Monaco was removed from a global financial watchdog’s dirty-money watchlist after stepping up its fight against illegal cash-flows, marking a significant turnaround for the wealthy Mediterranean principality. The Paris-based Financial Action Task Force said Monaco had made sufficient progress in tackling shortcomings in its anti-money laundering regime to warrant removal from its “gray list.”The tiny tax haven was placed under the increased scrutiny in June 2024. Bulgaria, the Democratic Republic of Congo and Ivory Coast were also removed from the list on Friday.

Bulgaria Prime Minister Rumen Radev said the move would ease payments at home and abroad and access to services by foreign banks. Congo Finance Minister Doudou Fwamba Likunde Li-Botayi said it would “reduce the cost and friction” of cross-border transactions for Congolese banks, businesses and citizens, and strengthen investor confidence.

For Monaco, the decision represents a significant victory after facing sharp criticism over its antiquated system for flagging suspicious financial transactions and a lack of strategic focus on money laundering. The rocky outcrop has long been a magnet for the global ultra-wealthy attracted to its zero income tax regime, and under reigning monarch Prince Albert II it also developed a reputation as a playground for rich Russians.

While the economic consequences of being on the gray list are difficult to evaluate, they did include a slowdown of some money transfers and investment transactions, according to Minister of State Christophe Mirmand, adding that Monaco’s removal paves the way for the possible development of new financial activities in the future.

Being on the gray list “ran against the image Monaco wants to project and could have been seen unfavorably,” he said. “There is often a superficial, erroneous and pejorative view of the principality and the nature of its economic activity.”To tackle the shortcomings, Monaco drafted a set of new laws, tightened know-your-customer obligations, boosted cooperation with neighbors and set up a new local dirty-money watchdog, the Autorité Monégasque de Sécurité Financière whose ranks have swelled to 80 people.

It secured a €6 million ($6.7 million) fine in April against UBS Group AG after taking a swipe at the bank’s onboarding process and review of transactions involving high-risk territories. The watchdog’s enforcement committee has also fined Julius Baer Group Ltd. and some firms in the property sector, which occupies a central place in the economy.

The city-state’s prime real estate market has remained the world’s most expensive, with luxury properties fetching eye-popping prices. Ukraine’s richest man, Rinat Akhmetov, shelled out €471 million for five full floors in the Mareterra development built on land reclaimed from the sea.

Overall, Monaco has said 11 sanctions and almost €10 million in fines have been meted out so far, with the number of money laundering convictions quadrupling to 36 last year. It has also struck some 600 companies off its business and beneficial ownership registrars for shortcomings.

FATF’s decision was made during private deliberations at its plenary session this week in Paris. Listings are determined based on a consensus among the group’s membership, which includes the US, UK, European Commission, China, Japan and India. The watchdog’s recommendations are closely tracked by global investors who are wary of conducting business in places found to be deficient in anti-money laundering regulations.