- After Pakistan failed to complete its action plan on terror financing, the Financial Action Task Force (FATF) has warned the country to meet its commitment by October or face action, which could possibly lead to the country’s blacklisting.
In Focus: Financial Action Task Force (FATF)
- The Financial Action Task Force (FATF) is an inter-governmental body established by the G7 countries in 1989 to combat money laundering, terrorist financing and other related threats to the integrity of the international financial system.
- The objectives of the FATF are to set standards 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.
- The FATF is therefore a “policy-making body” that pushes to bring about national legislative and regulatory reforms in these areas.
- The FATF has developed a series of recommendations that are recognised as the international standard for combating of money laundering and terror financing.
- The FATF Secretariat is housed at the OECD headquarters in Paris.
- The FATF currently has 36 members with voting powers and two regional organisations, representing most of the major financial centres in all parts of the globe.
- China is set to secure FATF presidency next year while Saudi Arabia representing the Gulf Cooperation Council is to become a full FATF member.
- Sets international standards to combat money laundering and terrorist financing.
- Assesses and monitors compliance with the FATF standards.
- Conducts typologies studies of money laundering and terrorist financing methods, trends and techniques.
- Responds to new and emerging threats, such as proliferation financing.
Lists maintained by FATF:
- FATF maintains two different lists of countries:
- Grey List:
- Those countries that have deficiencies in their Anti Money Laundering /Counter Terrorist Financing (AML/CTF) regimes but they commit to an action plan to address these loopholes.
- There are eight countries in Grey list: Pakistan, Ethiopia, Serbia, Sri Lanka, Syria, Trinidad and Tobago, Tunisia and Yemen.
- Black List:
- The FATF black list means the country concerned is “non-cooperative” in the global fight against money laundering and terrorist financing.
- Once a country is blacklisted, FATF calls on other countries to apply enhanced due diligence and counter measures, increasing the cost of doing business with the country and in some cases severing it altogether.
- There are two countries in the blacklist: Iran and North Korea
- As per the FATF charter, to stay off of the FATF blacklist, the support of at least three of a total of 36 (excluding two regional organisations) FATF members is required. Fifteen members need to support a country’s move off of the greylist.
Note: Following grey listing, three reviews are conducted, followed by a round at which it will be decided whether a country is to be blacklisted.
- In June 2018, the FATF placed Pakistan on the grey list of countries whose domestic laws are considered weak to tackle the challenges of money laundering and terrorism financing.
- Countries with weak anti-money laundering and counter terrorist financing (AML/CTF) systems are attractive to criminals because they provide an environment in which criminals can enjoy the profits of their crimes and finance their illicit activities with little fear of facing punishment.
- Pakistan was given a 27-point action plan that is to be implemented by September 2019.
- Pakistan’s progress on the 27 points is being monitored by the FATF Asia-Pacific sub-group.
- Pakistan has already failed to complete its action plan items with both the deadlines of January and May 2019.
- The FATF said Pakistan had taken steps towards improving its AML/CFT (anti-money laundering/combating the financial terrorism) regime, including the recent development of its terror funding risk assessment addendum.
- However, it does not demonstrate a proper understanding of Pakistan’s transnational terror funding risk.
- FATF has asked Pakistan should continue to work on implementing its action plan to address its strategic deficiencies.
- The FATF has strongly urged to Pakistan to swiftly complete its action plan by October 2019 when the last set of action plan items are set to expire, Otherwise, the FATF will decide the next step at that time for insufficient progress.
What happens if Pakistan gets blacklisted?
- If Pakistan is listed under blacklist, FATF members could decide to restrict, target or even prohibit financial transactions with it.
- It will have series consequences for Pakistan’s financial sector and its economy including negatively impacts on foreign investments in the country.
- It will lead to ratings downgrades by international banking and credit rating agencies.