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Financial Action Task Force (FATF)

Topics Covered:

Indian and its neighbourhood.

Important International institutions, agencies and fora, their structure, mandate.

 

Financial Action Task Force (FATF)

 

What to study?

For Prelims: FATF, Grey list, G7, About APG.

For Mains: What is Grey list and Black list, how are countries in the list affected?

 

Context: Financial Action Task Force affiliate Asia Pacific Group (APG) places Pakistan on Blacklist for failing to combat terrorism, money laundering and meeting the required global standards.

 

Pakistan was put in the list for the following reasons:

  1. Pakistan was non-compliant in 32 of the 40 Compliance Parameters on Money Laundering & Terror Financing and Pakistan was low in 10 of the 11 Effectiveness Parameters. 

 

Background:

Pakistan was placed on the grey list by the FATF in June last year for failing to curb anti-terror financing. It has been scrambling in recent months to avoid being added to a list of countries deemed non-compliant with anti-money laundering and terrorist financing regulations by the Paris-based FATF, a measure that officials here fear could further hurt its economy.

 

About FATF:

What is it? The Financial Action Task Force (FATF) is an inter-governmental body established in 1989 on the initiative of the G7.  It is a “policy-making body” which works to generate the necessary political will to bring about national legislative and regulatory reforms in various areas. The FATF Secretariat is housed at the OECD headquarters in Paris.

Objectives: 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.

Functions: The FATF monitors the progress of its members in implementing necessary measures, reviews money laundering and terrorist financing techniques and counter-measures and promotes the adoption and implementation of appropriate measures globally.  In collaboration with other international stakeholders, the FATF works to identify national-level vulnerabilities with the aim of protecting the international financial system from misuse.

 

What is blacklist and grey list?

FATF maintains two different lists of countries: those that have deficiencies in their AML/CTF regimes, but they commit to an action plan to address these loopholes, and those that do not end up doing enough. The former is commonly known as grey list and latter as blacklist.

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. As of now there are only two countries in the blacklist — Iran and North Korea — and seven on the grey list, including Pakistan, Sri Lanka, Syria and Yemen.

 

Asia-Pacific Group on Money Laundering (APG):

  1. FATF Asia-Pacific Group is one of the regional affiliates of the Financial Action Task Force.
  2. The Asia-Pacific Group on Money Laundering works to ensure that all the countries adopt and implement the anti-money laundering and counter-terrorist financing standards that are set out in the FATF’s 40 Recommendations and Eight Special Recommendations.
  3. APG assists countries in implementing laws to deal with crime, assistance, punishment, investigations; provides guidance in setting proper reporting systems and helps in establishing financial intelligence units.
  4. At present, there are 41 members of APG. Of these, 11 countries are also the members of the head FATF – India, China, Australia, Canada, Hong Kong, Japan, Korea, Malaysia, New Zealand Singapore and the United States.

 

Sources: the Hindu.