- Pakistan will stay on the FATF ‘grey list’ until June 2020.
- Pakistan was also told it could go into the ‘black list’ if it failed to complete its 27-point action plan.
- In June 2018, FATF placed Pakistan on enhanced monitoring process or the ‘grey list’, because of its deficiencies in the anti-money laundering and counter terrorist financing (AML/CTF) regime.
- Grey-listed countries are those whose domestic laws are considered weak to tackle the challenges of money laundering and terrorism financing.
- Pakistan was given a 27-point action plan that was to be implemented by September 2019, with its progress on these 27 points to be monitored by the FATF Asia-Pacific sub-group (APG).
- In February 2019, FATF continued the ‘Grey’ listing of Pakistan.
- In August 2019, APG put Pakistan in the Enhanced Expedited Follow Up List (Blacklist) for its failure to meet its standards.
- If Pakistan does not act based on the action plan of FATF, it could be placed in the Blacklist that comes with stringent restrictions on its financial system.
- In October 2019, FATF retained Pakistan on the “grey list” but gave a stern warning that Pakistan will be blacklisted if it does not fulfil the global standards criteria for combating terrorist financing by February 2020.
- The plenary found that, despite the high-level commitment to fix weaknesses in countering terror financing (CTF) and anti-money laundering (AML) regime, Pakistan has not made enough progress. FATF failed Pakistan on 22 out of its 27 parameters.
Important remedial measures recommended by FATF to Pakistan include:
- Taking measures against UN-designated terrorists like Hafiz Saeed and Masood Azhar, Taliban and banned terror outfits such as Lashkar-e-Taiba, Jaish-e-Mohammad, Haqqani Network, and their affiliates, to demonstrate that they are deprived of their resources and their sources of funding are choked
- Ensuring that terror funding risks are properly identified, assessed and that supervision is applied on a risk-sensitive basis.
- Preventing financial institutions from indulging in money laundering and terror funding.
- The International Co-operation Review Group (ICRG) of the Financial Action Task Force (FATF) recommended that Pakistan be retained on the “Grey List”, given its failure to completely implement the 27-point action plan to check terror financing.
- Most of the group members were in favour of continuing the pressure on Pakistan to execute all the measures suggested against funding to banned terror outfits and United Nations designated global terrorists operating from its soil.
- Of particular concern to the FATF is Pakistan’s failure to make significant progress in prosecuting and penalising terror financing.
- Pakistan was told that it had to convincingly prosecute and convict the top jihadis of all terror groups as mentioned in the action plan.
- Pakistan was also told it could go into the ‘black list’ if it failed to complete its 27-point action plan by June 2020.
- The language used to warn Pakistan was identical to that used on Iran, which is currently in the black list.
About: Financial Action Task Force (FATF)
- The Financial Action Task Force is an intergovernmental organization founded in 1989 on the initiative of the G7 to develop policies to combat money laundering.
- In 2001 its mandate expanded to include terrorism financing.
- It is also termed as “international terror financing watchdog”.
- The FATF Can be seen as a “policy-making body” which works to generate the necessary political will to bring about national legislative and regulatory reforms in combating money laundering, terrorist financing and other related threats to the integrity of the international financial system.
- 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.
- Currently, FATF consists of 39 members, including
- 37 member jurisdictions with voting powers
- Two regional organisations – the European Commission and the Gulf Co-operation Council
- India is a member, as well as important countries like China, US, UK, France, Germany, Russia and Saudi Arabia.
- Interestingly, Hong Kong is also a separate member jurisdiction.
- Pakistan is not a member.
- Indonesia is an FATF Observer.
- Asia/Pacific Group on Money Laundering (APG), Eurasian Group (EAG), Caribbean Financial Action Task Force (CFATF), Financial Action Task Force of Latin America (GAFILAT) etc. are FATF Associate Members.
- Sets international standards to combat money laundering and terrorist financing, and promotes effective implementation of legal, regulatory and operational measures
- 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.
- As per the FATF charter, fifteen members need to support a country’s move off of the greylist.
- Black List:
- The FATF black list means the country concerned is “non-cooperative” in the global fight against money laundering and terrorist financing.
- 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.
- For example, Pakistan has often managed to stay off the blacklist with the support of China, Malaysia and Turkey.
- Though the move doesn’t amount to international sanctions, countries will be wary of investing in Pakistan knowing that it is not a jurisdiction seen as compliant with FATF rules.
- 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.
- Companies planning to invest in blacklisted countries will now find it difficult to raise money or will have to pay higher rates of interest while borrowing to invest.
- 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.
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