FATF Status

Malawi 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 Malawi was undertaken in 2019. According to that Evaluation, Malawi was deemed Compliant for 17 and Largely Compliant for 12 of the FATF 40 Recommendations. It was also deemed Highly Effective for 0 and Substantially Effective for 0 with regard to the 11 areas of Effectiveness of its AML/CFT Regime.

US Department of State Money Laundering assessment (INCSR)

Malawi 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: -

Malawi is not a regional financial center. The main source of illegal profits in Malawi derives from public corruption. Malawi is currently addressing a major corruption scandal popularly known as “Cashgate” centering on the looting of government accounts by public officials through fraudulent transactions in the government’s computerized payments system. High ranking officials, including a former Minister of Justice, a former budget director, and a former Defense Force chief have been indicted in the scheme. The Financial Intelligence Unit (FIU) Monitoring and Analysis Manager was arrested in August 2015 and charged with money laundering, misuse of office, and breach of confidentiality as part of the same investigation.

Another significant source of illicit funds is the production and trade of cannabis sativa (Indian hemp), which is cultivated in some remote areas of the country. Anecdotal evidence indicates Malawi is a transshipment point for other forms of narcotics. Human trafficking, vehicle hijacking, wildlife trafficking, and fraud are also areas of concern.

Smuggling and the laundering of funds are exacerbated by porous borders with Mozambique, Zambia, and Tanzania. There are indications of trade-based money laundering, mostly through over- and under-invoicing. There are also cases of goods smuggled across the border; it is believed contraband smuggling generates proceeds that could be laundered through the financial system.  Some of the trade-based money laundering is reportedly linked to Pakistan and India. Money/value transfer systems, such as hawala, are a concern. Malawi has a cash-based economy and there are usually few paper trails to follow in financial investigations.

Rating                                                                           (100-Good / 0-Bad)

Transparency International Corruption Index                           34

World Governance Indicator – Control of Corruption             30

Corruption is rife in Malawi and poses serious compliance risks to businesses investing in the country. All sectors of the economy suffer from widespread corruption, and large networks of clientelism and patronage exist. In addition, extensive bureaucracy and red tape provide a fertile environment for facilitation payments and bribery. Companies contend with corruption and bribery in almost all operations, from obtaining licenses to bidding on public contacts. Malawi has a comprehensive anti-corruption legal framework, yet enforcement is poor and officials sometimes engage in corruption with impunity. The Penal Code and the Corrupt Practices Act criminalize active and passive bribery, extortion and abuse of office, among other offenses, in both the public and the private sectors. Gifts are also criminalized, yet the practice is widespread. For further information - GAN Integrity Business Anti-Corruption Portal

The government of Malawi is working with the IMF to meet the requirements of an Extended Credit Facility (ECF); however, the negotiations remain ongoing and inconclusive. Fiscal deficits continue to expand, and revenue mobilization remains a challenge. A growing trade imbalance, dwindling foreign reserves and persistent inflation compound economic pressures. Government fraud and corruption scandals have led to dwindling donor support over the last few years. Gross domestic product growth slowed to 1.2 percent in 2022, down from 4.6 percent in 2021. The economy was hit hard by COVID-19, resulting in a near recession growth level of 0.8 percent in 2020. The government forecasts slight economic growth at 2.7 percent in 2023 but is cautious about the macroeconomic and fiscal challenges. The government’s heavy debt burden and persistent fiscal deficits are likely to restrain economic expansion that outpaces population growth. Tropical cyclone Freddy impacted southern Malawi in March 2023, leaving a wide swath of damage and destruction to energy and road infrastructure, homes, cultivated fields, and a heavy toll on human lives with more than 500,000 people displaced and 500 fatalities.

The Reserve Bank of Malawi (RBM) devalued the currency by 25 percent in May 2022, subsequent poor agricultural harvests in 2022 resulted in food shortages both of which ultimately sharp increases in food and non-food inflation. Overall Inflation jumped from 9.1 percent in 2021 to 20.9 percent in 2022 and is forecasted to remain high at 18.2 percent in 2023. The economy is heavily dependent on agriculture and is particularly vulnerable to climate related shocks. Russia’s war of aggression against Ukraine has worsened agricultural prospects through disruptions to the supply chain and shortages of fertilizers. The price of imported raw and finished materials is also significantly impacted by supply chain disruptions, further driving up prices of domestic goods and services.

The Government of Malawi is eager to attract foreign direct investment. Investment opportunities exist in agricultural, mining, health, transportation, information technology, and energy. Transportation is a potential growth sector as the government works to improve infrastructure, the road network, and rehabilitate railway lines connecting Malawi to Mozambique, Zambia, and Tanzania. Public-Private Partnership opportunities are likely to open in aviation, energy, and road networks. Corruption remains a major problem at all levels of the public and private sectors. There is a scarcity of skilled and semi-skilled labor. Political risk in Malawi is manageable and tribal, religious, regional, ethnic, or racial tensions are minimal.

The Malawi Investment and Trade Center assists investors and businesses by providing insight and local knowledge to help navigate the myriad regulations, processes, and procedures required to operate a business. Malawi’s legal system is generally unbiased but is notoriously slow. Investors have the right to establish, acquire, and dispose of interests in business enterprises. Government enacted amendments to the land laws in 2022 which include clauses that negatively affect foreign ownership and investment in land-based enterprises.

Scarcity of foreign exchange (forex) remains a challenge and negatively affects investors. The government aims to maintain a three-month supply of forex, but often falls short of that goal. Forex rationing has led to several months wait for business to remit foreign investment funds. Despite the long wait times, there are currently no restrictions on remittance of foreign investment funds if the capital and loans initially came from foreign sources and were registered with the RBM. The government is expected to pass a new foreign exchange bill during the April 2023 session of Parliament. The new act will impose strict controls and restrictions on forex transactions, bank accounts, and holding or traveling out of Malawi with foreign currency.

Malawi is a land-locked country and the road network connecting to ports in neighboring countries is limited. Investment in infrastructure overall has been limited. Formal and informal trade boundaries may restrict imports and exports, and import tariffs tend to be high. Malawi is one of the least electrified countries in the world; approximately 12 percent of households have access to the national grid, and less than 7 percent have access to electricity from standalone solar photovoltaic systems. Impacts from tropical cyclones in 2022 knocked approximately 30 percent of the country’s electricity generating capacity offline; repairs remain in-progress. A key government development target is for universal access to clean and affordable energy by 2030; 30 percent from grid and 70 percent off-grid, solar islands, however this is unlikely to be met. Internet is unreliable, and expensive. These challenges present opportunities for investment.

The government is committed to addressing climate change through climate smart policies and programs. The Environmental Management Act provides details on environmental requirements for investors and Ministries, Departments, and Agencies (MDAs). Climate change issues are integrated across the public service and national development plans. The government established the national climate change fund with seed capital of $500,000 for its operationalization. Limited resources and issues related to poverty continue to impede the government’s ability to implement climate adaptation and resilience programs and initiatives.

Malawi’s borders are open to local and international travelers. In February 2023, government removed all COVID-19 requirements for travelers. Travelers are no longer required to present negative COVID-19 test results and certificate of COVID-19 vaccination.

​

Country Links

Malawi Financial Intelligence Unit (FIU-Malawi)

Reserve Bank of Malawi