Greylisting is not a Death Sentence

By Josef Kefas Sheehama

It’s crucial to remember that greylisting does not have to define Namibia’s economy, even though it frequently makes people feel more anxious.

Namibia can continue engaging in Anti-money Laundering and Combating the Financing of Terrorism (AML/CFT). Namibia needs to make improvements to meet Financial Action Task Force (FATF) requirements in the areas of matter of concern. Our policymakers need to work together with FATF and get off the grey list as quickly as possible. The challenge arises from this is that Namibia’s reputation is at risk. This speaks to measures to adequately combat financial crimes such as corruption and money-laundering. This will translate that we are below international standards. According to the International Monetary Fund (IFM), defines the FATF as an inter-governmental policymaking body that determines anti-money-laundering (AML) and countering the financing of terrorism (CFT) standards to safeguard the global financial system. Additionally, the International Monetary Fund (IMF), study estimated that a grey-listed country can expect an average decline in capital inflow of 6% to 7.6% of gross domestic product (GDP), a decrease in foreign direct investment (FDI) of 3% of GDP, and a decrease in portfolio inflow of 2.9% of GDP. The FATF aims is to tackle global money laundering and terrorist financing.

Greylisting’s effects might not be the only thing impeding Namibia’s economic progress. Furthermore, it is probable that a greater standard of due diligence will be required by the international correspondent banks that deal with Namibian entities. Positively, this will force the country’s financial system to be more transparent and documented, which will enhance AML/CFT procedures overall. But banks will need to improve their internal compliance processes. This will have an impact on international capital flows, particularly in the trade industry. It may become more difficult to comply with documentation requirements for export and import payments, such as letters of credit, which could increase costs and negatively impact trade-related businesses. Although we do not anticipate this, these modifications will tighten Namibia’s foreign exchange control regime.

Furthermore, the clear message is that unless we see more investigations, prosecutions and asset forfeitures, and unless Namibia shows it is readiness to act decisively and effectively against financial crimes, it will face potentially severe economic consequences. The major FATF-related risk to the economy stems from the possibility of the government being unable to implement the action plan in a satisfactory manner. The greylisting will have negative consequences, making it more costly and cumbersome to do business, particularly across borders. Quite aside from the economic cost though, the greylisting is a sharp reminder that we are behind the curve on implementing the reforms we have promised on fighting crime, corruption and money laundering. That is causing severe damage to the economy and the social fabric. We should not need the FATF to tell us that delivery on these reforms should be speeded up.

Let’s also look at the fishrot scenario. The fishrot puts Namibia in the crosshairs for financial crimes and money laundering. In the Fishrot case, bribes and other payments were made to the implicated individuals through the shelf companies. This resulted from a lack of information about legal persons’ beneficial ownership. Owing to certain shortcomings in its domestic anti-money laundering policies, Namibia is currently under the care management of the International Cooperation Review Group as a result of the Fishrot scandal. Namibia scored implement effective of its AML/CFT/CFP system, but no adequate to limit criminal cases in turned damaging the country’s credibility. These include the Fishrot scandal, the Value-Added Tax (VAT) scam and Namibia SME Bank fraud amongst others.

The MER found that some companies, services providers, lawyers amongst others were found to have a high money laundering vulnerability in the designated non-financial businesses and professions sector and were also central to the high-profile cases. It’s very unfortunate where we find ourselves as a country, especially the credibility of the Namibia economy.

This means that financial stability and costs of doing business with Namibia will not be seriously impacted by the greylisting. But the fact that these problems change shows that they cannot be intractable. They are all tragic and need to be solved. But we have the ability to gain traction on them, albeit at times in a messy way. The effect of the above is that we start perceiving our country and its economy as risky; and we avoid investing, when the opposite should be the case. We misprice risk and miss opportunities. If we consider the country as a company, we can then use GDP as a proxy for the revenue of the country, and the currency exchange rate as an indicator for the share price.

We need to understand that being greylisting is not the end of the world. Policymakers will need to continue working to improve the AML/CFT system. We need to work together to meet the FATF requirements in these specific areas, both will also continue strengthening their capability to fight money laundering, terrorist financing, corruption, and other financial crimes. This is principally for the benefit of Namibia, economy, financial systems, and also for the safety and security of the Namibia citizens. The greylisting should serve as a wake-up call for the policymakers, regulators, and law enforcement agencies to convince the country’s international counterparts it is worth their effort to maintain relationships as Namibia continues to build a more robust legal and compliance framework to remain competitive on the global stage. There are more or less 26 active countries listed as of June 2023 according to the FATF Grey List.

Furthermore, the Financial Action Task Force (FATF) indicates that as of October 2023, a total of 129 countries reviewed and publicly identified 102 of them. A total of 76 countries have diligently addressed their anti-money laundering and counter-terrorist financing (AML/CFT) weaknesses, leading to their removal from the process. For Namibia, the greylisting is not the end of the world, despite failing to implement all 72 recommended actions. However, Namibia has implemented 59 of the 72 recommended concerned deliverables, now we should action 13 items to address technical deficiencies in the legal framework.

To this end, while greylisting poses challenges, Namibia’s proactive efforts can protect its economy and enhance AML/CFT practices. Greylisting is not a death sentence.

Namibia is capable to reform and amend mandates of financial sector regulators to increase their enforcement and supervision capabilities such as better understanding of risk through Know-Your Client (KYC) and customer risk assessment.

Therefore, the key to being taken off the greylist is to encourage collaborations between various law enforcement, investigative, and regulatory agencies.