Global body puts Nigeria, SA on ‘grey list’

The Financial Action Task Force (FATF) on Friday added Nigeria and South Africa to its ‘grey list’ of countries that need to improve efforts to tackle money laundering and terrorism financing. Legalbrief reports that it is a bitter blow for both economic giants and puts them in the unwelcome company of countries such as Syria, Haiti, Yemen and Mozambique. The watchdog's decision signals to global banks, financial institutions and investors that the countries are not fully compliant with anti-money laundering and terrorist financing standards. Fin24 reports that the FAFT said that in recent months, SA and Nigeria have made significant progress on many of its recommended actions to improve its systems. But more work is needed to increase investigations and prosecutions of money laundering, as well as the seizure of assets due to crimes. Friday's decision was not unexpected. Grey listing has historically also led to a decline in foreign investment. A report by research firm Intellidex noted last year that capital flows, foreign direct investment and portfolio inflows all tended to decline after a country was greylisted.

Both countries are likely to face a three-year slog to get themselves removed from the global list of 25 countries deemed to have inadequate anti-money laundering and counter terrorist financing controls. Business Day reports that FATF also suspended Russia’s membership on Friday. Pakistan endured more than four years on the list, Botswana three and Mauritius two, while Iceland had the quickest turnaround after spending just one year on the list. However, removal only comes after a final, on-site assessment when both FATF and the relevant country agree that all elements of a specific action plan have been largely or fully tackled. FATF will start with the next round of mutual evaluations in 2024, with the first mutual evaluation report from this round scheduled for its October 2025 plenary meeting.

In response to the news, South Africa’s Finance Minister Enoch Godongwana said the authorites would work to ‘swiftly and effectively address all outstanding deficiencies and strengthen the effectiveness of its anti-money laundering and counter-terrorist financing regime’. Fin24 reports Godongwana said Cabinet has considered the action plan put forward by the FATF and had committed to actively work with the watchdog. ‘Government recognises that addressing the action items will be in the interest of SA, and that doing so is consistent with our existing commitment to rebuild the institutions that were weakened during the period of state capture, the effectiveness of which is essential to addressing crime and corruption,’ he said in a statement.

In an analysis on the AML Intelligence site, David Lewis notes that for countries like South Africa that have suffered years of state capture, their capability to investigate and prosecute money laundering and corruption, and confiscate the proceeds of crime, has been severely eroded and needs to be rebuilt. 'The listing of Nigeria comes on the eve of an important election for the country. The main issue for many voters is the economy. Despite being a wealthy and resource rich country, citizens suffer frequent power outages, the state is losing income from oil and gas reserves to illegal activity, the persistent threat from Isil-affiliated terrorist group Boko Haram, cattle rustling, among many other challenges. For both countries, it is essential they focus on, and invest in effective implementation of measures to recover the proceeds of corruption and follow the money fuelling crime and terrorism. This includes upholding the rule of law through the criminal justice system, as well as better supervision of, and compliance by regulated sectors. This will not be news to either country, both of whom the FATF statement recognises are making progress. They are now working to tight deadlines agreed with the FATF. Failure to meet these deadlines can have even greater consequences, as we saw recently with the addition of Myanmar to the blacklist alongside Iran and North Korea.’