Earlier this month, Croatia, Cameroon, and Vietnam were added to the Financial Action Task Force’s (FATF) grey list for shortcomings in their anti- money laundering (AML) and countering the financing of terrorism (CFT) measures. The countries are the latest to join a further 23 other countries on the list, including South Africa, the UAE, and Nigeria. Notably, Croatia is the only EU country currently on this list.
Being on the grey list means that the countries are under increased monitoring as they attempt to address AML and CTF deficiencies. Indeed, demonstrating commitment to improving such deficiencies is part of what separates the grey list from the FATF’s blacklist. In other words, the designation is effectively a simultaneous warning and opportunity to amend mistakes and strategic shortcomings. Croatia’s status as an EU member doesn’t bring significant additional ramifications, although it could create potential hurdles in accessing loans through official EU bodies to which member states normally have access, such as the European Central Bank.
Although the FATF does not recommend enhanced measures or restrictions against countries on the grey list, these countries face economic restrictions from institutions such as the World Bank and Monetary Fund. They are viewed as riskier nations for investment and may experience issues such as inflation, drop in currency value, and a reduction in trade. In practice, however, it’s difficult to accurately estimate the economic impact being named to this list brings.
A 2022 IMF study estimates that capital inflows typically decline by approximately 7.6% of GDP at the time of a grey-listing but it’s unclear if this is correlation or causation and whether the listing or the factors that led to such listing — or both — contribute to the decline.
More practically, professionals and companies from grey-listed countries tend to be subject to closer monitoring by financial institutions and increased scrutiny in business transactions. But it certainly doesn’t mean that business can’t continue. Rather, placement on this list raises a “grey flag” so to speak, but it’s far from permanent. In the past countries committed to removing themselves have successfully done so, including Pakistan, which was moved off the list in 2022, Malta in the same year, and Morocco in early 2023. Indeed, the main metrics to monitor are what policies the countries are practically implementing and how quickly they are responding to the FATF’s concerns.