FATF(The Financial Action Task Force) Global anti money laundering watchdog on Friday included South Africa and Nigeria on its “grey list” for failing to combat money laundering and terrorism financing, adversely impacting Africa’s two largest economies. Furthermore, FATF also suspended Russia’s membership on account of the one-year anniversary of its full-scale invasion of Ukraine.
Key Highlights
What is FATF?
FATF is an intergovernmental organization that combats money laundering and terror financing. It checks to see if countries are following basic principles of financial regulations. The so-called grey listing of a country on the FATF list is unfavourable for a country’s economy as it discourages investment, and results in the downgrading of a country’s investment rating.
FATF included South Africa and Nigeria on its “grey list”
FATF added South Africa and Nigeria, due to which clients at financial institutions in these countries are also likely to experience increased rigorous checks in international banking and finance. The result will also be felt on the state level when it comes time to borrow funds from international financial institutions.
The decision of the Paris-based Financial Action Task Force indicates to global banks and financial institutions that these countries are not fully adhering to anti-money laundering and terrorist financing standards. This was despite vigorous efforts made by South Africa to pass several significant laws, as well as a high-level delegation sent to the FATF recently to make representations. FATF also announced the inclusion of South Africa and Nigeria to the “grey list” of countries under rigorous supervision to implement norms to prevent money laundering and terrorist financing.
FATF recommends areas that African nations still needs to work
The anti-money laundering organization stated that there had been relevant progress by South Africa but that more needed to be done in terms of increasing investigations and probe related to cases of money laundering, as well as the seizure of assets which were the proceeds of terrorist activities.
“When it places a jurisdiction under increased probe and monitoring, it means the country has committed to resolve smoothly the identified deficiencies within a specified time frame and is also subject to increased monitoring. This list is often referred to as the ‘Grey List’, the global entity said in a statement after its meeting in Paris.
Paris-based organization listed significant areas that African nations still needed to put effort into, in order to have its grey listing removed. These include authorities applying effective and proportionate sanctions for non acquiescence; showing a substantial increase in investigations and prosecutions of serious money laundering; enhancing probe and identification, confiscation of proceeds of crimes; and ensuring the effective implementation of financial sanctions.
Challenges faced by South Africa and Nigeria
South African officials, authorities and judicial system have been handicapped in recent years by limited budget allocations to carry out these tasks. On Wednesday 22nd February, during his annual Budget speech, Finance Minister, Enoch Godongwana, announced additional budget allocation to the respective officials to carry out the task. Reacting to the FATF decree, Mr. Godongwana pledged in a statement on Friday 24th February,that South Africa would work swiftly and effectively to address all the recommendations listed by the anti-money laundering organization that were still outstanding.
Experts said that the grey listing would affect foreign direct investment in South Africa and also make it more difficult for state-owned enterprises such as national electricity supplier ‘Eskom’ and public transport network ‘Transnet’ to borrow funds abroad. South Africa is the second nation in the G20 economy after Turkey to have been included on the Paris-based organization’s grey list. Iran, North Korea and Myanmar are blacklisted.
FATF suspends Russia’s membership
The Financial Action Task Force suspended Russia’s membership on the one-year anniversary of its full-scale invasion of Ukraine.“The Russian Government actions unacceptably run counter to the organization’s principles looking forward to promoting security, safety, and integrity of the global financial system,” the global financial entity said.
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