Paraguay to lose investment grade should it enter money laundering “gray” list

RIO DE JANEIRO, BRAZIL – Express News website listed the negative consequences should Paraguay fail the assessment by the Financial Action Task Force of Latin America (Gafilat) and enter the gray list.

The website points out that Paraguay’s sovereign risk rating will be lowered and the national goals of reaching investment grade level and accession to the OECD will be hindered.

In that respect, it exemplified that in such a scenario, Paraguay would no longer have access to international funds through bond sales or, ultimately, interest rates would increase significantly for them due to the risk involved in operating with a listed country.

“Paraguay will not be able to be part of international country organizations either, with the consequent decrease in international cooperation and a significant drop in economic development,” it adds.

In an extensive analysis, the Paraguayan media set out 12 negative points of joining the list, one of which is that of failing to reach investment grade.

Among the first consequences, it mentions the risk of closing correspondent bank accounts. Due to the De-Risking (risk elimination) applied by other countries, foreign correspondent bank branches may choose not to operate with Paraguay, in order to eliminate any risk of money laundering and terrorist financing (LAFT), without analyzing the costs involved in an extended due diligence.

As an example, it mentions the closing of correspondent bank accounts abroad for local banks, which will be prevented from transferring funds to and from abroad, with associated economic impact on importers and exporters.

Another point will be the increase in the cost of banking services. Due to the De-Risking applied by the other countries, foreign correspondent branches will raise the requirements and will apply an extended due diligence to Paraguay, with the resulting economic and financial cost, charged to local banks and its subsequent pass on of prices to national clients.

An example would be the increase in the price of bank commissions to customers for transfers abroad.

AUSPICIOUS RESULTS OBSERVED

The first week of the on-site visit of the Gafilat in Paraguay ended yesterday, and overall promising results have been observed, said the Secretariat for the Prevention of Money Laundering (SEPRELAD) Diego Marcet, in a press conference.

“More than 30 interviews were conducted, 2 of them at a high level, such as the President of the Republic. More than 120 officials from different entities took part, 17 in total this week. The positive aspect we can confirm is that there is a highly interactive dynamic with the evaluators, there is great fluidity and that is positive, because there are documentary requirements, there are questions and cross-examinations, there are complementary meetings,” he said.