The intergovernmental Financial Action Task Force (FATF), created by the G7 in 1989 to combat money laundering worldwide and later expanded to address the financing of terrorism and weapons of mass destruction, established what outsiders call its “grey list” to solve problems, not create them. In contrast to the “blacklist” of countries that aren’t cooperating to reduce their “strategic deficiencies” in combating money laundering, terrorist financing, and proliferation financing, the grey list refers to countries that are under “increased monitoring” but have ostensibly agreed to work with the FATF to strengthen their compliance. Being placed on the FATF’s grey list signals to the global financial system that these jurisdictions present a higher risk, often resulting in closer scrutiny of transactions.
But according to the African research and policy advocacy group Civic Advisory Hub (CAH), the FATF’s designation more often results in political, economic, administrative, and regulatory overreactions than in real reform. The group cleverly calls this “grey list induced panic,” or GLIP, a catch-all term for the way governments, banks, and donors frequently respond when a country is placed on the grey list.
Civil society organizations (CSOs) have been calling attention to this issue for decades. Previous authors at Just Security described it in 2024 as “unwarranted overregulation, suppression, and financial exclusion of civil society worldwide resulting from the (mis)implementation of the FATF standards.” Earlier such critiques compelled the FATF in 2021 to acknowledge these “unintended consequences” and develop an “ongoing work programme” to tackle the problems. However, the accumulating evidence from countries spanning Serbia, India, the Philippines, and beyond shows that this global compliance framework is not only resulting in unfortunate side-effects but also enabling the “weaponisation of the FATF standards” for “suppression laundering.”
CAH’s recent study, “Understanding the FATF Grey-List-Induced-Panic (GLIP) in Sub Saharan Africa,” offers insight into these dual effects in a region where the negative impacts appear to be accelerating. CAH examines the phenomenon in eight African countries (Kenya, Uganda, Tanzania, South Africa, Zimbabwe, Cameroon, Nigeria, and Burkina Faso) and outlines practical steps funders can take to mitigate harm, strengthen partners, and safeguard development outcomes.
The CAH analysis shows that, while grey-listing can sometimes lead to legitimate improvements in compliance with standards for anti-money laundering and combating the financing of terrorism (AML/CFT), the target government’s panic that results — GLIP — more often spurs rapid, uncoordinated legislative reforms, the unwarranted expansion and concentration of state security power, and stringent — sometimes unlawful –restrictions on CSOs. The harmful knock-on effects include banks freezing or closing CSO accounts or outright denying them banking services, heightened donor scrutiny and bureaucracy in grantmaking, the withdrawal of funding, fear, and confusion — all of which contribute to the shrinking of opportunities for civic engagement. And all of which funders are strongly placed to address.
Understanding the Impacts of Grey-Listing
The negative impacts of grey-listing, though largely unintended, are widespread, long‑lasting, and often disproportionate relative to the technical risks the FATF seeks to address. For donors, grey-listing — and how governments respond to it where their grantees are located — matters for several reasons.
First, it often prompts international donors such as the World Bank and commercial financial institutions to classify entire countries as high‑risk, slowing or even halting disbursements suddenly. In one case that CAH documented in Cameroon, the World Bank disbursed only 8 percent of funds for a major program due to more onerous and bureaucratic checks; lengthy transaction delays, returned funds, and frozen accounts; and complete loss of banking access for many CSOs. These disruptions create volatility and directly impede the ability of a donor to follow through on its commitments and complete a planned program.
Second, grey-listing increases burdens on recipients, as donors commonly respond by becoming even more risk averse and demanding unsustainable degrees of accountability. This can include requirements for additional documentation (such as beneficial ownership, board details, staff bios, detailed procedures for financial management, logs of beneficiaries and intended use of funds, more frequent reporting cycles, more intrusive vetting, or refusal to accept new partners in grey‑listed countries. This increases operational costs for donors and creates disproportionate administrative burdens on local organizations, particularly small and community‑based groups.
