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PHOENIX CONSULTING: What would happen if Monaco were

placed on the FATF grey list? By Milena Radoman

Impact on the private sector, consequences on GDP, drop in investments... In a study, the Phoenix
Consulting firm quantified the economic consequences of a much-feared scenario in countries
placed on the grey list.

The classification of a country on the FATF a significant drop in foreign investment after Decline in GDP of the country concerned
grey list is not trivial. Beyond harming its being greylisted in 2011; it was de-listed 2014, More worrying, according to a report by the
image, there are numerous repercussions then relisted in 2021. “Foreign direct investment International Monetary Fund, a move to the
for a country’s economy, starting with a fell from $19 billion to $5.7 billion between 2007 grey list can have a significant negative impact
potential drop in GDP. This is what the study by and 2020, whilst bonds held by foreigners fell on a country’s GDP, specially if that country
Sébastien Prat, partner at Phoenix Consulting from 25% in 2016 to around 5% in 2021.” remains on the grey list for a prolonged period.
Monaco and Secretary General of the Monaco Between 2008 and 2019, Pakistan’s move to
Association of Compliance Officers (AMCO) Decline in the number of banking the grey list led to a drop in its GDP of up to
concludes: “The initial objective of the inclusion correspondents 4% per year.
of a country on this list is to encourage it to “Banking and financial institutions feel the “The economic contexts of Pakistan and
comply more with FATF standards, thus having most significant impact, with a decrease in Monaco differ significantly. For example, the
a strong economic impact,” he summarises. the number of correspondent banks, even financial sector, which is particularly affected
The FATF uses the ‘name and shame’ process before greylisting. Malta recorded a 20% when a country is placed on the grey list, only
to bring about important and necessary drop in the number of Correspondent Banking represents around 4% of GDP in Pakistan,
reforms. “According to the FATF, a move to Relationships (CBRs) between 2011 and whilst it constitutes more than 16% of GDP in
the grey list could indeed result in higher 2019. For example, the Bank of Valletta Monaco. The repercussions on the GDP of a
costs for the international trading partners of (BOV), the leading Maltese bank, lost all of its jurisdiction like Monaco would therefore be
the country in question, due to the additional correspondent banks for transactions in US much greater than those observed in Pakistan,”
measures imposed, or even completely deprive dollars just before Malta moved to the grey list.” judges Sébastien Prat.
them of the possibility of doing business with
that country.”

The “de-risking” phenomenon Short-term impacts for the private sector
First consequence: “ de-risking” is a One of the main fears of the private sector is this: the
phenomenon which sees foreign financial increase in compliance costs for regulated professionals.
institutions distancing themselves from It is important and manifests itself at several levels,
counterparties, banking correspondents, as the Phoenix Consulting study shows, starting with
clients or countries considered to present operational costs (in particular the recruitment of
high risks in terms of money laundering or qualified personnel).
the financing of terrorism. “The high costs Thus, “In 2021, HSBC Malta’s costs increased by more
of compliance, reputational risk and the than 10%, due to the strengthening of controls on
complexity of transactions are all factors that customers and operations and the investment in new
push financial institutions to avoid dealing digital tools (KYC, ERP, screening). Similar cost increases are observed amongst all
with countries deemed to be at risk,” notes regulated professionals, including the major Maltese banks.”
Sébastien Prat. The impact is tangible on Added to this is the investment in technological solutions, the reputational cost
cross-border payments. According to a 2016 (communication campaigns, internal awareness-raising, setting up extra-financial
study by the Centre for Global Development, reports etc) but also the cost of transactions and operations. “Companies from listed
“Greylisting results in an average 7-10% drop countries face another problem: transactions become more complex when dealing
in inbound payments to greylisted countries.” with foreign partners, leading to a possible alteration of international relations. Local
operations also become more time-consuming and costly due to tighter controls over
Drop in foreign investment customers and operations and this, in turn, lengthens lead times and increases costs
Another phenomenon: “A move to the grey list associated with transactions. Some companies located in non-listed countries even
can also discourage foreign investors in these choose to refuse to collaborate with entities based in greylisted countries,” indicates
regions, who then see the move to the grey list Sébastien Prat – not to mention the cost of sanctions: “In Malta, we observe that the
as a potential sign of financial, legal and fiscal amounts of sanctions imposed upon non-financial regulated professionals have exploded
instability,” notes the study by Cabinet Phoenix, since 2020 – they have multiplied by 53!”
citing the example of Turkey, which suffered

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