How South African businesses can mitigate the negative effects of FATF grey listing by moving nearby to a white list jurisdiction
South Africa has been recently placed on the Grey List by the Financial Action Task Force (FATF), which could have significant consequences for its financial growth and status as a regional leader.
The country stands to suffer a foreign direct investment shrinkage, with domestic financial cost of subsequent compliance being significant.
Foreign banks and investors may become reticent about doing business in South Africa, choosing to operate within other jurisdictions that present healthier risk profiles.
Foreign companies wishing to do business in South Africa may face increased bureaucratic hurdles, costs of operation, and onerous levels of scrutiny.
In this article, we will explore the alternative that South African businesses can consider to keep their business running as usual, one of which is to set up an ancillary office in a white list jurisdiction where they feel comfortable and which is nearby like Mauritius.
The consequences of grey listing for South Africa
According to the IMF, countries grey listed by the FATF typically suffer an average net loss of 7.68% of capital flow into their states relative to GDP.
The domestic financial cost of subsequent compliance can be significant, coupled with the fact that it often takes 2–5 years for a country to be removed from the grey list once the mandated requirements are duly satisfied and accepted by the FATF.
Grey listing discourages foreign investment, and South Africa stands to suffer foreign direct investment shrinkage as a consequence.
Portfolio inflows stand to decline, and other general investment inflows are also likely to decline. Countries grey listed by the FATF are automatically considered high-risk jurisdictions by the European Union and the UK.
In other words, they are considered jurisdictions with strategic deficiencies in their Anti-Money Laundering/Counter-Terrorist Financing regimes that pose significant threats to the financial system.
The Mauritius International Financial Centre Solution
South African businesses affected by the FATF grey listing should explore alternative solutions to maintain their operations to operate under the status of business as usual.
One such solution is setting up an ancillary office in Mauritius. Mauritius has a strong regulatory framework that businesses can leverage to access funding and conduct trade.
Setting up an ancillary office in Mauritius can help expedite and consolidate compliance requirements, reducing time and costs.
Businesses can also benefit from Mauritius’ skilled workforce, modern infrastructure, and business-friendly environment. Above all, companies can be 100% foreign owned with no foreign exchange control and companies can open multi-currency bank accounts.
Mauritius offers a range of investment incentives and tax benefits to encourage foreign investment and promote economic growth.
The country has a well-established legal system based on English common law, providing a stable and predictable business environment.
Businesses should seek legal counsel and take proactive steps to ensure compliance with regulatory requirements.
With the help of professionals like StraFin Corporate Services Ltd, specialised in relocation and business setup in Mauritius, businesses can navigate the challenges presented by FATF grey listing and continue to thrive in markets.
The true impact of FATF grey listing will only be felt when international transactions are done and are subject to higher scrutiny and Enhanced Due Diligence (EDD) processes. Mauritius offers South African businesses a credible and tested alternative, given its strong regulatory framework, to keep their business running smoothly despite the challenges presented by FATF grey listing.
It is important for businesses to take proactive steps to mitigate the negative effects of grey listing by considering setting up a business in Mauritius.
If you’re considering the move, contact StraFin’s Corporate team of professionals for assistance with personal and professional relocation solutions and setting up a business in Mauritius.
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