A third reason why grey-listing is so important for donors is that commercial banks over-reacting to minimize their own risks of violating international sanctions related to FATF designations may over‑apply FATF rules out of fear of sanctions. Consequences include account closures, blocked transfers, suspicion of all nonprofit transactions, and delays that severely impact grant implementation or even make it impossible. Many banks continue blanket restrictions even when national risk assessments classify most nonprofit organizations as low risk. This narrows the pool of viable implementing partners and threatens the long‑term sustainability of a country’s entire civil society ecosystem.
Fourth, grey-listing often undermines development efforts as well as human rights and civil liberties, as target governments crackdown on nonprofits, either because authorities flailing out of genuine fear of non-compliance with FATF or as cover for politically motivated repression. The crackdown often takes the form of new restrictive laws with insufficient consultation. In Kenya, for example, CAH found that the country’s grey-listing in February 2010 and a subsequent FATF warning in June 2012 “prompted swift legislative response. By October 2012, the Prevention of Terrorism Act (POTA) was enacted.” Some grey-listed countries have arbitrarily de-registered or suspended CSOs. A most extreme example of this was Burkina Faso’s move in February 2025 to immediately suspend all NGOs and associations operating without government authorisation. Another tactic by grey-listed governments can be the surveillance and intimidation of civic actors, as in Tunisia, where — since being grey-listed in 2017 — CSOs “are almost always flagged as high risk” by the country’s Financial Intelligence Unit, offices often created by grey-listed countries to comply with FATF). Such designations then trigger intrusive investigations, including, in Tunisia, the use of police forces. These measures weaken the ability of civil society to deliver services, hold institutions accountable, and act as trusted community intermediaries, functions that are foundational to the goals of many donors.
Finally, donors operating in grey-listed countries face political tensions with host governments, scrutiny from home regulators and banking counterparts, and heightened reputational and political risk if partners are wrongly accused of terrorist financing or money laundering. One example occurred in 2015 in the case of unfounded accusations levelled at two renowned Kenyan human rights groups, Muslims for Human Rights and HAKI Africa. The Kenyan government subsequently wrote letters to foreign government donors demanding they stop funding the groups, which fortunately the donors rejected. Some governments have publicly (and baselessly) accused donors of financing unrest. An emblematic example of this is former longtime Hungarian Prime Minister Victor Orban’s targeting of financier and philanthropist George Soros. Another case was that of Kenyan President William Ruto in 2024 accusing the Ford Foundation of “sponsoring violence.” The result is a heightening of the political sensitivity of grantmaking in these contexts, which of course is exactly what the country’s ruling authorities may be trying to accomplish, and they now have the FATF grey-listing as cover.
The evidence provided by CAH’s analysis lays bare the negative impacts on civic activity of the FATF’s grey list and the resulting panic. CAH — and similar studies — provides clear evidence that:
- Banks and donors commonly respond to grey-listing with excessive caution: CSOs across all eight countries reported account freezes, inaccessible funds, and sudden increases in due diligence demands. Even after policy reforms that base regulations on evidenced assessment and more targeted, proportionate mitigation of risks, banks often continue applying blanket restrictions.
- Most CSOs are actually low risk: CAH found that where sectoral terrorist-financing risk assessments were finally completed (for example, in Nigeria and Burkina Faso), the vast majority of organizations were assessed to pose minimal risk, contradicting the rationale for earlier heavy-handed measures.
- Rushed reforms cause confusion: Countries often pass multiple overlapping laws, sometimes contradicting existing frameworks, creating duplicative reporting obligations, high compliance burdens, and excess costs for CSOs and donors alike.
- Civic activity remains restrained even after delisting: CAH’s evidence from Kenya, Uganda, and Nigeria shows that repression of CSOs persists after delisting, suggesting that GLIP has lingering structural effects.
Recommendations for Donors and Policymakers
Funders can undertake a variety of interventions when faced with these detrimental impacts.
