Financial watchdog puts South Africa, Nigeria on dirty-money gray list

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, Report informs via Bloomberg.

The decisions were announced by the Financial Action Task Force. 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.

“When the FATF places a jurisdiction under increased monitoring, it means the country has committed to resolve swiftly the identified strategic deficiencies within agreed time frames,” the Paris-based agency said in a statement on its website. “The FATF does not call for the application of enhanced due diligence measures to be applied” to jurisdictions that have been added to the list, it said.

The rand slumped as much as 1.5% against the dollar after the decision was announced and as stronger-than-expected US inflation data fueled gains in the greenback.

A 2019 evaluation concluded that South Africa fell short in meeting all 11 of the FATF’s effectiveness measures to combat money laundering and the financing of terrorism. Those findings followed an era of endemic graft during former President Jacob Zuma’s nine-year rule.

While President Cyril Ramaphosa’s administration, which took over after the ruling party forced Zuma to quit in early 2018, has sought to address the deficiencies, it failed to do enough to avoid censure.

South Africa’s National Treasury said it expects the move will have limited impact on financial stability and the costs of doing business, but that it will continue working to address the FATF’s concerns. The central bank pledged to strengthen its supervision and ensure commercial lenders and other financial institutions comply fully with their obligations to safeguard and protect the financial system’s integrity.

The government recognizes that addressing its shortcomings is in South Africa’s interests and is consistent with its existing commitment to fighting crime, Finance Minister Enoch Godongwana said in a emailed statement.

The FATF said South Africa and Nigeria have undertaken to increase investigations into money laundering and terrorist financing, ensure related assets are confiscated and take other measures to beef up controls.

Nigeria and South Africa respectively have Africa’s two biggest economies and their inclusion on the gray list puts them on a par with the likes of Syria, the Democratic Republic of Congo and South Sudan. The Treasury has said it is studying how Mauritius and other nations managed to get themselves removed from the gray list, and will ask the FATF to review its status in its June plenary session.