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Pakistan retained on ‘Grey List’ of FATF

Topics Covered: Effect of policies and politics of developed and developing countries on India’s interests, Indian diaspora.

Pakistan retained on ‘Grey List’ of FATF

What to study?

For Prelims: What is FATF? What are grey and black lists?

For Mains: Implications of this move and significance of FATF decisions.

Context: The Financial Action Task Force (FATF) has given an extension of four months to Pakistan to act against organisations involved in terror financing.

  • Pakistan will remain in the Grey List.

Key observations:

  • All deadlines given to Pakistan to check terror funding have ended and it has failed to complete its action plan in line with an agreed timeline and failed to check terror funding risks emanating from its jurisdiction.
  • If Pakistan fails to prosecute, it will be penalised on terror funding acts by June.

Implications:

  1. With Pakistan’s continuation in the ‘Grey List’, it will be difficult for the country to get financial aid from the IMF, the World Bank, the ADB and the European Union.
  2. This will further enhance problems for the nation which is in a precarious economic situation.
  3. Also, there is every possibility that the global body may put the country in the ‘Black List’ along with North Korea and Iran.

Background:

Pakistan has been under the FATF’s scanner since 2018, when it was put on the greylist for terror financing and money laundering risks, after an assessment of its financial system and law enforcement mechanisms. Pakistan has largely addressed 14 of 27 action items.

What next?

It is theoretically possible that Pakistan is moved out of the greylist. But that would require the votes of at least 15 of the FATF’s 36 voting members. But, Pakistan needs to continue to work on eight specific areas, including demonstrating it is “identifying and investigating” all terror financing activity in the country, freezing the funds of all designated terrorists and that its prosecutions result in “effective, proportionate and dissuasive sanctions” against all terror entities in Pakistan.

About FATF:

It is an inter- governmental body established in 1989 on the initiative of the G7. Its Secretariat is located at the Organisation for Economic Cooperation and Development (OECD) headquarters in Paris. Member Countries: There are 39 member of FATF, representing most financial centres around the world. This includes 2 regional organisations- GCC and EC. The FATF Plenary is the decision making body of the FATF. It meets three times per year.

 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.

FATF lists:

Grey List: Countries that are considered safe haven for supporting terror funding and money laundering are put in the FATF grey list. This inclusion serves as a warning to the country that it may enter the blacklist.

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 revises the blacklist regularly, adding or deleting entries.

Sources: the Hindu.