How to get off the FATF Greylist
The Financial Action Task Force (FATF) is an inter-governmental policy-making body that determines Anti-Money-Laundering (AML) and Countering the Financing of Terrorism (CFT) standards to safeguard the global financial system.
The Greylist contains a set of countries under increased monitoring, working towards addressing strategic AML/CFT deficiencies within agreed time-frames in their regimes to counter money laundering, terrorist financing, and proliferation financing. Zimbabwe is one of the 23 countries placed by the FATF under the grey list. As of now, countries on the grey list are Albania, Barbados, Burkina Faso, Cambodia, Cayman Islands, Haiti, Jamaica, Jordan, Mali, Malta, Morocco, Myanmar, Nicaragua, Pakistan, Philippines, Panama, Senegal, Syria, South Sudan, Uganda, Turkey, Yemen, and Zimbabwe.
However, being added to the Greylist does not imply any economic sanctions, but serves as a signal to the global financial and banking system about heightened risks in transactions with the country.
In an assessment carried out by the Eastern and Southern Africa Anti-Money Laundering Group (SAAMLG) in 2019 to assess Zimbabwe's compliance with the FATF's AML/CFT measures and recommendations, it was stated that Zimbabwe was partially compliant with such measures and recommendations. The FATF held that Zimbabwe fell short of adequate compliance on more serious AML/CFT offenses and on most FATF recommendations, especially the recommendation to adopt robust measures to curb money laundering and the financing of terrorism offenses in the financial market.
Greylisting impacts the banking industry and external sector in Zimbabwe as global correspondent banks and other intermediary financial institutions involved in transactions with Zimbabwe entities are likely to demand a higher level of due diligence and counter-measures, increasing the cost of doing business with the country and in some cases severing business relations altogether. This may affect economic activity in at least three ways.
First, through de-risking, whereby banks exit relationships with customers that are based in high-risk countries to reduce compliance costs.
Second, through market enforcement, whereby investors use the Greylisting as a heuristic for evaluating the risk of doing business with a country and therefore reallocate resources to reduce their exposure to the country.
Third, documentary requirements for export and import payments, such as letters of credit, may become more challenging to fulfil, potentially raising costs and hampering business for companies engaged in trade. Thus, making Zimbabwe's foreignexchange control regime more restrictive.
However, the grey listing will necessitate greater documentation and transparency within Zimbabwe's financial system, helping to improve AML/CFT practices in general.
Banks will also have to enhance their own compliance procedures in order to maintain unhampered access to the global SWIFT system, the worldwide communication network of banks.
A team of FATF experts visited Zimbabwe January 12-14, 2022 to carry out an incountry assessment and verify the country’s implementation of the Anti-Money Laundering, Combating Financing of Terrorism and Proliferation of weapons of mass destruction reforms.
The visit is expected to result in the country’s removal from the Grey List or list of non-compliant countries, thereby boosting investor confidence and making it easier for local banks to secure new correspondent banking relationships while retaining existing ones.
In order to work its way off the grey list to the satisfaction of FATF, Zimbabwe was called upon to implement an action plan, aimed at strengthening the effectiveness of its AML/CFT system.
To implement the action plan and to resolve the technical compliance shortcomings identified by the FATF, Zimbabwe has made the following key reforms, including
• Developing a risk-based supervision framework for Financial Institutions (FIs) and Designated Non-Financial Business Professions (DNFBPs);
• Developing adequate risk mitigation measures among Financial Institutions and DNFBPs, including by applying proportionate and dissuasive sanctions to breaches;
• Creating mechanisms to ensure that competent authorities have access to timely and up-to-date beneficial ownership information; and
• Addressing remaining gaps in the Proliferation Financing-related targeted financial sanctions framework.
The country also continues to address deficiencies identified by the FATF following a set deadline of two years despite the Covid-19 pandemic disruptions.
The FATF and ESAAMLG also conduct typologies research in order to help countries identify emerging money laundering and terrorist financing risks in order to improve the level of awareness and develop their capabilities to detect Covid-19-related money laundering risks; trade-based money laundering, and real estate money laundering risks.
The country is currently dealing with a wide range of economic sectors which are vulnerable to trade-based money laundering, both high-value, low-volume sectors or products such as precious metals and low-value, high-volume sectors or products such as second-hand textiles which can be exploited by criminals to launder the proceeds of crime.
The common themes conducive to tradebased money laundering exploitation were identified in the report as goods with wide pricing margins; goods with extended trade cycles (i.e., shipping across multiple jurisdictions); and goods that are difficult for customs authorities to examine.
Over the past months, regulators in Zimbabwe have multiplied inspections and enforcement actions in a bid to demonstrate practical adherence to FATF standards. These have included on-site inspections, off-site inspections, and awareness programmes.
The inspections are conducted by financial sector regulators, as competent supervisory authorities, in line with the general provisions of part II subsection 3 of the Money Laundering and Proceeds of Crime Act [Chapter 9:24] on securing compliance on anti-money laundering and combating the financing of terrorism.
The inspections sought to understand the extent to which Financial Institutions (FIs) and DNFBPs are identifying, assessing, and mitigating money laundering and terrorism financing risks. The specific objectives of the inspections are to:
• Review the adequacy of Board and Management Reporting and oversight functions on AML/CFT;
• Assess the adequacy of AML/CFT policies, procedures, and processes, and the effectiveness of money laundering/terrorist financing risks mitigating measures in place;
• Assess the level of compliance with AML/CFT reporting requirements; and
• Assess the adequacy of AM/CFT training offered to the Board, Management, and Staff including agents.
Although the cost of compliance has palpably increased for industry players which had to cope with rapidly changing standards and requirements, generally the industry has conceded to the change for the sake of the white-listing imperative.
To continue on the path of enhancing the AML/CFT legislative framework of the country, the Financial Intelligence Unit has intensified the monitoring of financial transactions to identify and take action against businesses that deliberately disregard the requirements of the Bank Use Promotion Act, the Exchange Control Act, and anti-money laundering standards.
The international watchdog on AML/ CFT and affiliated regional bodies and financial intelligence units, also continue to implore member states to continue to implement the FATF standards to ensure the integrity and security of the global payment system during and after the Covid-19 pandemic through appropriate and transparent channels.
In conclusion, Zimbabwe should continue putting in place AML/CFT policy responses allowing domestic coordination to assess the impact of Covid-19 on AML/CFT risks and systems; strengthened communication with the private sector; encouraging the full use of a risk-based approach to customer due diligence; and supporting electronic and digital payment options.
Zvendiya is an independent economist. These weekly New Perspectives articles published in the Zimbabwe. Independent are coordinated by Lovemore Kadenge, an independent consultant, past president of the Zimbabwe Economics Society and past president of the Corporate Governance and Accountancy Institute in Zimbabwe (GZI Zimbabwe). — kadenge.zes@gmail.com or mobile: +263 772 382 852.