Morocco's delisting from FATF Grey List and lessons for North African countries
Africa Focus
Morocco's FATF grey-listing led to intensified monitoring of AML/CTF efforts. Lessons for North African countries include strengthening risk-based supervision, beneficial ownership data, and effective sanctions for non-compliance.
Law Update: Issue 360 - Africa and Transport & Logistics
Ibtissem LassouedPartner, Head of Advisory,Co-Head of White Collar Crime & Investigations
Ann GobyIntern,White Collar Crime & Investigations
In February of 2021, Morocco was added to the Financial Action Task Force’s (FATF) grey list, subjecting the jurisdiction to increased monitoring over the deficiencies in its anti-money laundering (AML) and counter terrorist financing (CTF) framework. Although Morocco had been steadily improving its legal framework and intensifying enforcement action for many years, the assessors found continued vulnerabilities first identified in the Mutual Evaluation Report (MER) of 2019. The deficiencies covered several areas, including risk-based supervision, beneficial ownership information, suspicious transaction reports, investigation and prosecution of money laundering offences and the capacities of law enforcement authorities.
In order to be removed from the FATF’s grey list, Morocco pursued a number of steps as part of an agreed action plan. Amongst the priorities, Morocco had to ensure that beneficial ownership information would be adequate, accurate and verified, including information regarding foreign legal persons and arrangements. Previously, insufficient information was available, creating opportunities for misuse of the system.
Criticised by the FATF for the lack of an adequate risk-based approach in its AML/CTF framework, Morocco has worked on improving risk-based supervision, taking remedial actions and applying effective sanctions for non-compliance. Additionally, the country was tasked with prioritising the identification, investigation and prosecution of all types of money laundering in accordance with the country’s risks, as well as increasing the diversity of suspicious transactions reporting.
In order to promote cooperation to enhance the effectiveness of its AML/CTF framework, Morocco needed to build the capacity of law enforcement and judicial institutions to conduct parallel financial investigations, use financial intelligence, seize assets, and seek and provide mutual legal assistance. Morocco also successfully demonstrated effective implementation of the case management system to provide timely responses and prioritise mutual legal assistance requests in line with the country’s risk profile as part of the action plan.
To address its deficiencies in implementing targeted financial sanctions and preventing sanctions evasion, Morocco had to put in place a more robust framework to allow the country to actively monitor and supervise compliance by financial institutions and designated non-financial businesses and professions (DNFBPs). Further, in order to allow it to fulfil its core mandate of operational and strategic analysis, Morocco made efforts to provide its Financial Intelligence Unit with adequate financial and human resources to enhance analytical capabilities. This is a core requirement for effective investigation, prosecution and prevention of money laundering activity.
Morocco had already accomplished three out of these eight objectives between February and October of 2021. FATF made the initial determination that Morocco had substantially completed its action plan at the October 2022 plenary session and decided that the country warranted an on-site assessment. The international watchdog decided to carry out the on-site assessment in January of this year, which yielded a positive report confirming sustained and continuing AML reform. Shortly after in February of this year, the FATF decided unanimously to remove Morocco from the grey list.
The technical assistance that Spain provided to Morocco has been credited for having played an instrumental role in allowing the country to achieve compliance with FATF requirements that led to its delisting. As articulated by the country’s prime minister’s office, the delisting of Morocco will undoubtedly foster trust among foreign investors, improve the country’s position in negotiations with international financial institutions, as well as positively impact sovereign and local bank ratings.
Morocco was delisted in a period of just two years, which demonstrates the significant efforts made by the country to enhance its regulatory regime.
The speed at which a country is removed from the grey list is contingent upon the timelines set for the implementation of various components of the agreed action plan. A country's ability to exit the grey list within a relatively short period of time is indicative of its effective and timely execution of the action plan. Morocco was delisted in a period of just two years, which demonstrates the significant efforts made by the country to enhance its regulatory regime. Similarly, other countries in the region have also been diligently implementing action plans and meeting timelines, which has resulted in their timely removal from the grey list.
