A Western Financial Whip Was Lifted From South Africa’s Back – But Now We Need Another |
Logo der Financial Action Task Force on Money Laundering – Public Domain
The October 24 decision by the Paris-based Financial Action Task Force (FATF) to end the ‘grey list’ stigmatization against the banking systems of South Africa, Mozambique, Nigeria and Burkina Faso raises tough questions about these societies’ self-interest, in contrast to the real winners from the move: free-wheeling financiers of capital flight, of drugs and of (alleged) terrorism.
As Reuters reported, “Analysts say getting off the list could make it easier for capital to enter the four African countries. It could also benefit companies and households in those countries by lowering funding costs. The International Monetary Fund (IMF) has estimated that being on the list reduces foreign capital inflows by approximately 7.6% of gross domestic product.” Likewise, newspaper headlines in Johannesburg screamed, “Markets cheer as South Africa exits FATF grey list.”
In February 2023, the local finance ministry (Treasury) and central bank were deemed incapable of enforcing FATF’s rudimentary regulations against errant bankers, and warnings to Pretoria from the FATF headquarters in Paris – which were regularly issued since 2019 – finally became a formal penalty. But South African authorities have since then jumped through 22 different hoops to try to make amends, leading to a positive review.
South African elites view the FATF – a creation of the G7 Western imperialist powers – the way they do the New York credit ratings agencies and IMF, as infallible, rigorous and worthy of respect. But the world’s leading expert on tax havens and a former McKinsey chief economist, Jim Henry, reminds me (in private correspondence) that in reality, “The FATF grey list is a joke. It routinely skips over the real tax havens” such as the City of London, Wilmington and Zurich. He points to how the most dubious new site for storing ill-begotten gains, Dubai, has been rewarded undue credibility by both the Biden Administration and the BRICS bloc of emerging powers – which it joined in 2024 – and hence there was an early, unjustified exit of the United Arab Emirates from the grey list.
Henry continues his critique: “FATF’s actual budget for enforcement is very limited. Its overall budget for pursuing Anti-Money-Laundering has shrunk. And it doesn’t have the guts to take on enablers: bankers, lawyers and consultants.” The FATF is not effective in any case, according to Henry, because “most international money laundering arrangements these days are multi-haven, fast, and composed of intrinsically anonymous assets like crypto, commercial real estate, private equity. The AI challenge is already making all this far worse.”
It’s terribly important to get a handle on illicit financial flows. As Henry reminds, “The ability of countries like South Africa to avoid being awash with dirty money, and to levy taxes on wealthy individuals and corporations, is being squeezed by the dominant players in the international system.”
One reason for the squeeze is that the FATF, IMF, financial commentators and corporate journalists do not have a broad enough field of vision and so would logically not mention much less consider many other factors that throw the grey delisting into question.
Corporate corruption on the rise, and rife in South Africa
Most importantly, the FATF decision occurs in the context of a corporate corruption pandemic in South Africa. Since the early 2000s, firms in Johannesburg, Stellenbosch, Cape Town and Durban have been considered the ‘world fraud champs’ in biannual economic crime surveys by PriceWaterhouse Coopers (PwC). This in part the result of regulators such as the Johannesburg Stock Exchange (JSE) acting far too late and biting with too few teeth.
Investors and the society suffer systemic graft but the JSE continues to soar, because when not being exported, its listed corporations’ profits are gambled in........