FATF grey listing

South Africa and Nigeria, along with 21 other jurisdictions, have been 'grey-listed' by the Financial Action Task Force (FATF) as of 24 February 2023. Countries on the FATF grey list have been identified as having strategic deficiencies in their anti-money laundering, terrorist financing, and proliferation financing regimes, have been given a warning to address those deficiencies, but have formally committed to resolving these deficiencies quickly, within agreed timeframes, and subject to increased monitoring. The implications for the grey listing of two of the biggest economies in Africa may be far-reaching.

In relation to Nigeria, FATF notes that although Nigeria had made some progress since the adoption of its Mutual Evaluation Report in August 2021 it is required to implement FATF’s action plans. This FATF grey listing adds another layer of risk and complexity to businesses that already perceive Nigeria as a high-risk country for anti-corruption and other financial crime risks. This may put businesses with connections to Nigeria under more regulatory scrutiny, as regulators may expect them to implement more stringent AML/CFT compliance measures to mitigate the risks associated with grey listing. Furthermore, the grey listing may result in higher compliance costs and increased due diligence requirements for businesses, making transactions with Nigerian counterparties more difficult.

With respect to South Africa (which might have been perceived by businesses as having a lower risk profile compared to than Nigeria), FATF notes that South Africa has made "significant progress" on the recommendations from its Mutual Evaluation Report, which was adopted in June 2021. However, the South Africa’s inclusion on the grey list is due to gaps in its risk-based due diligence, the high intensity of financial crime, and the weaknesses of the current AML/CFT policy framework.

Regulators (GFSC, JFSC and IOMFSA) are expected to classify South Africa and Nigeria as 'higher risk' countries, necessitating increased due diligence for financial transactions with these countries.

As a trigger event, regulated businesses in the Crown Dependencies should conduct an impact assessment to determine any potential consequences or actions that may be required as a result. Regulators will specifically require businesses with ties to South Africa and Nigeria to provide their supervisor with their proposed plan of action and timeframes for completion of any required remediation.

As a result, we would expect regulated businesses to:

• Formally document their impact assessment across their client book, even if the conclusion is that no exposure to South Africa and Nigeria exists.
• Update their AML/CFT business risk assessment as needed, as well as relevant policies and procedures, such as controls on business acceptance and ongoing monitoring.
• Identify existing customers with ties to South Africa and Nigeria, including the source of funds and/or wealth of the customer, as well as associated parties, incoming and outgoing funds.
• Consider enhancing their due diligence procedures for South African and Nigerian customers and/or counterparties, including enhanced customer due diligence measures and ongoing monitoring of transactions
• Consider existing introducers/reliance arrangements on obliged persons from South Africa and Nigeria;
• Consider reviewing any contracts with South African and Nigerian third parties to ensure that they include appropriate AML/CFT clauses, such as warranties and representations regarding compliance with AML/CFT laws
• Consider alternative transaction routes, such as using correspondent banks that have strong AML/CFT compliance programs or engaging with South African and Nigerian counterparties that have already implemented strong AML/CFT measures
• Consider refreshing and/or rolling out AML/CTF training to their relevant staff to reflect these new provisions.

KPMG’s risk and regulatory professionals are available to help should you need assistance.