Russia suspended from FATF, South Africa and Nigeria on "grey list"

The Financial Action Task Force (FATF) has added South Africa and Nigeria to its list of countries to watch.

Russia was also thrown out of the organisation, with FATF ultimately announcing Moscow's suspension from the task force.

“The Russian Federation’s actions unacceptably run counter to the FATF core principles aiming to promote security, safety, and the integrity of the global financial system”, the Paris-based group said in a statement.

Likewise, South Africa and Nigeria were officially added to the FATF's "Jurisdictions Under Enhanced Surveillance," sometimes known as the "grey list."

According to studies, being placed on the watchlist has a detrimental influence on the GDP of an economy.

In Johannesburg, the South African rand continued losses against the dollar following the announcement of the watchdog's judgement, trading down roughly 1% on the day.

According to analysts, increasing FATF oversight may result in heightened due diligence measures for South African consumers at overseas financial institutions. It may also make it more difficult for South Africa to obtain finance and assistance from multilateral development banks and official lenders.

In separate remarks, South Africa's central bank and National Treasury said they were aware of the watchdog's decision and will seek to address its concerns.

According to the FATF, South Africa and Nigeria have made high-level political promises to fix the flaws it discovered.

Separately, the FATF stated that Qatar's technical compliance with its criteria was high, but the Gulf state needed to improve in its AML/CFT fight and other areas.

Qatar did not immediately reply to demands for comment on the Financial Action Task Force's statement (FATF).

According to the watchdog, Qatar should make it simpler to obtain information on the ultimate ownership of companies, as well as enhance efforts to prevent the financing of weapons of mass destruction.

It also stated that a full report on Qatar would be issued by May.

“Qatar needs to make important improvements in certain areas, including in its law enforcement response to money laundering and terrorism financing in particular and its use of financial intelligence,” added the inter-governmental body which monitors governments’ efforts in these areas.

In March 2022, the FATF placed Qatar's Gulf neighbour, the United Arab Emirates, on its "grey list," indicating that the country will be subject to enhanced scrutiny. The UAE government stated at the time that it had a "strong commitment" to working closely with FATF on areas for improvement.

This is a critical juncture for the FATF, a Paris-based sub-organization of the OECD.

It may play into the hands of those who believe the body is overly Westernized. In a world characterised by geopolitical tensions, Russia, China, and others may exploit today's choices to undermine the global financial crime watchdog by claiming that it does not take action against the EU or other western states.

Yet, it is thought that FATF has previously greylisted Malta and was on the verge of adding Latvia to its watchlist. The diligent effort of the Latvia FIU in establishing effective Anti-Financial Crime (AFC) protocols protected the Baltic nation from inclusion on the list.

But, the fact that a country like as the tiny principality of Monaco is not on the greylist, despite abysmal AFC processes, will be used to accuse the AFC of being untrustworthy.

FATF terminated Russia's membership today, citing Moscow's war in Ukraine as a violation of the organization's standards.

For the last year, Ukraine has repeatedly urged the group to exclude Russia entirely.

Despite the fact that Russia has been suspended, it remains a member.

“The Russian Federation remains accountable for its obligation to implement the FATF Standards. The Russian Federation must continue to meet its financial obligations,” the FATF said.

It further stated that the situation would be reviewed at each of its plenary meetings.

The FATF is an intergovernmental organisation that supports the fight against money laundering and terrorism financing by establishing worldwide standards and monitoring compliance.

There have also been updates on Cambodia and Morocco, which are no longer on the list.

Nonetheless, the list of High-Risk Jurisdictions subject to a Call for Action (the "blacklist") remains intact.

"In February 2023, South Africa expressed a high-level political commitment to cooperate with the FATF and ESAAMLG to increase the efficacy of its AML/CFT framework," the agency said in explaining its decision to place South Africa on the grey list.

"Following the approval of its MER in June 2021, South Africa has made great progress on several of the MER's suggested actions to improve its system including by adopting national AML/CFT policies to handle higher risks and newly updating the legal framework for TF and TFS, among others.

"South Africa will work to implement its FATF action plan by: (1) demonstrating a sustained increase in outbound MLA requests that aid in ML/TF investigations and confiscations of various types of assets in accordance with its risk profile; and (2) demonstrating a sustained increase in inbound MLA requests that aid in ML/TF investigations and confiscations of various types of

(2) Improving DNFBP risk-based supervision and demonstrating that all AML/CFT supervisors implement effective, appropriate, and effective punishments for noncompliance;

(3) ensuring that competent authorities have timely access to correct and up-to-date BO information on legal persons and arrangements, as well as imposing consequences on legal persons who violate BO responsibilities;

(4) exhibiting a persistent increase in law enforcement agencies' requests from the FIC for financial intelligence for ML/TF investigations;

(5) demonstrate a consistent growth in major and complicated money laundering investigations and prosecutions, as well as the full range of TF activities in accordance with its risk profile;

(6) Improving its detection, seizure, and confiscation of proceeds and instruments of a broader variety of predicate offences in accordance with its risk profile;

(7) updating its TF Risk Assessment to inform the implementation of a comprehensive national counter-terrorism financing strategy; and (8) ensuring the effective implementation of targeted financial sanctions and demonstrating an effective mechanism for identifying individuals and entities meeting the criteria for domestic designation.

In response to Nigeria's decision, the FATF stated:

“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.

"Since the adoption of its MER in August 2021, Nigeria has made progress on some of the MER's recommended actions to improve its system including by improving its AML/CFT legislative framework, updating its assessment of inherent ML/TF/PF risks and strengthened its implementation of targeted financial sanctions. Nigeria will attempt to put its FATF action plan into action by:

(1) completing its residual ML/TF risk assessment and upgrading its national AML/CFT plan in order to ensure alignment with other national policies relevant to high-risk predicate offences;

(2) Strengthening official and informal international collaboration in response to ML/TF threats;

(3) increasing risk-based AML/CFT supervision of FIs and DNFBPs, as well as the adoption of preventive measures in high-risk industries;

(4) Ensuring that competent authorities have prompt access to correct and up-to-date BO information on legal persons, as well as imposing sanctions for violations of BO responsibilities.

(5) indicating a growth in the FIU's transmission of financial intelligence and its usage by law enforcement;

(6) indicating a consistent growth in ML investigations and prosecutions in accordance with ML concerns;

(7) aggressively detecting and sanctioning violators of currency disclosure obligations, as well as preserving full data on frozen, seized, confiscated, and disposed assets;

(8) exhibiting a sustained increase in investigations and convictions of various types of TF activities that are risk-based, as well as improving interagency collaboration on TF investigations; and

(9) carrying out risk-based and targeted outreach to NPOs at risk of TF abuse, as well as risk-based monitoring for the subset of NPOs at risk of TF abuse, without interfering with or discouraging lawful NPO activities."

By fLEXI tEAM