International Journal of Entrepreneurship (Print ISSN: 1099-9264; Online ISSN: 1939-4675)


Consequences of a negative MONEYVAL evaluation for the national economy

Author(s): Jelena Zigulica, Ilmars Kreituss & Karlis Danevics

The purpose of this study is to analyze the impact of a negative MONEYVAL evaluation of national Anti-Money Laundering (AML) systems on a country’s economy. MONEYVAL, as an international AML monitoring body, plays an important role in identifying gaps in national AML systems. A negative MONEYVAL evaluation of a country can potentially lead to inclusion in the Financial Action Task Force (FATF) list (grey list), which, according to some authors, may have a harmful economic effect on the whole national economy. More than 40 countries were included in the FATF’s grey list at least once in the last ten years (e.g. Argentina, Greece, Serbia, Albania, Iceland). Several countries (e.g. Latvia) have received a negative MONEYVAL evaluation and a warning about inclusion in the FATF’s grey list. The aim of this research is to examine how a negative MONEYVAL report and inclusion in the FATF’s grey list affects a country’s economy. The research is focused on the effect of three important economic indicators (Foreign Direct Investment (FDI), the sovereign credit rating of the country and the government borrowing interest rate). The effect of inclusion in the grey list has been studied for seven countries whose economies are arguably most similar to Latvia’s (Albania, Azerbaijan, Bosnia-Herzegovina, Iceland, Kyrgyzstan, Serbia and Tajikistan). The Latvian government’s efforts to become compliant with the FATF’s recommendations during a period of enhanced MONEYVAL monitoring after its negative assessment have been considered and the impact of these efforts on the banking sector has been analysed. The study shows that despite the negative expectations that after inclusion in the FATF’s grey list a country’s economic development may be negatively affected, grey-listing in general does not have an immediate negative effect on economic indicators: FDI does not decrease, credit ratings of countries mostly do not deteriorate, and government borrowing interest rates do not increase. The case of Latvia also shows that too sharp implementation of all the FATF’s recommendations has a harmful impact on the national banking sector and can lead to negative consequences.

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