Tunisia was removed from the grey list in 2019, just two years after its inclusion. The FATF acknowledged that Tunisia had strengthened the effectiveness of its AML/CTF regime and addressed related technical deficiencies in order to implement the agreed action plan. On the other hand, Algeria was removed from the grey list in 2016, after its inclusion less than three years earlier. The FATF published the second MER of Algeria this month, which highlights sustained improvements the country has since made to its AML/CTF regime. .
The delisting of Morocco means that there are no longer any North African countries on the grey list. This is a positive development for the region that highlights the efforts made by these countries to enhance their AML/CTF frameworks. These efforts signify a commitment to strengthening financial systems, fostering international cooperation, and aligning with global standards to combat illicit activities. While these countries have been actively working to improve their systems for some time, the true extent of their progress will become clearer with future reports from the MENAFATF, which will enable a better understanding of the overall effectiveness and compliance of North African countries in combatting financial crime.
Other countries elsewhere in the MENA region that have been placed on the FATF grey list are also making continuous efforts to be de-listed swiftly in order to curb the negative implications it can have on a nation’s economic prosperity and international reputation. Countries that are placed on the grey list face heightened scrutiny from the international community, have limited access to international financial services, face higher compliance costs, have reduced foreign investments, and suffer significant reputational damage. However, ultimately, the consequences that being grey-listed will have on a country very much depend on its economic and financial stability and its resilience in dealing with such a designation.
Similarly to Morocco, Jordan is on track to be removed from the grey list in a comparatively short timeframe as Morocco. FATF decided to place Jordan on its grey list in October 2021, following which the country made strong political commitments to work with FATF and MENAFATF to strengthen the effectiveness of its AML/CFT regime and agreed on an action plan to address the issues. Last month, FATF confirmed that Jordan has completed the implementation of the provisions outlined in the action plan and commended the efforts of the relevant entities in this regard, signalling the country's readiness to exit the grey list. FATF has decided to conduct a field visit to examine the measures taken by Jordan, which represents the final step in this procedure before the country can officially be removed from the grey list.
The UAE is expected to follow suit, after its inclusion in the grey list by FATF in March 2022. Despite initial concerns, the country has proven resilient to the higher compliance thresholds applicable to grey-listed countries and FDI inflows continue to grow. Regardless, the UAE government has made significant progress in enhancing its AML/CTF regime and has considerably intensified enforcement action in the past year. At the conclusion of its February 2023 Plenary session, FATF recognized that the UAE had demonstrated significant progress to strengthen the effectiveness of its AML/CTF regime. With many FATF International Cooperation Review Group representatives from European countries supporting the removal of the country from the grey list in recognition of its efforts, it is likely that the UAE will also make its exit in the near future.
The delisting of MENA countries included on the grey list is encouraging for the region. It shows the list is working as an incentive for concentrated AML reform and is elevating economic security to a matter of national strategic priority. Clearly, MENA countries are benefitting from the lessons of previous list exiters and proponents of best practice, finding effective strategies to address deficiencies. African countries that are potentially listed in the future can use the blueprints handed down by MENA countries to limit their time on the list. This way, inclusion does not need to be long-term economic fatality, which is especially important for countries reliant on international funding and economic aid. It will be interesting to see whether other MENA countries can achieve expeditious delisting from the FATF's grey list by emulating the successful approaches and strategies demonstrated by their fellow regional nations.
Private sector companies also bear responsibility and have a crucial role to play in facilitating the delisting of countries from the FATF’s grey list. Companies operating within these countries should actively contribute to efforts aimed at enhancing compliance measures. This includes implementing robust internal policies and controls, conducting thorough due diligence, and promptly reporting any suspicious activities. By adhering to strict compliance standards, companies can help foster a culture of financial integrity and contribute to the overall improvement of AML/CTF regimes put in place by these countries.
For further information,please contact Ibtissem Lassoued.
Published in August 2023
