South Africa and Nigeria put on anti-money laundering ‘grey-list’

Africa’s two largest economies have been put on warning by the global anti-money laundering watchdog over shortfalls in combating illicit finance and organised crime.

The Paris-based Financial Action Task Force said on Friday that it was placing South Africa and Nigeria on its “grey-list” of countries that needed to do more to improve their ability to fight financial crime, exposing them to greater scrutiny by investors and banks around the world.

FATF actions can strongly affect how the financial probity of countries is perceived. The G7-created body can ultimately “blacklist” banking systems over serious deficiencies in stopping money laundering and terrorist financing.

South Africa is only the second G20 economy after Turkey to have been added to the FATF grey-list. The United Arab Emirates, Albania and Yemen are also among those grey-listed. Only three countries — Iran, North Korea and Myanmar — are blacklisted.

The watchlist does not technically call for greater due diligence of countries named, but in practice banks and investors can often subject affected transactions to more scrutiny — costs that the troubled economies of South Africa and Nigeria can ill-afford.

South African banks have already said they have strengthened controls to mitigate the effects of the grey-listing. “Importantly, 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,” the South African Treasury said on Friday.

President Cyril Ramaphosa’s government raced last year to pass laws in order to plug gaps identified by the FATF, but it has struggled to show real progress in investigating and prosecuting organised crime and corruption scandals tied to the governing African National Congress.

Nigeria’s grey-listing comes just a day before it holds presidential and parliamentary elections, and after cash shortages linked to measures to prevent vote-buying have been hitting economic activity.

South Africa has made “significant progress” to meet recommendations to improve laws and develop better policies, the task force said. Nigeria “has made progress”, it added.

South Africa’s central bank said on Friday in response to the grey-listing that it had a “zero-tolerance approach when addressing the abuse of the financial system by money launderers or terrorist financiers”.

“South Africa’s hard work resulted in most of the identified deficiencies being addressed within the 12-month observation period afforded to South Africa,” the reserve bank added.

The FATF also suspended Russian as a member on the first anniversary of the invasion in Ukraine, a significant sanction by an agency whose reach extends beyond western financial systems.

Russia’s actions “unacceptably run counter to the FATF core principles aiming to promote security, safety, and the integrity of the global financial system”, such as signs of involvement in arms trading and cyber crimes over the war, the watchdog said.

Serhiy Marchenko, Ukrainie’s finance minister, called in the Financial Times this month for western nations to expel Russia from the task force in order to “significantly increase the cost of doing business with Russia and effectively choke Putin’s ability to finance his illegal war of aggression”.