South Africa and Nigeria have been placed on a global financial watchdog’s so-called gray list denoting nations with shortcomings in tackling illicit financial flows, a move that scars their international reputations and may raise costs for banks and asset managers.
The gray listing of Africa’s leading economies—South Africa and Nigeria—by global anti-money laundering and terrorism financing watchdog, Financial Action Task Force (FATF), is expected to present far-reaching setbacks to the two countries’ economic growth.
While South Africa’s inclusion on the list was widely flagged as a risk, the possible addition of Nigeria attracted little attention. Morocco and Cambodia were taken off the list after improving their controls.
The warning by FATF, which is based in Paris, comes in the midst of a difficult financial phase for both countries. They continue to witness their own unique challenges, but economic downturns caused by stagnated growth are a common denominator.
Gray listing, which precedes blacklisting, means that a country is under FATF’s increased monitoring as it cooperates with the taskforce to address the pertinent concerns including money laundering and terrorism financing.
It also piles more pressure as these countries are required to do more to address the underlying issues of organized crime, illicit finance, counterfeit trade, tax evasion, and improve their ability to fight financial crime.
Gray listing, for instance, exposes the two countries to increased scrutiny by investors and financial institutions across the world. Its portfolio and general investment inflows are therefore expected to significantly shrink making it difficult for them to acquire lending or investment.
“It similarly presents an increase in the risk category for all South African clients [and by extension Nigerian clients] at many international financial institutions, especially those in the EU and UK.
Being added to the grey list is a reputational knock for the South African government, which has been trying to address shortcomings identified by the FATF.
