FATF: Pakistan on Greylist

Table of Content

Why in the News?

Recently, the global financial crime watchdog Financial Action Task Force (FATF) in its latest plenary meeting, announced that Pakistan could be removed from the “grey list” after a visit by a fact-finding team to verify the measures it has taken to deal with terror financing.

Key Points

Background:

Formation of FATF

The FATF was established at the G7 Summit of 1989 in Paris, over concerns of the member countries about growing money laundering activities
The heads of G7 countries and the president of the European Commission brought together a Task Force after addressing loopholes in the global financial system
Later, in the aftermath of the 9/11 terror attack on the United States, FATF also added terror financing as the main focus area
This was broadened In 2012, to include restricting the funding of weapons of mass destruction

Financial Action Task Force:

The FATF is an inter-governmental body established in 1989
Headquarters: Paris
Membership: The FATF currently has 39 members including two regional organizations — the European Commission and Gulf Cooperation Council
India has been a member of the FATF since 2010
It is also a member of its regional partners, the Asia Pacific Group (APG) and the Eurasian Group (EAG)
It aimed to combat money laundering, terrorist financing, and other related threats to the integrity of the international financial system
It lays down international standards with the objective to prevent money laundering and terror financing
FATF depends on the voluntary implementation of its reports by member countries

What are FATF’s ‘grey’ and ‘black’ lists?

While the words ‘grey’ and ‘black’ list do not exist in the official FATF lexicon, they designate countries that need to work on complying with FATF directives and those who are non-compliant, respectively
At the end of every plenary meeting, FATF comes out with two lists of countries:

The Grey List Countries

These are the countries that are “actively working” with the FATF to counter criminal financial activities.

In their cases, the watchdog does not tell other members to carry out due-diligence measures vis-a-vis the listed country but does tell them to take into account the risks such countries possess
Currently, there are 23 countries on the grey list. Some of the other countries on the list are Pakistan, Myanmar, Morocco, the Philippines, Panama, Senegal, Albania, Jamaica, and Turkey

The Black List Countries

These are the countries that are designated by the FATF as ‘high-risk jurisdictions subject to call for action’
In this case, the countries have considerable deficiencies in their AML/CFT regimens
For such countries, the body calls on members and non-members to apply enhanced due diligence and in the most serious cases, apply counter-measures such as sanctions
Currently, two countries-North Korea and Iran are on the black list

Why is Pakistan on the Grey List?

The case of Pakistan is significant as it has found itself on the grey list frequently since 2008, for weaknesses in fighting terror financing and money laundering
In 2009, the FATF reaffirmed its designation of Pakistan in the grey list, as the country began to cooperate with the FATF-like regional body, Asia Pacific Group (APG), for a Mutual Evaluation (ME) process
Due to significant progress made by Pakistan, by early 2015, Pakistan was no longer on the grey list. However, it came back to the list in 2018 and was given an action plan to restrict terror financing activities and monitor the actions of UN-designated terrorists in the country
In October 2019, Pakistan was warned by FATF for addressing only five out of the 27 tasks given to it in controlling funding to terror groups like the Lashkar-e-Taiba, Jaish-e-Mohammad, and Hizbul Mujahideen, responsible for a series of attacks in India
In June 2021, however, Pakistan was given another seven-point action plan by the APG, focused specifically on combating money laundering
The FATF appreciated Pakistan’s commitment to fighting financial crimes and said that the country now aims to complete the 2021 action plan by January 2023
During the latest meeting that concluded on June 17, FATF announced that Pakistan could be removed from the “grey list” after a visit by a fact-finding team to verify the measures it has taken to deal with terror financing
Implications of listing of Countries on FATF:
Being listed under the FATF’s two lists makes it difficult for countries to get aid from organizations like the International Monetary Fund (IMF), Asian Development Bank (ADB), and the European Union
According to an IMF study, it may also affect capital inflows, foreign direct investments, and portfolio flow in the country