FATF Status

Lesotho is not on the FATF List of Countries that have been identified as having strategic AML deficiencies

Compliance with FATF Recommendations

The last Mutual Evaluation Report relating to the implementation of anti-money laundering and counter-terrorist financing standards in Lesotho was undertaken in 2023. According to that Evaluation, Lesotho was deemed Compliant for 7 and Largely Compliant for 12 of the FATF 40 Recommendations. It was deemed Highly Effective for 0 and Substantially Effective for 0 of the Effectiveness ratings.

US Department of State Money Laundering assessment (INCSR)

Lesotho was deemed a ‘Monitored’ Jurisdiction by the US Department of State 2016 International Narcotics Control Strategy Report (INCSR). Key Findings from the report are as follows: -

Lesotho is neither a regional nor an offshore financial center. Money laundering is related primarily to corruption and tax evasion. While there is no significant black market for smuggled goods in the country, undeclared and under-declared items pass daily between Lesotho and South Africa over the countries’ extensive and porous land border. The smuggling is low level and largely committed by individuals. Smugglers commonly bring undeclared consumer goods or, occasionally, larger items like automobiles from South Africa into Lesotho. Smaller items are smuggled to avoid paperwork and other bureaucratic requirements, while larger items are smuggled to avoid paying import taxes at the borders.

Rating                                                                           (100-Good / 0-Bad)

Transparency International Corruption Index                         39

World Governance Indicator – Control of Corruption             42

The Kingdom of Lesotho is open to and eagerly seeking foreign direct investment (FDI). The Government of the Kingdom of Lesotho (GOKL) has made major strides to improve the business environment in terms of licensing, business registration, water, and electricity connections in recent years. With the entry of a new government in October 2022, the GOKL announced its intention to strengthen the private sector and to welcome foreign direct investment focused on job creation, market diversification, and local capacity development.

While the GOKL clearly recognizes the importance of FDI and has continued to enact policies to make foreign investment easier, 2020 also saw the rollout of rules intended to protect local entrepreneurs from foreign competition in designated sectors. In recent years, many migrants have started businesses in these designated sectors and the government announced aggressive measures in 2020 to reverse this trend. These sectors—such as small retail food sales and basic auto repair—are dominated by local small and micro enterprises but some do have participation by medium-sized foreign-owned firms.

Although these regulations may have a negative effect on some foreign investors, they will have low impact on overall FDI because most businesses in the designated sectors are relatively small. However, the government has also enacted other regulations, such as requiring foreign investors to renew their business licenses yearly instead of every three years, a condition that many foreign investors describe as onerous to the point of impossibility given the bureaucratic challenges.

Moreover, recent policy debates within the government around proposals to mandate a minimum percentage of local ownership enterprises earmarked for local citizens have caused real concern. In 2022, the government implemented the regulations in the used car motor dealership sector removing barriers to entry for foreign investors. Uncertainty concerning the execution of the regulations in other sectors remains.

COVID-19 negatively affected Lesotho’s economy and FDI in 2021 and 2022, with several foreign-owned textile factories closing or cutting back on operations due to the global downtrend in demand. The government introduced measures to reduce the impact of COVID-19 on the private sector. Other challenges include corruption, with Transparency International’s Corruption Perceptions Index ranking Lesotho as 99 out of 180 countries. Foreign investors are requested to adhere to international labor standards, however, there were reported instances of Gender Based Violence and Harassment (GBVH) in some textiles factories. The government, in collaboration with the stakeholders, is working to address GBVH. Lesotho was already grappling with food insecurity prior to Russia’s February 24 full-scale invasion of Ukraine but the invasion has only exacerbated the situation. As a net food importer, changes in global and regional dynamics have significant negative impacts on the availability of food products and the population’s purchasing power in Lesotho. Despite these challenges, the GOKL is refining the services it offers foreign investors, and Lesotho retains advantages such as ready access to the South African and regional markets as well as lower labor, electricity, and communications costs than neighboring countries. Lesotho also has a government that remains focused on providing jobs to its citizens, and which has publicly proclaimed its eagerness to work with foreign investors—especially those ready to partner with locals.

Country Links

Central Bank of Lesotho