Blow for Kenya and Namibia as they join money laundering grey list

Kenya and Namibia have both been placed on the Financial Action Task Force’s “grey list,” in a move that could dent investor confidence in two African countries widely seen as stable, pro-business destinations for investment.

The Paris-based FATF announced this week that Nairobi and Windhoek have been found to have inadequate measures in place to combat money laundering and terrorism financing. As a result of being placed on the grey list, they will work with the FATF to “address strategic deficiencies in their regimes to counter money laundering, terrorist financing, and proliferation financing.” Both countries are said to be “committed to resolv[ing] swiftly the identified strategic deficiencies within agreed timeframes.”

The move is a particular blow for Kenya, which has been making efforts recently to boost its credentials as an investment destination. Just last week, strong demand for a $1.5bn Eurobond, which will help Kenya avoid defaulting on a debt repayment due in June, was cited by many analysts in the East African country as evidence that investor confidence is on the rise.

However, the FATF’s concerns around the ability of Kenya’s banks to prevent financial crime could jeopardise the foreign direct investment (FDI) flows which the government is hoping to attract.

Namibian policymakers will have similar concerns, particularly given the government’s attempts to attract greater levels of FDI into its energy industry. Partly for this reason, the governor of Namibia’s central bank, Johannes Gawaxab, has said that he recognises “the urgency of the situation” and intends to implement a “comprehensive approach […] to restore international confidence in Namibia’s financial system.”

Jared Osoro, an economist based in Nairobi, tells African Business that worries about the implications of this development on FDI levels are justified. The grey listings are “an indication that the ball has been dropped somewhere – either on the part of the banks themselves, or the institutions that are meant to be providing oversight.”

“This would appear to be a setback for governments which are looking to attract more resources to the economy through the private sector,” he adds.

In the case of Kenya, Osoro says that the grey listing “undermines any potential confidence that might have been growing. Investors cannot have confidence in banks and regulatory authorities that have been found to be under-focused in terms of monitoring illicit flows of capital being transmitted through the system.”

For this reason, the immediate need for both Kenya and Namibia will be to determine how they can get themselves off the grey list as soon as possible. Osoro says that this will mean strengthening the countries’ financial reporting agencies and regulatory authorities in order to plug any gaps identified by the FATF.

“It is a case of looking at the capacity of oversight agencies and seeing what criteria need to be met for the countries to come off the grey list,” he says.

While the authorities in both Kenya and Namibia have stressed they are working to address these issues as quickly as possible, Osoro notes that “it will take months” for the countries to come off the grey list and placate investor concerns.

“It is similar to when a country’s credit rating is downgraded – it takes longer than a month or two for it to go back up. I would predict that it will take between six months and a year for this to be fully addressed,” he says. “Measures will be put in place quickly, but it will take time for them to take full effect.”

However, there was good news for Uganda, which exited the grey list after recording “significant progress in improving its AML/CFT regime” following deficiencies highlighted in 2020.