you go into foreign financial markets.”
Citizens Will Pay Higher Taxes
Mahlangu said Nigeria and South Africa would pay higher rates when borrowing from organizations like the World Bank and international financial institutions, and that this could mean citizens being taxed more.
Acting director-general of South Africa’s Treasury, Ismail Momoniat, told The Epoch Times the grey-listing of both Nigeria and his country is unfair.
“We need to reassess the process that leads to grey-listing,” he said. “Both economies have made great strides towards improving their systems, and in that context it’s a bit perverse to be grey-listed.”
Momoniat pointed out that South African president Cyril Ramaphosa signed two laws to combat money laundering and terrorism financing in December.
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 grey-listing, because it obviously needs to see that the laws will be implemented properly,” he told The Epoch Times.
Meanwhile, 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 Congressman John James of Michigan, 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 angered by the South African government’s refusal to condemn Russia’s invasion of Ukraine.
Ramaphosa’s administration insists it’s “neutral” in the conflict.
Should the bill pass, 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.
AGOA 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, foreign policy expert at the University of Johannesburg, told The Epoch Times 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.
“We’ve seen with recent visits by powerful U.S. politicians, including [Secretary of State Anthony] 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.
“This resolution, I don’t think can even pass the House of Representatives, frankly,” he told The Epoch Times.
Stremlau said, “at best, the bill symbolizes some American irritation” that one of Africa’s most significant countries isn’t on “the right side” in 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.
“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 added that, whatever direction South African-American 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.
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