Understanding Nigeria’s Grey Listing by the FATF: What It Means, Why It Happened, and What’s Next for Businesses.

Contributors: Oby Umeh

Introduction

In February 2023, the Financial Action Task Force (FATF) placed Nigeria on its “Grey List” a designation for countries under increased monitoring due to strategic deficiencies in their regimes for combating money laundering, terrorist financing, and proliferation financing. This means Nigeria is actively working with the FATF to address these deficiencies and has formally committed to implementing an action plan to resolve them within an agreed timeframe.

The FATF is an independent inter-governmental body responsible for developing and promoting global standards aimed at protecting the integrity of the international financial system. It evaluates jurisdictions based on the strength and effectiveness of their anti-money laundering, counter-terrorist financing, and counter proliferation financing (AML/CFT/CPF) frameworks, assessing everything from laws and regulatory oversight to institutional enforcement and international cooperation. Where weaknesses are identified, countries are required to take corrective measures aligned with FATF recommendations^[1].

As part of its monitoring mechanism, the FATF publishes two lists: the “Black List,” which includes high-risk jurisdictions subject to a call for action, and the “Grey List,” which identifies countries working to address identified deficiencies. Nigeria’s inclusion on the Grey List signals the need for improved compliance and enforcement and may carry wide-ranging financial and commercial implications for businesses operating within and outside the country. This article explores the reasons behind Nigeria’s grey listing, the potential impacts on businesses, and what steps can be taken to manage the risks and navigate the evolving regulatory landscape^[2].

Why Was Nigeria Grey Listed

Nigeria was placed on the Financial Action Task Force (FATF) Grey List in February 2023 due to identified strategic deficiencies in its anti-money laundering, counter-terrorist financing, and counter-proliferation financing (AML/CFT/CPF) frameworks. The decision followed a Mutual Evaluation Report conducted by FATF and the Inter-Governmental Action Group against Money Laundering in West Africa (GIABA), which highlighted several areas where Nigeria’s legal, regulatory, and institutional frameworks fell short of international standards.^[3] Which include:

• Weak Risk-Based Supervision: Supervisory authorities were found not to be effectively applying a risk-based approach to oversight of financial institutions and Designated Non-Financial Businesses and Professions (DNFBPs), resulting in insufficient scrutiny of high-risk sectors^[4].
• Insufficient Use of Financial Intelligence: The Nigerian Financial Intelligence Unit (NFIU) was underutilized. Law enforcement agencies were not effectively leveraging financial intelligence and Suspicious Transaction Reports (STRs) for proactive investigations or criminal prosecutions^[5].
• Deficiencies in Beneficial Ownership Transparency: Nigeria was found to lack a centralised, accessible, and verifiable beneficial ownership (BO) register. This made it difficult for authorities and financial institutions to identify and verify the ultimate beneficial owners of companies a major risk factor in money laundering and illicit financial flows^[6].
• Non-Compliance with Targeted Financial Sanctions (TFS): At that time, Nigeria had an inadequate framework for the implementation and monitoring of targeted financial sanctions related to terrorist financing and proliferation financing. The country lacked clear procedures for the timely identification, freezing, and reporting of assets linked to individuals or entities designated under Nigeria Sanctions List and the United Nations Security Council Resolutions (UNSCRs).
• Limited Oversight of Non-Profit Organizations (NPOs)

FATF flagged Nigeria for failing to adequately assess and mitigate the terrorist financing risk posed by some non-profit organizations (NPOs), particularly those operating in high-risk or conflict-prone regions.

Impact of the Grey List on Nigeria and Businesses in Nigeria.

Nigeria’s inclusion on the FATF grey list has had significant consequences for the country’s economy, financial system, and business environment. While the grey list does not impose direct sanctions, it signals to the global financial community that Nigeria’s anti-money laundering and counter-terrorist financing (AML/CFT) regime has strategic deficiencies triggering a series of ripple effects. Below is the impact the grey list could have on the business in Nigeria and the Country as a whole:

1. Diminished International Investors Confidence:

Being grey-listed raises red flags for international investors, development partners, and multinational corporations. Investors are generally cautious about jurisdictions with weak AML/CFT controls, as this increases the risk of financial crimes and regulatory scrutiny. This perception may lead to a reduction in foreign direct investment (FDI) inflows, potentially slowing Nigeria’s economic growth^[7].

