Nigeria was placed on the Grey List by the Financial Action Task Force (FATF)[1] alongside 21 other countries including South Africa, Burkina Faso, Cameroon, etc, in 2023. Since being put on the Grey List, Nigeria has been placed under increased monitoring by the FATF, and this has had consequential effect on transactions involving the country, as well its international outlook for business. Typically, to be removed from the Grey List, the concerned countries must address the shortfalls identified in FATF's recommendations by strengthening their Anti-Money Laundering (AML)/Countering the Financing of Terrorism (CFT)/Countering Proliferation Financing (CPF) regimes. The CBN governor, has stated that the apex bank is working towards getting Nigeria out of the Grey List in order to foster the $1 billion monthly diaspora remittances, which the CBN is targeting.[2] Compliance with the FATF recommendations could therefore have far reaching implications on businesses, the financial sector in Nigeria, and the economy as a whole.
This article seeks to appraise the steps taken by Nigeria since its placement on the Grey List, and proffers recommendations toward exiting the Grey List by the May 2025 deadline.
Impact on Businesses and Foreign Investments
The FATF keeps two lists on which it identifies countries with weak measures to combat money laundering, terrorist financing, and financing of nuclear proliferation – the Black List and the Grey List. FATF consequently calls on these countries to set in place the necessary reforms to address AML/CFT deficiencies. The countries placed on the Black List (otherwise known as High-Risk Jurisdictions subject to a Call for Action) are those identified by the FATF as high-risk jurisdictions with serious strategic deficiencies to countering AML/CFT/CPF. The FATF requires countries on the Black List to urgently improve their legal and regulatory frameworks to combat money laundering and terrorist financing based on the FATF’s recommendations. They are also mandated to track and report on their implementation of action plans to address AML/CFT deficiencies, to apply enhanced customer due diligence and adequately criminalize terrorist financing. Overall, they are required to demonstrate immediate and substantial compliance with FATF requirements. Countries on the Black List face severe economic sanctions such as limitations on trade and investment opportunities, declining international trade and foreign exchange inflows, as well as limitations on their ability to access global finance. In the most serious cases, the FATF calls on its member countries to apply countermeasures to protect the international financial system from the ongoing money laundering risks emanating from such black listed country.
Countries placed on the Grey List (Jurisdictions under Increased Monitoring), like Nigeria, are countries with identified strategic deficiencies which are under increased monitoring by the FATF and are actively working with the FATF to address strategic deficiencies in their regimes to counter money laundering, terrorist financing, and proliferation financing within the agreed timeframes.
Asides from the economic and reputational consequences of being placed on the Grey List, the FATF grey listing adds another layer of risk and complexity to doing business in Nigeria which is perceived already as a high-risk country for corruption and other financial crime risks. This has the implication of placing businesses in Nigeria or in connections to Nigeria under a higher regulatory scrutiny, as regulators may expect them to implement more stringent AML/CFT compliance measures to mitigate the risks associated with grey listing.
Another implication of Nigeria’s designation on the Grey List is higher compliance costs and increased due diligence requirements for businesses. This has the effect of making transactions with Nigerian counterparties more difficult and subject to additional surveillance. Such increased scrutiny and review could impact international trade resulting in reduction in foreign investments, and reputational damage, due to the increased perception of risk in investing in Grey-Listed countries.
Expected response from regulated businesses offshore and international institutions since Nigeria was placed on the Grey List would be (i) to review of any contracts with Nigerian third parties with a view to ensuring that they include appropriate AML/CFT clauses, such as warranties and representations regarding compliance with AML/CFT; (ii) identification of their existing customers with ties to Nigeria, including the source of funds and/or wealth of the identified customers, as well as that of their associated parties, with detailed attention to incoming and outgoing funds; (iii) enhanced customer due diligence measures and ongoing monitoring of transactions involving Nigerian customers; (iv) higher level of due diligence on Nigerian businesses by global financing institutions.
The foregoing makes it imperative for Nigeria to expeditiously exit the Grey List. Given its economic impact, exit from grey listing will be a major boost for financial and economic development in Nigeria.
[2] https://www.arise.tv/cbn-aims-for-1-billion-monthly-remittances-after-addressing-diaspora-concerns/
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