Abhirami Lakshmi
Staff Correspondent
The global financial crime watchdog – Financial Action Task Force’s (FATF’s)- Plenary report of 2023 which reviewed the progress since October 2022, has added Nigeria and South Africa as jurisdictions under increased monitoring known as the ‘grey list’. Grey listing basically indicates that the country is under higher monitoring by the FATF due to drawbacks in its anti-money laundering (AML) and combating the financing of terrorism (CFT) and proliferation financing (CPF) framework.
The FATF identifies jurisdictions with weak measures to combat money laundering and terrorist financing. The FATF has two categories of default countries -black and grey. As of November 2022, only three countries were on the FATF blacklist viz North Korea, Iran, and Myanmar. Countries put under the grey list are a few. Grey list is a reformative trail. Countries under this category require increased levels of monitoring to resolve deficiencies in a given timeframe. FATF comes out with such categorizations three times a year so that abundant opportunity is given to grey-listed companies to rectify the deficiencies.
However, Morocco found its exit from the grey list this year whereas eight other African countries including Burkina Faso, the Democratic Republic of Congo, Mali, Mozambique, Senegal, South Sudan, Tanzania, and Uganda remained unchanged in the list.
Though last year South Africa took rigorous measures to pass several relevant laws in accordance with FATF rules, the country was found lagging behind in initiating investigations and prosecutions against money laundering cases. The limited budget allocation for the South African Police and Judicial system was the main reason behind the country’s low ranking this time. Anyway, the additional budget allocation to the authorities promised in the recent annual budget seems to be adequate to have its grey listing removed. Otherwise, it will have to go through long-term consequences including difficulty in accessing funding and support from multilateral development institutions and official lenders.
The grey listing for Nigeria has come at a crucial period for the country. FDI flow to Nigeria has been shrinking for the past few years reaching a record low in June 2022. The FATF action is a wake-up call for the country to rethink its inactivity on measures on preventing money laundering. The country has to follow the FATF suggestions of applying effective and proportionate sanctions for noncompliance and terrorism finance.
Morocco’s exit from the grey list is regarded as well-deserved from the point of view of the sincere efforts it has taken to improve financial transparency and protect its economy against money laundering and terrorism financing. The FATF decision will now foster the trust of foreign investors in the national economy and help to regain its investment grade which it lost two years ago. Immediately after the announcement itself, the Casablanca stock exchange index gained 1.6%, which shows a good sign for the nation’s future endeavours.
The International Monetary Fund in a 2021 paper found that being put on the grey list could disrupt a country’s capital flows. Banks tend to gradually exit relationships with customers from such countries to reduce compliance costs. Therefore, financial experts are of the view that the ten nations from Africa, especially the newly added South Africa and Nigeria must focus on the remedial actions pledged by the authorities without any delay to get an eventual exit from the grey list.
