The Financial Action Task Force (FATF) has added both South Africa and Nigeria to its ‘grey list’ which is made up of countries under special scrutiny for failing to implement standards to prevent money laundering and terrorism financing.
The FATF has updated its statements identifying high-risk and other monitored jurisdictions. Nigeria has entered the FATF’s Jurisdictions under Increased Monitoring list, often referred to as the 'grey list', following the conclusion of the FATF Plenary.#Nigeria
1/2 pic.twitter.com/6Jet1E1Jyv— FATF (@FATFNews) February 24, 2023
FATF is an intergovernmental organization formed to combat terrorist financing and money laundering. It functions as a worldwide standard-setting entity by continually evaluating whether countries adhere to fundamental principles of financial regulatory oversight.
The FATF grey list refers to the FATF’s practice of publicly identifying countries with strategic Anti- Money Laundering and Countering the Financing of Terrorism (AML/CFT) deficiencies.
When a country is grey-listed by the FATF, it can have severe repercussions for the economy. This is because it may discourage investment, signify a lack of adherence to the rule of law, and frequently lead to a reduction in the country’s investment grade or rating.
South Africa and Nigeria will be joining a host of African countries already in the grey list (updated as of September 2023):
- Burkina Faso
- Cameroon
- Democratic Republic of Congo (DRC)
- Mali
- Mozambique
- Nigeria
- Senegal
- South Africa
- South Sudan
- Tanzania
- Uganda
“When the FATF places a jurisdiction under increased monitoring, it means the country has committed to resolve swiftly the identified strategic deficiencies within agreed timeframes and is subject to increased monitoring,” FATF indicates.
At the same time, FATF says Morocco is not longer on the list.
Interestingly, in October 2021, Botswana was grey listed by FATF before its removal in early 2022 after passing a virtual assets bill to regulate trading of cryptocurrencies. Soon after its removal, the South African country passed a virtual assets bill to regulate the trading of cryptocurrencies and digital tokens after it was put under a one-year observation period in October 2021.
The inclusion of South Africa and Nigeria by the organization based in Paris is expected to result in heightened due diligence checks for customers of financial institutions in these nations concerning international banking and finance.
The impact of being grey listed by FATF may also extend to the state level, particularly when attempting to obtain credit or borrowing from international financial institutions and multilateral organizations.
The listing is seen as a setback for Africa’s largest economy which was already making efforts to address FATF loopholes.
At the same time, the South African Rand is reported to have experienced further depreciation against the dollar, resulting in a decline of approximately 1.3% on the news.
However South Africa’s national treasury says it expects only a limited impact on financial stability and the costs of doing business in the country, as a result of the grey listing. Together with the Central Bank, the treasury has indicted it is working to address FATF’s concerns.
“The costs of increased monitoring will be substantially lower than the long-term costs of allowing South Africa’s economy to be contaminated by the flows of proceeds of crime and corruption,” it said.
Above the grey list, FATF has a blacklist which currently has three countries, Myanmar, North Korea and Iran.
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