Businesses must make regular international payments to ensure they’re always getting the best deal possible on those global transactions. Photo: Pexels.com
Earlier this year, South Africa was greylisted by the Financial Action Task Force (FATF) for failing to comply with international standards concerning the prevention of terrorist funding, money laundering, and proliferation financing. The decision, which came despite a last-minute scramble by the government to return to compliance, was a body blow to an already struggling economy. By Harry Scherzer, CEO, Future Forex
In addition to increasing the cost of doing business in South Africa, greylisting means additional layers of due diligence for any company wanting to invest in South Africa and increased levels of difficulty for any South African wanting to take money offshore or transact with international banks. It could also result in lower levels of foreign direct investment and portfolio inflows.
Since the greylisting decision, South Africa has made significant strides in addressing the FATF’s concerns (something which the body has commended), but what if it hadn’t? What if it had continued down the path of non-compliance and had ultimately been blacklisted, joining the likes of North Korea, Myanmar, and Iran?
Dire consequences
In short, the consequences would have been dire. Blacklisting would, for instance, severely limit access to international financial services. Some financial institutions could even completely stop providing services to South African businesses. That, in turn, would make it more difficult for South African businesses to engage in cross-border transactions, access loans, or establish international banking relationships.
While they would likely have acted before then, the country’s biggest trade partners could also reduce, or even reverse, their trade deals with South Africa. That hesitance would come from the increased regulatory risks and concerns about money laundering or terrorist financing. Put more simply, those trading partners would be putting their own companies and other trading relationships at risk if they continued trading with South Africa.
And even if South Africa managed to maintain some trading relationships, they would be a lot more expensive. With restricted access to international financial services, South African businesses would have to rely on alternative, potentially more expensive channels to facilitate transactions.
South African businesses wanting to trade internationally would also face stricter regulatory measures, as would any international businesses wanting to do trade with South Africa. As a result, trade would again become more expensive and less enticing.
Not the only threat
While the response to date by South Africa means that blacklisting is unlikely (it may even be removed from the FATF’s grey list within one to three years), it’s important to remember that other actions by the country could result in similar consequences.
The government’s apparent support for Russia (despite claims of neutrality) has already threatened relations with the United States of America (US), the country’s second-biggest trading partner. In May, US Ambassador to South Africa Reuben Brigety accused the country of covertly supplying arms to Russia. As a consequence, South Africa lost further credibility as an investment destination and an already embattled rand was momentarily sent into free fall. That’s to say nothing of load shedding and a failure to properly prosecute and punish corruption.
Within such a fraught environment, it’s critical for businesses that regularly make international payments to ensure they’re always getting the best deal possible on those transactions. One of the best ways of doing so is to move their payments away from traditional banks and forex services, which often include hidden fees in their transactions.
Instead, they should look to maximise the value that they’re getting out of every transaction by using a forex provider that is committed to providing transactions at the lowest possible cost and with maximum transparency. That provider should additionally be able to provide assistance with regulations and compliance and by assisting with supporting documents to ensure deals go through timeously. Additionally, it should offer personalised service, hassle-free onboarding, and instant conversions.
Act now, reap rewards later
So, while South Africa is unlikely to be blacklisted by the FATF any time soon (for all the country’s faults, it’s a long way from being North Korea), that doesn’t mean that it’s completely out of the woods. As such, it’s still imperative that businesses do everything they can to keep costs down, especially when it comes to international payments.
* The views expressed do not necessarily reflect the views of Independent Media or IOL
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