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FATF grey-list Nigeria and South Africa

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By Usman Oladimeji

International investors and banks are scrutinizing these nations more closely.

Amidst Nigeria’s increasing corruption levels, affecting practically every area, analysts worry that the country’s growth and development are threatened. Many people in the nation believe that corrupt officials are misusing public funds to line their own pockets and contributing little to nothing to the country. In tandem, the Financial Action Task Force (FATF), an international anti-money laundering watchdog, has placed Nigeria and South Africa on its “grey list” of nations that have failed to meet anti-money laundering and counter-terrorism funding requirements.

With the incapacity to combat money laundering and financial crime, FATF noted that international investors and banks are scrutinizing these nations more closely. The acts of the FATF may have a significant impact on how nations are seen in terms of their fiscal credibility. The G7-created committee has the authority to “blacklist” financial institutions with major shortcomings in combating money laundering and terrorism financing. After Turkey, South Africa is the only other member of the Group of Twenty with a grey-listed economy by the Financial Action Task Force. Other countries on the grey list include the UAE, Albania, and Yemen. Three nations have been blocked such as Iran, North Korea, and Burma.

South African banks have taken action to lessen the impact of the grey-listing.

Technically, the listing does not require more due diligence of the nations identified. Nevertheless, in reality, banks and investors may increase their inspection of impacted transactions, a cost that countries like South Africa and Nigeria with stimulating economic growth cannot afford. However, the South African banks have taken action, stating that they are putting in place steps to enhance controls in an effort to lessen the impact of the grey listing. The South African Treasury claims that permitting the country’s economy to be influenced by the flows of proceeds of crime and corruption would result in far higher long-term costs than the expenses of greater surveillance.

The grey listing of Nigeria by the FATF comes as the nation prepares for presidential and legislative elections and after cash shortages caused by anti-vote-buying laws have hampered economic activity. Nigeria has improved, according to the task group, while South Africa has made “great progress” in implementing suggestions to strengthen laws and create more robust policies. On Friday, in reaction to the grey-listing, the South African Reserve Bank said that it had a “zero-tolerance attitude” to preventing the use of the financial system for illegal activities such as money laundering or the funding of terrorism.

Increased surveillance jurisdictions are actively working with the FATF.

It was reported in November of 2022 that the Independent Corrupt Practices and Other Related Offences Commission (ICPC) had earlier warned Nigeria that it might be grey-listed by the Financial Action Task Force. At the same time, the Commission urged legal professionals to stop engaging in illegal and unethical behaviour, saying that doing so would set the country up for being grey-listed. The ICPC chairman, professor Bolaji Owasanoye, made this point in a speech, saying that the attorneys’ illegal behaviour is grooming Nigeria for this tragedy.

Nigeria has been re-rated on five separate suggestions owing to the strides it has made in fixing the technical compliance issues highlighted at its 2021 Mutual Evaluation. Increased surveillance jurisdictions are actively working with the FATF to resolve strategic gaps in their anti-money laundering, terrorist financing, and proliferation funding regimes. When the FATF puts a jurisdiction under enhanced monitoring, it implies that the government has agreed to address the identified strategic shortcomings within specified timelines promptly and is thus subject to enhanced monitoring.

The gov’t to carry out tasks outlined in its FATF action plan.

In February 2023, Nigeria made a high-level political commitment to work with the FATF and GIABA to strengthen the effectiveness of its AML/CFT regime. The Nigerian government is committed to carrying out the tasks outlined in its action plan. These include, but are not limited to, increasing formal and informal international cooperation in accordance with ML/TF risks, exhibiting an increase in the distribution of financial intelligence by the FIU and its use by LEAs, and demonstrating a sustained rise in ML investigations and prosecutions in line with these risks.

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