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The Financial Action Task Force (FATF) is an independent, intergovernmental body established in 1989 at a G7 Summit to serve as the global watchdog against money laundering, terrorist financing, and the financing of the proliferation of weapons of mass destruction. The FATF operates through the collective mandate of its member jurisdictions.

The FATF's highest decision-making body is the plenary, which meets three times a year and is accountable to the relevant government ministers of member states. Although its secretariat is housed at the headquarters of the Organisation for Economic Co-operation and Development (OECD) in Paris for administrative support, the FATF remains independent of OECD governance.

Its influence stems from its 40 recommendations, which have become the internationally recognised benchmark for anti-money laundering and counter-terrorist financing regulation.

Through periodic mutual evaluations, the FATF assesses whether countries have both the legal frameworks and the practical capability to combat financial crime effectively. Countries found to have strategic deficiencies can be placed on the grey list, formally known as the list of jurisdictions under increased monitoring.

Despite its considerable influence, reinforced by support from bodies such as the G20, the International Monetary Fund (IMF), and the World Bank, the FATF possesses no direct investigative, prosecutorial, or law enforcement powers. It cannot arrest individuals, seize assets, or compel prosecutions. Instead, implementation and enforcement remain entirely the responsibility of national authorities.

Why South Africa was Greylisted

South Africa was placed on the FATF grey list on 24 February 2023 following years of deteriorating institutional capacity, much of it linked to the state capture era.

The country's 2021 Mutual Evaluation Report found that South Africa passed only 20 of the 40 recommendations outlined by the FATF, which concluded that South Africa had substantial weaknesses in the effectiveness of its anti-money laundering and counter-terrorist financing regime.

Following its 2021 evaluation, the FATF gave South Africa a year to address 67 recommended actions aimed at strengthening the country's anti-money laundering and counter-terrorist financing regime. However, when that period expired, the FATF concluded that South Africa had not made sufficient progress. The problem was not primarily a lack of legislation. Rather, the FATF found that, while many of the necessary laws were already in place, South African authorities were failing to produce meaningful enforcement outcomes.

Specifically, the FATF found that South Africa struggled to effectively investigate and prosecute complex money laundering cases, particularly those linked to organised crime and corruption. Authorities were not doing enough to trace, freeze, and confiscate the proceeds of crime. Mechanisms for identifying terrorist financing risks remained underdeveloped, while the implementation of targeted financial sanctions lacked both speed and consistency.

The FATF also identified weaknesses in the supervision of high-risk non-financial gatekeepers. Attorneys, estate agents, trust service providers, and other designated non-financial businesses and professions were not being monitored effectively for compliance with anti-money laundering obligations.

Another major concern was the lack of beneficial ownership transparency. Criminals were often able to hide the true ownership of companies and trusts behind opaque corporate structures, making it difficult for investigators to identify the individuals ultimately controlling assets and financial flows.

These shortcomings were compounded by poor coordination and information-sharing between key institutions, including the Financial Intelligence Centre (FIC), the South African Police Service (SAPS), the National Prosecuting Authority (NPA), and other enforcement agencies.

As a result, South Africa was greylisted in February 2023 and placed under increased monitoring by the FATF. The country was subsequently required to implement a 22-point action plan designed to address these strategic deficiencies and demonstrate measurable improvements in enforcement and oversight.

How South Africa Exited the Grey List

Following its greylisting, South Africa embarked on an intensive reform process spanning more than two years.

This included the passage of the General Laws (Anti-Money Laundering and Combating Terrorism Financing) Amendment Act, 2022, which amended multiple statutes to address FATF concerns. Reforms strengthened beneficial ownership disclosure requirements, enhanced supervisory powers, improved access to financial intelligence, and expanded mechanisms for implementing targeted financial sanctions.

The country progressively completed each of the 22 action items agreed with FATF. These included demonstrating improvements in investigations and prosecutions, increasing asset forfeitures, improving supervision of accountable institutions, and strengthening the use of financial intelligence.

Following that verification process, South Africa formally exited the grey list in October 2025.

What Happens Next?

Exiting the grey list did not permanently resolve South Africa's FATF obligations.

The country now enters a new evaluation process, which is expected to run through to 2027. Unlike previous assessments, the methodology of this process places far greater emphasis on measurable outcomes rather than legal architecture alone.

Evaluators will seek evidence that institutions are producing sustained results. This includes demonstrating successful investigations into sophisticated money laundering schemes, prosecuting high-level financial criminals, confiscating illicit assets, and effectively supervising sectors vulnerable to abuse.

Emerging risks will also receive heightened attention, including the regulation of virtual asset service providers and the monitoring of crypto-related financial activity.

The central question will no longer be whether South Africa has enacted the appropriate laws. Instead, it will be whether those laws are consistently delivering tangible outcomes.

Why Greylisting Matters

Greylisting formally signals to the international financial system that a jurisdiction presents elevated financial crime risks. Global banks, investors, and correspondent institutions must therefore apply enhanced due diligence measures when dealing with entities from that country.

In practice, this can result in:

• •additional documentation requirements for cross-border transactions;
• •longer processing times for international payments;
• •higher compliance costs for banks;
• •more stringent scrutiny from foreign counterparties;
• •increased costs of raising capital internationally;
• •reduced appetite among foreign investors; and
• •greater caution from development finance institutions.

As a consequence transactions become slower, more expensive, and more administratively burdensome.

These additional frictions ultimately ripple through the broader economy, increasing costs for businesses and reducing competitiveness.

Why the Illicit Economy Matters

A recent report published by The Common Sense, Shadow State Rising, explains how South Africa's illicit economy has grown into a parallel system of trade and finance that now rivals the scale and influence of key formal sectors. It operates outside legal and regulatory frameworks yet penetrates almost every corner of the legitimate economy. South Africa's illicit economy poses a direct challenge to its FATF standing because it provides a real-world test of whether the country's anti-money laundering framework is effective.

Illegal mining, narcotics trafficking, counterfeit trade, procurement fraud, and organised criminal activity generate enormous illicit proceeds that must eventually be integrated into the legitimate financial system. The larger and more sophisticated these criminal markets become, the greater the burden placed on enforcement agencies to identify, investigate, and disrupt them.

Profits derived from illicit activity can also be used to corrupt officials, undermine institutions, and weaken the very agencies tasked with combating financial crime.

As the region's largest and most sophisticated financial hub, South Africa occupies a critical position within sub-Saharan Africa's financial architecture. Domestic criminal syndicates can therefore intersect with transnational networks, transforming local criminality into broader international concerns.

Because the FATF increasingly focuses on effectiveness, a failure to secure meaningful prosecutions, confiscate criminal assets, and dismantle sophisticated financial networks could raise renewed concerns about institutional resilience.

South Africa’s illicit economy is likely to pose the ultimate test that its authorities would have to pass in order to keep the country from being re-greylisted by the FATF. You can click here to read The Common Sense’s deeper investigation into South Africa’s illicit economy and the shadow state that has arisen from it.