Kenya and Tanzania have been removed from a global watch list of countries not doing enough to tackle money laundering, a downgrade expected to increase the region’s appeal among global investors.

The exit of the two countries from the list leaves Uganda as the only country from the region viewed by the international community as not doing enough to shield its financial sector from acting as a conduit for cleaning and transferring illegally acquired cash.

The Financial Action Task Force (FATF), a global anti-money laundering agency that sets standards for countries, says while Kenya and Tanzania had taken steps to step up local legal and regulatory frameworks, Uganda has made little progress in sealing these loopholes, citing the country’s failure to establish a legal and regulatory framework to curb the practice.

“Uganda should continue to work on implementing its action plan to address these deficiencies, including by adequately criminalising terrorist financing... establishing and implementing an adequate legal framework for identifying, tracing and freezing terrorist assets,” said the FATF in a statement.

Under rules established by the FATF, member countries are required to put in place laws and institutions that enable them to track suspicious monetary movements through establishing a financial intelligence unit.

It was their failure to set up these laws and institutions that pushed the agency to place Kenya and Tanzania on the list – alongside Iran and North Korea, which have already been slapped with economic sanctions for their appearance on the list.

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The two countries had been placed on the list by FATF over what the organisation said were delays in enacting laws to tackle the crime as well as failure to establish a local agency to track suspicious monetary transactions.

“The FATF welcomes Tanzania’s significant progress in improving its anti-money laundering regime and notes that Tanzania has established the legal and regulatory framework needed to meet its commitments in its action plan regarding the strategic deficiencies that the FATF had identified in October 2010. Tanzania is therefore no longer subject to FATF’s monitoring process,” said the FATF.

Appearing on the list and the subsequent effects, like economic sanctions, can have devastating effects on economies.

For example, the US has banned its citizens and companies from any business dealings with individuals and corporates from Iran and North Korea, in effect locking them out of the global financial sector and denying them billions of dollars in potential investment and trade inflows.

For a country like Kenya that aims to build a financial hub in Nairobi, being locked out of the global financial market could mean attracting inflows into the country would be virtually impossible.

“To be placed on the grey list means that to do business with Kenyan financial institutions foreign financial institutions will have to be very careful in their financial relations with Kenya. They have to enforce enhanced due diligence in order to do business at all and depending on the jurisdiction, they may not be able engage in the business at all,” said Jan Beens, project coordinator at AML/CFT Kenya.

Again, it would also mean these countries would not be in a position to borrow from the international markets through such avenues as the Eurobond. Kenya last month issued a $2 billion Eurobond while Tanzania plans a similar listing later on this year.

The UN as well as key global powers such as the US have been pushing countries that have weak anti-money laundering laws to enact or strengthen existing legislation to limit abuse of the financial system by criminals and terrorist groups.

Kenya passed an anti-money laundering law last year that led to the formation of the financial intelligence unit to track suspicious transactions. Banks and forex bureaus are now required to report any transaction about $10,000 and flag any suspicious financial movements.

According to a report released by Unep, terrorist groups like Al Shabaab and militias in countries like DRC take advantage of weak laws in countries to move proceeds from criminal activities and so fund their activities.

READ: Kenya under pressure to pass anti-terrorism law

The UN agency estimates that the Al Qaeda-linked group makes as much as $50 million from illicit charcoal exports every year. Kenya is seen as a key destination for much of these and other illicit inflows from countries in the Great Lakes like Congo.

For example, in 2013, the UN estimated that gold worth at least $400 million was smuggled out of the Democratic Republic of Congo to Uganda and other East African countries with the proceeds being used as a source of financing for the wars raging in the eastern DR Congo.