1. Increased Cost of International Transactions:

Global banks and financial institutions subject Nigerian transactions to enhanced due diligence. This often translates into higher compliance costs, delayed transaction processing, or even outright rejection of international payments. Businesses particularly importers, exporters, and SMEs engaged in international trade face significant hurdles in accessing global financial markets.^[8]

1. Pressure on Domestic Banks and Financial Institutions:

Nigerian banks and other financial institutions are compelled to strengthen compliance frameworks to satisfy both domestic regulators and foreign correspondent banks. This involves heavy investments in technology, staff training, and reporting systems. While large financial institutions may adapt, smaller banks and businesses may struggle with these heightened compliance requirements^[9].

1. Negative Reputational Impact:

Grey-listing brands Nigeria as a high-risk jurisdiction, undermining the country’s reputation in the global financial community. This reputational damage not only affects financial services but can spill over into trade, tourism, and diplomatic relations, making it harder for Nigerian businesses to form international partnerships^[10].

1. Macroeconomic Consequences:

The cumulative effect of reduced investment, limited access to international financing, and elevated compliance costs risks exacerbating Nigeria’s macroeconomic vulnerabilities. Critical sectors such as oil and gas, manufacturing, and financial technology which rely heavily on international capital are particularly exposed. Over time, this may aggravate structural challenges such as unemployment, inflation, and currency depreciation^[11].

Way Forward for Nigeria

To ensure the removal from the FATF grey list and maintain long-term compliance, Nigeria must go beyond legislative and institutional reforms to strengthen implementation, enforcement, and international trust. The following measures are critical^[12]:

1. Strengthen Effective Enforcement Mechanisms^[13]

While Nigeria has developed laws and created enforcement units, FATF evaluations focus on effectiveness. Nigeria must:

• Increase the number of successful prosecutions and asset forfeitures linked to money laundering and terrorism financing.
• Publish annual enforcement reports to demonstrate transparency and measurable impact.
• Prioritize complex cases involving politically exposed persons (PEPs), as FATF assesses whether AML/CFT frameworks address high-risk actors.

1. Improve Beneficial Ownership Transparency^[14]

Corporate secrecy remains a major loophole exploited for illicit finance. Nigeria should:

• Operationalize a central beneficial ownership register accessible to regulators, law enforcement, and financial institutions.
• Ensure timely verification of ownership information to prevent shell companies from facilitating cross-border illicit flows.

1. Enhance Inter-Agency Data Integration^[15]

The fractured reporting between the Nigerian Financial Intelligence Unit (NFIU), law enforcement, and regulators weakens compliance monitoring. Moving forward, Nigeria must:

• Establish a shared digital intelligence platform for real-time data exchange among agencies.
• Strengthen suspicious transaction reporting frameworks and feedback loops with reporting entities.

1. Deepen International Cooperation^[16]

Nigeria’s exit from the grey list will depend partly on FATF’s confidence in its ability to prevent cross-border financial crime. Key steps include:

• Expanding bilateral information-sharing agreements beyond existing MOUs.
• Actively participating in joint investigations within the Egmont Group and GIABA to showcase operational collaboration.
• Aligning AML/CFT sanctions and enforcement procedures.

1. Increase Supervision of Non-Bank Financial Institutions^[17]

FATF has highlighted gaps in supervision of sectors such as real estate, casinos, and Designated Non-Financial Businesses and Professions (DNFBPs). Nigeria must:

• Strengthen risk-based supervision of DNFBPs through dedicated regulatory frameworks.
• Enforce mandatory compliance programs for accountants, lawyers, and real estate agents handling high-value transactions.

1. Demonstrate Sustainable Political Commitment^[18]

Sustained political will is crucial for FATF credibility. Nigeria should:

• Ensure independent funding for AML/CFT agencies like the NFIU and anti-corruption bodies to reduce reliance on political discretion.
• Embed FATF compliance into long-term national financial strategy, beyond short-term exit goals.
• Maintain consistent high-level engagement with FATF and regional bodies, emphasizing Nigeria’s role as a regional leader in AML/CFT reforms.

Conclusion

Nigeria’s removal from the FATF grey list will not be achieved solely by adopting laws or forming new committees. The way forward lies in demonstrating the effectiveness of its reforms through verifiable enforcement, robust data integration, and international cooperation. If Nigeria sustains political momentum while strengthening beneficial ownership transparency and expanding supervision beyond the banking sector, FATF is more likely to conclude that the country’s financial system is resilient, credible, and aligned with global AML/CFT standards.

