Nation’s financial institutions on high alert

Zimbabwean financial institutions will have to be on high alert when dealing with counterparts from countries such as South Africa and Mozambique as they are considered as high-risk jurisdictions under increased monitoring for terrorist financing.

In terms of section 26A of the Money Laundering and Proceeds of Crime Act Chapter (9.24), financial institutions are required to exercise enhanced due diligence proportionate to their risk, toward business relationships with natural and legal persons including financial institutions (FIs), from countries for which this is called for by the Financial Action Task Force (FATF).

It is in this regard that the Financial Intelligence Unit (FIU) on September 26, 2023 issued a directive to all financial institutions and designated non-financial businesses and professions (DNFBPs), on high-risk jurisdictions and countries under increased monitoring for terrorist financing and proliferation financing of weapons of mass destruction.

The Financial Action Task Force (FATF) from time to time publishes lists of jurisdictions with high risk of money laundering and those countries under increased monitoring for having strategic deficiencies in their regimes to counter money laundering, terrorist financing and proliferation financing.

According to FIU, in a circular to FIs and DNFBPs, this is meant to protect the international financial system from money laundering, terrorist financing and proliferation financing risks.

Jurisdictions under the grey lists are said to have anti-money laundering deficiencies but are actively working with FATF to address these deficiencies.

Making the grey list are some of Zimbabwe’s major trading partners South Africa and Mozambique.

This calls for Zimbabwe-based financial institutions to apply risk-based approach when dealing with customers from such countries. Some of the measures that local financial institutions may apply include updating institutional risk assessments to suit country risk profiles.

FIU also recommends application of ongoing due diligence requirements for business, when conducting transactions with grey-listed jurisdictions.

“Identifying existing customers with ties to grey listed jurisdictions including requesting for declaration of source of funds and or wealth of the customer as well as associated parties, including analysing incoming and outgoing funds from such jurisdictions,” is also listed as a possible measure.

Local FIs are also recommended to consider reviewing any contracts with grey-listed jurisdictions third parties to ensure that they include appropriate AML/CFT laws.

Countries are grey-listed by the FATF for strategic deficiencies in their AML and combatting the financing of terrorism CFT regimes.

This means that the FATF has found that the country has not implemented all of the FATF’s Recommendations, which are the global standards for AML/CFT.

Being grey-listed by the FATF can have a number of negative consequences for a country, including increased scrutiny, reduced investment and damage to reputation.

South Africa, which is Zimbabwe’s largest trading partner, was grey-listed by the FATF on February 25, 2023, for strategic deficiencies in its anti-money laundering (AML) and combatting the financing of terrorism (CFT) regimes.

The FATF identified a number of weaknesses in South Africa’s AML/CFT framework, including limited understanding of money laundering and terrorist financing risks and poor implementation of AML/CFT laws and regulations.

Until then, the effects of greylisting touch almost every corner of the economy through negative reputational costs and increased due diligence measures.

Countries on FATF’s grey list suffer an average net loss of 7.68 percent of capital inflow across their borders relative to gross domestic product, according to the International Monetary Fund.

FATF will only review SA’s position in January 2025 and for the country to be removed from the list, it must demonstrate a practical, scalable plan to combat money laundering, fraud and other financial crimes.

Failing to achieve this will have serious economic knock-on effects, such as a significant decrease in international capital inflows and downgrading by credit rating agencies, all of which will negatively impact the Rand.

Zimbabwe was placed on the FATF grey list in 2019, following a mutual evaluation (assessment) process that identified a number of deficiencies in the country’s implementation of the Anti-Money Laundering and Counter Financing of Terrorism (AML/CTF) Standards.

The country, however, successfully met FATF’s criteria and was removed from the grey list in 2022 following an on-site evaluation.

However, this required focused attention and collaboration from the National Taskforce on AML/CTF comprising the Treasury, the Financial Intelligence Unit, the Reserve Bank of Zimbabwe and over 80 stakeholders drawn from both the public and private sectors.-ebusinessweekly