FINANCIAL ACTION TASK FORCE

Pakistan got a respite from the Financial Action Task Force (FATF) as FATF announced that the country could be removed from the grey list. FATF is going to decide whether to take Pakistan off the ‘grey’ list at the end of its plenary session in Berlin in October.

Pakistan has been on the Financial Action Task Force (FATF) grey list since June 2018.

WHAT IS FATF

• It is an inter-governmental body that frames international standards seeking to prevent international financial crimes that aid terrorism.
• It was established in July 1989 by a G-7 Summit in Paris, initially to examine and build measures to combat money laundering.

• After the 9/11 attacks, the organization in October 2001 expanded its area to incorporate efforts to combat terrorist financing.
• In April 2012, it also added efforts to counter the financing of proliferation of weapons of mass destruction.
• Over 200 jurisdictions around the world have committed to the Financial Action Task Force (FATF) Recommendations through the global network of nine FATF-Style Regional Bodies (FSRB) and FATF memberships.

Composition:

• It currently comprises 37 member jurisdictions and two regional organizations which are European Commission and the Gulf Cooperation Council, representing most major financial centers in all parts of the globe.
• India has been a member of the Financial Action Task Force (FATF) since 2010.
• India is also a member of its regional partners, the Asia Pacific Group (APG) and the Eurasian Group (EAG).

Headquarters:

Its Secretariat is located at the Organization for Economic Cooperation and Development (OECD) headquarters which is in Paris.

Lists under Financial Action Task Force (FATF):

• Grey List:

Countries that are considered a safe haven for supporting terror funding and money laundering are given the Financial Acition Task Force (FATF) grey list.

The inclusion in the grey list serves as a warning to the country that it may enter the blacklist.

• Black List:

Countries that are identified as Non-Cooperative Countries or Territories (NCCTs) are put on the blacklist. These countries support terror funding and money laundering activities.

The FATF revises the blacklist and grey list regularly by adding or deleting entries.

Right now, Iran and the Democratic People's Republic of Korea are under High-risk Jurisdiction or black list. It always meets three times a year.

Why Pakistan is on the grey list???

The “grey list” is also known as the “increased monitoring list”.

Countries in Grey List:

• As of March 2022, there have been 23 countries on the FATF’s increased monitoring list or the grey list. To be removed from the grey list, a country has to complete the tasks recommended by the FATF
• If the Financial Action Task Force (FATF) is completely satisfied with the progress, it removes the country from the grey list most recently Zimbabwe was taken away from the grey list, and before that Botswana and Mauritius.
• In the case of Pakistan, it first entered the list in 2008, then removed, and then was on it from 2012 to 2015. Since 2018, it has not been removed from the grey list.
• The Financial Action Task Force issued the 27-point action plan after placing Pakistan on the ‘Grey List’ in June 2018.

IMPACT ON ECONOMY DUE TO GREY LIST

• It signals to the global financial and banking system about increased risks in transactions with the country which has been put on a grey list.
• The grey-listed country faces complications in accessing international lending, especially from the world bank and the IMF.

Financial Action Task Force

Paris-based 39-member Financial Action Task Force has decided once again to keep Pakistan on its “grey list”.

• The Financial Action Task Force (FATF) is an inter-governmental body established in 1989 during the G7 Summit in Paris.
• The objectives of the FATF are to set standard and promote effective implementation of legal, regulatory and operational measures for combating money laundering, terrorist financing and other related threats to the integrity of the international financial system.
• Its Secretariat is located at the Organisation for Economic Cooperation and Development (OECD) headquarters in Paris.
• Member Countries: it consists of 39 member jurisdictions.
• India is one of the members.
• FATF has two lists:
  • Grey List: Countries that are considered safe haven for supporting terror funding and money laundering are put in the FATF grey list.
  • Black List: Countries known as Non-Cooperative Countries or Territories (NCCTs) are put in the blacklist.
    • These countries support terror funding and money laundering activities.
• The FATF Plenary is the decision-making body of the FATF.
• It meets 3times per year.

GS-II: FATF group ‘blacklists’ Pakistan

Context

Terror funding watchdog FATF Asia-Pacific Group ‘blacklists’ Pakistan.

News

• Pakistan has been placed on the lowest rung, or “Enhanced Expedited Follow Up List (Blacklist) of the Financial Action Task Force’s Asia Pacific Group (APG) .
• The APG is one of nine regional affiliates of the FATF.
• APG has found Pakistan non-compliant on 32 of the 40 compliance parameters of terror financing and money laundering.
• While the placing does not bring any new punitive measures on Pakistan, it will mean quarterly reporting to the group on improvement in its financial safeguards.
• In June, the FATF had warned Pakistan that its failure to complete its action plan on terror financing could possibly lead to the country getting blacklisted.
• The Paris plenary of FATF in October will decide whether to remove Pakistan from the greylist, continue the listing, or downgrade it to a blacklist of non-cooperative countries.
• Officials said the downgrade might not occur, given that any three countries in the FATF can veto it, and Pakistan is likely to secure the backing of China, Turkey and Malaysia.
• Nevertheless, the APG decision on Friday would make it difficult for Pakistan to extricate itself from the greylist.

What are Financial Action Task Force (FATF)

• The Financial Action Task Force (FATF) was established in July 1989 by a Group of Seven (G-7) countries in a Summit held in Paris. The initial motive of FATF was to examine and develop measures to combat money laundering.
• In October 2001, the FATF expanded its wings to incorporate efforts to combat terror financing, money laundering and human trafficking.

Functions

• The FATF is an independent inter-governmental body that develops and promotes policies to protect the global financial system so that it could not be used by terrorists and other anti-social elements.
• FATF has started dealing with Virtual currency.
• The FATF is an international policy-making body. It does not have any role in law enforcement matters, investigations or prosecution.

What are the Black List and Grey List of the FATF?

Black List

Countries which are supporting terror funding and money laundering activities are listed in the Black list. The FATF blacklist or OECD blacklist has been issued by the Financial Action Task Force since 2000 and lists countries which it judges to be non-cooperative in the global fight against money laundering and terror funding.

Grey List

Those countries which are considered as the safe heaven for supporting terror funding and money laundering; included in this list. The inclusion in this list is not as severe as black listed.