Reference

1. The Punch, Odeniyi, S. (2025) ‘Nigeria closer to exiting FATF grey list – NFIU’, 14 June. Available at https://punchng.com/nigeria-closer-to-exiting-fatf-grey-list-nfiu/ Accessed 8th August 2025. ↑
2. Financial Action Task Force (n.d.) Black and grey lists. Available at: https://www.fatf-gafi.org/en/countries/black-and-grey-lists.html Accessed 8th August 2025. ↑
3. Mondaq, 2023. Nigeria remains on the Financial Action Task Force’s (FATF) grey list for AML/CFT/PF deficiencies – The way forward. Available at: https://www.mondaq.com/nigeria/money-laundering/1655422/nigeria-remains-on-the-financial-action-task-forces-fatf-grey-list-for-amlcftpf-deficiencies-the-way-forward Accessed 7th August 2025 ↑
4. Financial Action Task Force (FATF), 2023. Jurisdictions under Increased Monitoring -Available at: https://www.fatf-gafi.org/en/publications/High-risk-and-other-monitored-jurisdictions/Increased-monitoring-february-2023.html Accessed 8 August 2025. ↑
5. Mugaga, J. 2022. The impact of grey-listing by the Financial Action Task Force (FATF). U4 Anti-Corruption Resource Centre. Available at: https://www.u4.no/publications/the-impact-of-grey-listing-by-the-financial-action-task-force-fatf Accessed 8 August 2025. ↑
6. Afriwise, 2024. Nigeria’s FATF Grey Listing: 2025 Deadline and Business Impact. Afriwise. Available at: https://www.afriwise.com/blog/nigerias-fatf-grey-listing-2025-deadline-and-business-impact Accessed 8 August 2025. ↑
7. FATF (2023) Jurisdictions under Increased Monitoring, 2023. Available at: :https://www.fatf-gafi.org/en/publications/High-risk-and-other-monitored-jurisdictions/Increased-monitoring-february-2023.html?utm_source=chatgpt.com Accessed 8 August 2025. ↑
8. Ibid ↑
9. FATF (2025) Jurisdictions under Increased Monitoring 2025 https://www.fatf-gafi.org/en/publications/High-risk-and-other-monitored-jurisdictions/increased-monitoring-february-2025.html?utm Accessed 8th August 2025. ↑
10. Mondaq (2025) ‘Nigeria remains on the Financial Action Task Force’s grey list for AML/CFTPF deficiencies’, Available at: https://www.mondaq.com/nigeria/money-laundering/1655422/nigeria-remains-on-the-financial-action-task-forces-fatf-grey-list-for-amlcftpf-deficiencies-the-way-forward? Accessed 8th August 2025 ↑
11. Federal Ministry of Finance, Nigeria (2025) Nigeria intensifies efforts to exit FATF grey list by Q2 2025. Available at: https://finance.gov.ng/nigeria-intensifies-efforts-to-exit-fatf-grey-list-by-q2-2025 Accessed 8th August 2025. ↑
12. Mondaq (2025) ‘Nigeria remains on the Financial Action Task Force’s grey list for AML/CFTPF deficiencies – the way forward Available at https://www.mondaq.com/nigeria/money-laundering/1655422/nigeria-remains-on-the-financial-action-task-forces-fatf-grey-list-for-amlcftpf-deficiencies-the-way-forward Accessed 8th August 2025 ↑
13. FATF–GIABA (2024) Nigeria: Third Enhanced Follow-Up Report, Technical Compliance Re-rating. Paris: FATF. Available at https://www.fatf-gafi.org/content/dam/fatf-gafi/fsrb-fur/Nigeria-FUR-GIABA-November-2024.pdf Accessed 8th August 2025 ↑
14. Ibid ↑
15. Mondaq (2025) ‘Nigeria remains on the Financial Action Task Force’s grey list for AML/CFTPF deficiencies – the way forward Available at https://www.mondaq.com/nigeria/money-laundering/1655422/nigeria-remains-on-the-financial-action-task-forces-fatf-grey-list-for-amlcftpf-deficiencies-the-way-forward Accessed 8th August 2025 ↑
16. Common Wealth Lawyers (2025) ‘Combatting financing of terrorism and proliferation financing: has FATF enhanced monitoring made any difference in non-compliant countries? Available at https://www.commonwealthlawyers.com/cla/combatting-financing-of-terrorism-and-proliferation-financing-has-fatf-enhanced-monitoring-made-any-difference-in-non-compliant-countries-by-olanipekun-olukoyede-executive-chairman-of-the-economic/ Accessed 8th August 2025. ↑
17. Ibid ↑
18. GCI-CCM (2025) ‘Nigeria’s path to FATF compliance: overcoming grey-list challenges Available at https://www.gci-ccm.org/insight/2025/04/nigerias-path-fatf-compliance-overcoming-grey-list-challenges-2025-webinar Accessed 8th August 2025. ↑