The global money laundering and terror financing watchdog the Financial Task Force (FATF) added South Africa and Nigeria to its “grey list”.
This decision of the Paris-based organization acts as an indicator for the global banks, financial institutions and investors that these countries are not fully compliant with money laundering and terrorist financing standards.
In 2023 according to the current FATF’s added strategic policies, FATF is helping these countries find the deficiencies in their system in order to counter money laundering, terrorist financing and proliferation financing in their respective regimes.
SOUTH AFRICA AND FATF
South Africa has been a member of FATF since 2003. In 2009 the FATF applauded South Africa’s progress in developing its system for combating money laundering and financing of terrorism. In 2021 during the 5-day Plenary Delegates meeting of the Global Networks and observers’ organization, it was observed that a mutual evaluation of South Africa and Japan is required to strengthen global action against the financing of global terrorism and crime.
FATF also released a Mutual Evaluation Report reviewing the effectiveness of the measures taken by the South African Government and their compliance with the recommendations made by FATF. This assessment was led by the International Monetary Fund and concluded stating that even though the South African legal system is well equipped for handling this key issue, there are indeed certain shortcomings. The report also encouraged the government to contrive better financial intelligence products for keeping records and scanning financial transactions.
Last year President Cyril Ramamphosa’s government passed several laws in order to fill in the gaps pointed out by FATF in its various reports, but to show on paper the actual progress has been a real task for the government.
South Africa has now become the second G-20 country after Turkey that has ever been put under the grey list of FATF. South Africa’s central bank on Friday stated that it has a “zero-tolerance approach” in addressing the violation of the financial system.
NIGERIA AND FATF
Nigeria is a GIABA (Inter-Governmental Action Group against Money Laundering in West Africa) member. GIABA is a FATF-Style Regional Body which works for countering money laundering in compliance with international standards. It is also a country whose crime rate has been put under a high category.
In 2013, FATF released a report analyzing terror financing in West African countries. The main agenda of this report was to help policymakers and regulating authorities get acquainted with a better understanding of the nature and dynamics of terror financing in West African countries.
In 2021, using the methodology used in the 2013 report, FATF released a report providing a detailed analysis of measures taken by the Nigerian government to combat money laundering and financing of terrorism and proliferation.
In 2023, in FATF’s report on Nigeria’s progress in strengthening measures to tackle money laundering put forth the analysis that Nigeria has worked towards addressing the deficiencies in technical compliance.
EFFECT OF GREY – LISTING ON COUNTRIES
The grey-listed countries are not subject to any set of sanctions from the FATF side, but being placed on this list has several implications for their economies and how they are perceived by the international community.
These countries are subject to a greater level of financial scrutiny by the banks for conducting transactions. For investors or banks to conduct transactions they have to be extra cautious and hence costs them more time and resources, which can have ill effects on the frequency of financial transactions of that respective country. This results in a substantial decline in their capital flow and foreign direct investments, as the banks often seem to curb out relationships with customers of these countries to reduce their compliance costs.
The grey-listed countries are automatically considered under high-risk jurisdictions by the European Union and the UK. It reduces their trade opportunities and their global market shrinks drastically.
South Africa and Nigeria are the two biggest economies of the African region, these countries being put on the grey list will not only affect the economies of their respective countries but will hamper the financial market all across Africa.