THE UNINTENDED CONSEQUENCES OF FINANCIAL ACTION TASK FORCE (FATF) INTERNATIONAL STANDARDS IN NIGERIA

Abstract

The Financial Action Task Force (FATF) establishes global standards for Anti-Money Laundering and Countering the Financing of Terrorism (AML/CFT) to protect the integrity of the international financial system. While Nigeria has made significant strides in legislative and regulatory reforms to comply with these standards, particularly following its 2023 grey-listing, this pursuit has precipitated significant unintended consequences. This paper examines these collateral impacts, arguing that applying a standardised global framework to Nigeria's unique economic context risks undermining the very stability and inclusion it aims to foster. Through a systematic literature review, this study analyses the key challenges arising from FATF compliance. Significant findings indicate that compliance pressures have triggered widespread "de-risking" by international banks, thereby constricting Nigeria's access to global finance and stifling key sectors such as fintech. Furthermore, the economic burden of compliance disproportionately affects Small and Medium-sized Enterprises (SMEs), while a rigid, documentation-centric approach deepens the financial exclusion of the vast informal economy. The paper also analyses the "chilling effect" on the non-profit sector as a case study of the misapplication of a risk-based approach. The study concludes that a more nuanced, context-aware strategy is imperative and provides recommendations for Nigerian policymakers, the private sector, and the FATF to forge a balanced path that mitigates financial crime without sacrificing economic development and financial inclusion.