Closer scrutiny of cross-border transactions is impacting individuals and businesses

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South Africa is intensifying efforts across key institutions to secure the country’s removal from the Financial Action Task Force’s grey list, says the head of the FSCA.

“The implications are too ghastly to contemplate should we not be able to be removed from the grey list within the 24-month period,” FSCA commissioner Unathi Kamlana told Bloomberg last week. “Our focus is on getting ourselves off.”

The FATF, the global financial watchdog, placed South Africa on its watchlist in February citing deficiencies in tackling illicit financial flows and terrorism financing. It gave the country until January 31, 2025, to address the shortfalls.

National Treasury is leading talks with government departments, the South African Reserve Bank, and regulators such as the FSCA, which is primarily focusing on increasing capacity by hiring more people, developing supervisory expertise and skills, as well as deepening the stringency of its sanctions and penalties, in line with FATF’s recommendations, according to Kamlana.

“We have already started with the work around that and allocated a budget to increase headcount, so that’s not an issue that will be outstanding for long,” he said. “The second part, which is tricky, one needs to be very risk-based and proportional in terms of that, so you don’t just increase the amount of the fine for the sake of it.”

Impact on businesses and individuals

Kamlana’s remarks come as individuals and businesses are experiencing the impact of grey-listing.

In March, Noel Doyle, the chief executive of Tiger Brands, said dollar payments from the company’s customers in countries such as Liberia and Nigeria were taking much longer to reflect on its books. This was a direct consequence of the increased scrutiny brought about by grey-listing. Nigeria is also on the FATF’s grey list.

Victoria Lancefield, director of expatriate tax and banking engagement at Africorp Treasury, says one of the main key impacts of grey-listing is the increased scrutiny of cross-border financial transactions, particularly when remitting funds out of the country.

Previously, funds were remitted through a clearance PIN known as the foreign investment allowance. The South African Revenue Service (Sars) has upgraded this to the Approval for International Transfers (AIT) process, Lancefield said in an interview with eNCA.

In the case of tax non-residents, the AIT process applies to all cross-border capital transfers, regardless of the amount involved. This means that even small transactions, such as sending money to family members or transferring encashed retirement fund interests abroad, require Sars approval before the funds can be remitted out of the country.

For tax residents, the process is a requirement for any funds remitted above the annual single discretionary allowance of R1 million per taxpayer.

To obtain AIT approval, the sender must provide detailed information about the transaction, including the purpose of the remittance, the identity of the recipient, and the source of the funds to be transferred. Sars will review this information and may request additional documentation or information before granting approval.

The new process is more thorough and stringent, and individuals and businesses must provide Sars with far more information about their local and foreign assets and liabilities, Lancefield said.

All sectors are affected

The impact of the AIT is not limited to the banking sector. Various business sectors, including property, financial services, and legal services, are also impacted by the AIT approval rules, particularly those that rely on trade with foreign entities and associated cross-border transactions.

Financial institutions have also heightened their compliance requirements. Banks are requesting more information and documentary evidence when individuals and businesses transfer funds abroad, Lancefield said.

In sum, the compliance requirements have made it more challenging to conduct cross-border business or transactions. The procedures are time-consuming nature and have added to the administrative costs.

Lancefield doubted South Africa will get off the grey list in the next two-and-a-half years.

Mauritius got off the list in 18 months, but South Africa’s financial sector is significantly larger than Mauritius’.

“The word on the street” is that South Africa will be on the grey list for five years, she said.

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