FATF Status

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

Compliance with FATF Recommendations

The latest follow-up  Mutual Evaluation Report relating to the implementation of anti-money laundering and counter-terrorist financing standards in Madagascar was undertaken in 2023. According to the follow-up Evaluation, Madagascar was deemed Compliant for 6 and Largely Compliant for 11 of the FATF 40 Recommendations. It remains Highly effective for 0 and Substantially Effective 0 of the Effectiveness  & Technical Compliance ratings.

US Department of State Money Laundering assessment (INCSR)

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

Madagascar is neither a regional financial center nor a major source country for drug trafficking; however, Madagascar’s inadequately monitored 3,000 miles of coastline leave the country vulnerable to smuggling and associated money laundering. Criminal proceeds laundered in Madagascar derive mostly from domestic criminal activity, not generally related to the narcotics trade. The major sources of laundered proceeds in 2015 are tax evasion, tax appropriation, and customs fraud. Illegal mining and mineral resources smuggling, illegal logging, public corruption, and foreign currency smuggling are also areas of concern.

The deterioration in the rule of law initiated by the leaders of the 2009 coup d’état continues to facilitate trafficking of natural resources (rosewood, gold, precious stones) and persons as well as foster corruption throughout society (tax evasion, smuggling of goods, etc.). The current president was democratically elected in December 2013, and since then has publicly and privately proclaimed an emphasis on combatting corruption. The government has not successfully prosecuted any anti-corruption cases aside from low level individuals. The smuggling of gold, gemstones (predominantly to the Gulf), and protected flora and fauna (predominantly to Asia) generates funds that are laundered through the financial system or through informal channels into which the government has limited reach. There is a significant black market for smuggled or stolen consumer goods, especially in port cities. Trade-based money laundering occurs in Madagascar, involving both customs fraud and contraband. Members of the former regime profited from, facilitated, and even directed criminal activity and money laundering.  Media reports that they continue to do so.

Offshore banks and international business companies are permitted in Madagascar. Along with domestic banks and credit institutions, offshore banks are required to request authorization to operate from the Financial and Banking Supervision Committee, which is affiliated with the Central Bank.

Rating                                                                           (100-Good / 0-Bad)

Transparency International Corruption Index                           25

World Governance Indicator – Control of Corruption             18

Madagascar possesses large quantities ofmineral, agricultural, and marine resources, and the Government of Madagascar (GOM) publicly welcomes foreign direct investment (FDI), however U.S. companies describe the investment climate as increasingly challenging. Following a military coup in 2009, FDI decreased from an all-time high of 22 percent of GDP in 2010 to 10 percent in 2020. In 2019 the government announced a new strategy for attracting foreign investment and promoting economic development called the “Plan d’Emergence Madagascar” or PEM. As of 2023 the government has yet to publish the PEM but continues to stress the importance of FDI to achieving its development goals.

Problems investors experience in Madagascar generally stem not from the text of laws but from the perceived lack of fair and consistent implementation. Existing laws allow foreign ownership of businesses and do not generally discriminate against foreign-owned enterprises, yet foreign companies regularly report being subjected to additional licensing and tax scrutiny and unexplained holdups in receiving government approvals. There is no legal requirement that citizens own shares of foreign investments, nor any restriction on the mobility of foreign investors, but companies which lack local partners tend to face additional regulatory hurdles and other challenges. Foreign and domestic businesses frequently claim they are not consulted prior to the implementation of new government policies affecting their activities.

Due to decreasing revenues and foreign exchange levels, the government has recently instituted policies designed to increase its revenues and foreign exchange reserves derived from exports. However these moves have had a deleterious effect on the country’s exports and foreign exchange reserves. In the vanilla sector, the government in 2022-2023 introduced new regulations and limitations on exports which caused a collapse of the country’s vanilla sales during the 2022-2023 season.

Companies and individuals seeking to conduct foreign currency transactions in Madagascar must request permission from the government via a form. Restrictions on foreign currency transfers are enforced at the state and commercial bank level with close monitoring by the Finance Ministry. In 2023 the government began further restricting the outflow of Euros and U.S. Dollars from Madagascar due to an increasing shortage of foreign exchange in the country. These measures have negatively impacted the operations of foreign investors.

Madagascar was ranked 142 out of 180 countries for corruption in the 2022 Corruption Perceptions Index reported by Transparency International, and in 2022 the government threatened to prosecute the local director of Transparency International for uncovering alleged corruption. While giving or accepting a bribe is a criminal act and is subject to trial by court, corruption is an ongoing issue at all levels in Madagascar and a factor in daily life faced by most Malagasies. Corruptionis most pervasive in the judiciary, police, tax, customs, land ownership, and mining. U.S. companies operating in Madagascar cite corruption as a serious impediment to their activities.

Madagascar does not have a separate free trade agreement or a bilateral investment treaty (BIT) with the United States but benefits significantly from customs duty exemptions under the African Growth and Opportunity Act (AGOA), to the point that the United States has been its biggest individual export market since 2018. Madagascar lost its AGOA eligibility from 2010-2014 due to a military coup in 2009, but exports under AGOA – primarily vanilla and textiles – rebounded. Madagascar has a young though largely illiterate workforce. Textiles, mining, energy, and telecommunications remain the most promising sectors in a challenging investment climate.

Country Links

Central Bank of Madagascar