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Greylisting is not a death sentence

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) but we need 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 arising 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 (IMF), 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, an 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 aim is to tackle global money laundering and terrorist financing.

Greylisting’s effects might not be the only thing impeding Namibia’s economic progress. 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 as well. This will have an impact on international capital flows, particularly in trade. 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 its 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.

Greylisting will have negative consequences, making it more costly and cumbersome to do business, particularly across borders. Quite aside from the economic cost though, 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 sped up.

Let’s also look at the fishrot scenario which has put 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.

No adequate measures to limit criminal cases in turn damaged the country’s credibility. These include the Fishrot scandal, the Value-Added Tax (VAT) scam and Namibia SME Bank fraud, amongst others.

It was found that some companies, services providers and lawyers, amongst others, have a high money laundering vulnerability in the designated non-financial businesses and professions, 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.

The effect is that investors start perceiving our country and its economy as risky; and 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 greylisted is not the end of the world but our 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.

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 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 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. 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.

The key to be taken off the greylist is to encourage collaboration between various law enforcement, investigative, and regulatory agencies.


About The Author

Josef Sheehama

Josef Kefas Sheehama has more than 21 years banking experience serving as Manager Credit, Branch Manager and now Centralize Credit Head Office at Bank Windhoek. He holds a Certified Associate Institute Bankers CAIB (SA), Associate Institute Bankers AIB(SA), Chartered Banking Professional CHBP (SA), B Com Banking, B Com Law, Postgraduate Islamic Finance and Banking, MBA and an LLB degree. Also founder of church since 2009. He is an independent Economics and Business Researcher. Authored more than 100 articles in Economics and Business. Served on Northwest University panel (Green Hydrogen). His MBA thesis published by the International Journal of Current Research (Exploring sustainable economic challenges and opportunities).