The Namibian economy of tomorrow depends on the wisdom of policymakers’ decisions today.
Finance minister Iipumbu Shiimi has given lawmakers 14 days to amend and table new laws to address strategic inadequacies to counter money laundering and terrorist financing within a given time frame.
Namibia needs to submit the report to the Financial Action Task Force (FATF) on whether the country meets the necessary requirements. This report will be assessed by October, and by February 2024 Namibia will know whether it is going to be greylisted.
Furthermore, according to the Bank of Namibia, Namibia has shown significant political commitment to meeting the FATF requirements.
To avoid greylisting, the Cabinet directed institutions and stakeholders to implement an action plan adopted in December 2022.
The FATF is an inter-governmental policymaking body that determines anti-money laundering (AML) and countering the financing of terrorism (CFT) standards to safeguard the global financial system.
The FATF aims to tackle global money laundering and terrorist financing.
The impacts of greylisting may hinder Namibia’s economic growth and development. Furthermore, the global correspondent banks involved in transactions with Namibia’s entities are likely to demand a higher level of due diligence.
This is positive in that it will necessitate greater documentation and transparency within countries’ financial systems, helping to improve AML/CFT practices in general.
South Africa was put on a grey list by the FATF for falling short of certain international standards for the combating of money laundering and other serious financial crimes. However, banks will have to enhance their own compliance procedures.
Furthermore, according to a report by the International Monetary Fund (IMF), greylisting leads to a significant decrease in capital inflows.
For vulnerable countries, this could result in a balance of payments crisis. This is because greylisting entails that all transactions of a country’s companies and individuals will be seen as high-risk transactions, resulting in complicated compliance and administrative duties, and likely disincentivising investment into and trade with Namibia.
We need to understand that the Fishrot corruption scandal plunges Namibia under the spotlight for money laundering and financial crimes. In the Fishrot case, some companies were used to receive bribes and other payments for the benefit of the implicated people. This was due to a lack of beneficial ownership information relating to legal persons. Due to the Fishrot scandal, Namibia is now under scrutiny by the International Cooperation Review Group due to some deficiencies in its domestic AML.
The effectiveness of a country’s AML/CFT/CFP system is measured against 11 pre-determined immediate outcomes (IOs) and ratings can be either highly effective (HE), substantially effective (SE), moderately effective (MD), or displaying a low level of effectiveness (LE).
Hence, greylisting will discourage foreign direct investment (FDI) in Namibia and reduce capital inflows. Therefore, corruption has the potential to bring catastrophic harm to economic development, the fight against organised crime, respect for the law and effective governance.
Corruption and money laundering are intrinsically linked. Corruption offences such as bribery or theft of public funds are generally committed for the purpose of obtaining private gain.
It will raise the cost of doing business in our country, making foreign investors reluctant to invest in the economy. This is because international counterparts will have to undertake increased due diligence when dealing with Namibian companies.
As transaction costs rise, there is a disincentive to do business with Namibia. Namibia will be viewed as a high-risk jurisdiction for business, so some foreign investors may remove their investments. This will affect cross-border capital flows, especially for the trade sector.
Documentary requirements for export and import payments, such as letters of credit, may become more challenging to fulfill. These changes will make Namibia’s foreign-exchange control regime more restrictive, although we do not expect this to create any major barriers to ongoing trade and investment flows for the economy as a whole.
Moreover, lawmakers should take these 14 days very seriously without politicising or blame games. We need to save our economy, as well as avoid being greylisted.
Politicians need to understand that the major FATF-related risk to the economy stems from the possibility of the Cabinet’s plan of action being adopted in December 2022, but being unable to implement the action plan in a satisfactory manner.
The greylisting will have negative consequences, making it more costly and cumbersome to do business, particularly across borders.
Quite aside from the economic cost though, the greylisting is a sharp reminder that we are behind the curve on implementing the reforms we have promised on fighting crime, corruption and money laundering.
That is causing severe damage to the economy and the social fabric. We should not need the FATF to tell us that the delivery of these reforms should be speeded up.
In addition, should the lawmakers fail to meet the FATF recommendations by October, Namibia will be added to the FATF greylist in February 2024.
It is vital to take note that money laundering is a serious financial crime.
It also has negative consequences for the national economy because it damages financial sector institutions that are critical for economic growth. Money laundering practices, once established in a particular economy, will promote crime and corruption.
Namibia should demonstrate sufficient progress at the end of the 12-month observation period.
According to Shiimi, the amendment of the Financial Intelligence Act will remove provisions requiring companies, both corporations and trusts, to submit certain information to register companies and close corporations.
This step is taken to avoid duplication with legislation governing companies, close cooperations, and trusts.
“The bill will secure the independence and autonomy of the Financial Intelligence Centre, establish the board of the centre, define its powers and functions and include certain persons as members of the Anti-Money Laundering and Combating Financing of Terrorism and Proliferation Council. Additionally, the bill will amend the functions of the country to require accountable institutions to identify beneficiaries and beneficial owners of life insurance policies and other investment-related policies.
To this end, regardless of the outcome of the FATF’s decision in February 2024, this warning should serve as a wake-up call for Namibian policymakers, regulators, and law enforcement agencies to convince the country’s international counterparts it is worth their effort to maintain relationships as Namibia continues to build a more robust legal and compliance framework to remain competitive on the global stage.
- Josef Sheehama is a banking industry professional with 20 years of experience. He writes in his personal capacity.