Fighting against financial crimes like money laundering is undoubtedly an important goal, but the latest “blacklist” proposed by the European Commission may cause more problems than it solves. Major players like Saudi Arabia, Libya and several US territories were included on the initial draft but have since been dropped following intense political pressure.
Meanwhile, some of the world’s most promising emerging markets have been included, threatening to derail both their financial stability and their progress towards implementing both European and the OECD’s compliance norms. With the ongoing coronavirus crisis already likely to hamstring these transitioning, often fragile economies for the foreseeable future, the EU black list could not have come at a worse moment.
While inclusion on the list does not prohibit countries from receiving foreign direct investment (FDI) or conducting business with others around the world, it does hold some troubling implications. For one thing, companies in the listed countries are prohibited from receiving EU funding.
Perhaps more significantly, any company working in the banking or financial sector must scrutinize all clients who have connections to the implicated countries, thus creating reams of additional paperwork and untold sums of attendant legal fees. This, in itself, is enough to put some companies off the arrangement, preferring to pursue commercial success with less rigorously policed jurisdictions for fear of incurring fines or other punitive measures as a result.
Unfair incrimination of African states
Those in Africa have experienced strong feelings of injustice and indignation at their inclusion in the EU’s watchlist. Particular points of criticism include the fact that the EU revised its methodology for this year, effectively depriving any nation from understanding the criteria for qualifying for (or extricating themselves from) the list. Although the EU claims its list is directly resulting from the FATF, it looks a bit like an arbitrary list which does not take progress into account – by comparison, the FATF differentiates between countries that are making progress (the so-called “grey list”) and the jurisdictions that have failed to implement their recommendations. What’s more, the EU’s list failed to give advance warning and disproportionately targets the same African and Caribbean states that the Brussels claims to help through its much heralded international development policies.
Those last points were especially salient for Ghana, whose Finance Ministry argued that the European Commission had not engaged with Accra over any concerns it may have had. On the contrary, Ghana’s willing participation in Anti-Money Laundering and Countering the Finance of Terrorism (AML/CFT) reviews had received no negative feedback to date.
Similar complaints and concerns are being voiced in Mauritius. According to the World Bank’s most recent report, the island nation is the 13th easiest place in the world to do business, ahead of such developed powers such as Australia, Canada and Germany. It is compliant with the vast majority of FATF recommendations, including its so-called “Big Six”. Nonetheless, its inclusion on the Commission’s list threatens to jeopardise Port Louis’ important financial services sector and could seriously crimp the economy at the same time as it’s being hit by the coronavirus pandemic.
Meanwhile, Botswana is another sub-Saharan nation with valid objections to its inclusion on the EU blacklist. After joining the Eastern and Southern African Anti-Money Laundering Group (ESAAMLG) in 2016, greater focus was placed on Botswanan protocols. It has complied with all investigations and received a glowing progress report in April 2019, even earning particular praise from the EU as recently as last week—making its inclusion on the grey list puzzling.
Trouble in the Caribbean
The Caribbean is also an enlightening case study of how inclusion on the list can hamper economies. Local banking institutions in the Bahamas are under immense pressure due to their surprise inclusion on the money-laundering list, facing spiralling costs and losing out to overseas rivals. Since it’s now easier for an everyday Bahamian to open a US bank account than a local one, it’s no surprise they’re struggling. Meanwhile, it’s nigh-on impossible for start-ups to enter the financial services sector due to the unwieldy burdens placed upon them.
What makes the pill even more difficult to swallow is the exemplary progress made by the Bahamas in recent years. In 2019, the country’s Attorney General Carl Bethel revealed that there had been 40 money-laundering convictions in four years, while the Financial Action Task Force (FATF) – the global standard-setter for such affairs, from which the EU takes its cues – had already started the process to remove the Bahamas from its own shortlist, but was delayed by the viral outbreak.
In light of these facts, some figures in the country have cast aspersions on the integrity of the EU’s motives in naming the Bahamas on the list. Prominent legal figure Alfred Sears QC levelled the charge of “cloaking protectionism under the guise of anti-money laundering”, claiming that the blacklist was merely an attempt to box in the Bahamian banking sector. Meanwhile, the fact that the Cayman Islands was shortlisted less than one month after the acrimonious Brexit process occurred has fuelled speculation it comprised more retribution against the UK than regulation of the industry.
An unlevel playing field
Taking the concerns and qualifying arguments of African and Caribbean nations into account, it seems they have every right to be indignant at their inclusion on the EU’s anti-money laundering blacklist.
The countries singled out on this year’s proposed list represent a very small part of illicit financial flows worldwide, including compared to places like Luxembourg or Cyprus, never mind powerhouses like Saudi Arabia or Iceland. As such, their abrupt inclusion on the list threatens to both derail progress on addressing these issues and curtail their access to international financial markets at the worst possible time, given the current crisis. While the EU’s watchlist is purportedly there to promote good governance, fair financial transactions and a level playing field, it’s in danger of doing the very opposite.