One foundational step is to strengthen CSO resilience and compliance capacity by providing sustained, flexible funding that enables organizations to meet AML/CFT expectations without compromising their ability to conduct their intended substantive civic activities. Funders can help individual organizations with internal controls, financial systems, risk assessments, governance improvements, legal advice, and audit readiness. Donors also should co‑finance shared infrastructure such as helpdesks, compliance clinics, or legal advisory hubs that serve entire CSO sectors.
However, compliance support alone is insufficient, especially when it implicitly legitimizes bad laws and regulations. Donors must also help civil society protect their rights and their ability to function through strategic engagement with both the FATF and its 37 member countries, and with the authorities of target countries. Funders must use their clout to vigorously advocate for proportionate, risk-based regulation, and can support dialogue mechanisms, where feasible, such as working groups that include government, the private sector, and civil society in a grey-list country.
In several African states, groups leading work related to the impact of AML/CFT measures on civil society’s ability to function have pressed their governments on a number of fronts: avoiding blanket classification of CSOs as “high risk,” ensuring laws are not used to intimidate civil society, and aligning implementation with the FATF’s revised Recommendation 8. That FATF standard requires countries to identify and protect nonprofit organisations (NPOs) that may be vulnerable to terrorist-financing abuse through focused, proportionate, and risk-based measures, while avoiding unnecessary restrictions on legitimate civil society activity. In Nigeria, Uganda, and Kenya, CSOs have taken the initiative to establish “tri-sector dialogues” bringing together civil society, government regulators, and the banking sector. These working groups have built trust, deepened understanding, and led to a more collaborative approach that has improved the operating environment for civil society.
CAH reports, for example, how National NPO Working Groups on the FATF in Uganda and Kenya bring together a diverse range of CSOs from governance, rights, humanitarian, and development sectors. Donors can support civil society coordination by funding these CSO working groups and their collective advocacy, such as through shadow FATF reporting processes in which independent submissions by CSOs provide FATF assessors with evidence and analysis about how AML/CFT measures are being implemented in practice, particularly where governments may under-report or omit their impact on nonprofit organizations and civic space. In addition to strengthening civil society engagement with national government authorities, these efforts have proven instrumental in influencing FATF evaluators and documenting unintended consequences. These collective platforms and the leading members in them have subsequently been recognized as important interlocutors by FATF-style regional bodies (such as the Inter-Governmental Action Group against Money Laundering in West Africa — GIABA, and the Eastern and Southern African Anti-Money Laundering Group — ESAAMLG) and invited to help shape policy. This has resulted in normative improvements made by the global FATF body, as these working groups bring direct evidence of the realities of how the FATF’s standards are implemented and experienced.
Donors also could do more to reform their own practices, to reduce the unintentional harms of grey-listing, alleviate the impacts of GLIP, and improve the responses to it. For example, donors could harmonize due diligence requirements or processes by developing common standards to reduce excessive bureaucracy and duplicative processes. Calibrating due diligence to reduce the burden for low‑risk, small organizations is essential. And when a country is placed on the grey list or when new regulatory measures or baseless accusations directly impact CSOs, donors could — where appropriate — issue letters assuring partners of their continued commitment, work with correspondent banks to maintain CSO access, and use safe and legal alternative payment channels. Finally, donors interacting with government officials can emphasize that financial integrity and civic freedoms are not mutually exclusive but mutually reinforcing — that the freedom of citizens to participate in public activities creates the conditions for the groups’ transparency and accountability, whereas restrictions and targeting of CSOs risks driving their financial activity underground.
Addressing the challenges of grey-listing requires donors to recognize that its impacts extend far beyond financial integrity, striking at the heart of governance and the ability of civil society to function as it should. Donor practices themselves can unintentionally fuel GLIP when they become overly risk‑averse.
Ultimately, the most effective antidotes to GLIP’s harmful effects are meaningful engagement, better coordination, and a commitment to proportionality. With their considerable influence over policy and practice, funders can ensure that AML/CFT reforms strengthen — rather than stifle — the individuals and organizations that are essential to open, accountable societies.
