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EDITORIAL ANALYSIS: The FATF and Pakistan’s Position

 

Source: The Hindu

  • Prelims: Current events of international importance, Bilateral relations, Important International Institutes, FATF(Grey list, black list)
  • Mains GS Paper II: Significance of Important International Institutes, India-Pakistan relations.

ARTICLE HIGHLIGHTS

  • Ahead of the plenary session of the Financial Action Task Force(FATF), the global financial crime watchdog, Pakistan which continues to face an economic crunch, is hoping for some respite in the form of its removal from theFATF’s ‘grey list’ or the list of countries presenting a risk to the global financial system.
  • In its last plenary meeting in March,the FATF had retained Pakistan’s listing,asking it to expeditiously address the remaining deficiencies in its financial system.

INSIGHTS ON THE ISSUE

Context

Financial Action Task Force(FATF)

  • An inter-governmental body established in 1989 during the G7 Summit in Paris.
  • It assesses the strength of a country’s anti-money laundering and anti-terror financing frameworks.
  • It sets 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.
  • Its Secretariat is located at the Organization for Economic Cooperation and Development (OECD) headquarters in Paris.
  • The FATF currently has 39 members including two regional organizations – the European Commission and Gulf Cooperation Council.
  • India is a member of the FATF.

 

Lists under FATF:

  • Grey List:
  1. The grey countries are designated as “jurisdictions under increased monitoring”, working with the FATF to counter criminal financial activities.
  2. For such countries, the watchdog does not tell other members to carry out due diligence measures vis-a-vis the listed country but does tell them to consider the risks such countries possess.
  3. Countries considered as safe haven for supporting terror funding and money laundering are put in the FATF grey list.
  4. This inclusion serves as a warning to the country that it may enter the blacklist.
  5. Currently, 23 countries including Pakistan are on the grey list.

 

  • Black List:
  1. It means countries designated as ‘high risk jurisdictions subject to call for action’.
  2. In this case, the countries have considerable deficiencies in their AML/CFT (antimoney laundering and counter terrorist financing) regimens and the body calls on members and non members to apply enhanced due diligence.
  3. Non-Cooperative Countries or Territories (NCCTs) countries are put in the blacklis
  4. These countries support terror funding and money laundering activities.
  5. The FATF revises the blacklist regularly, adding or deleting entries.
  6. Iran and Democratic People’s Republic of Korea (DPRK) are under High-risk Jurisdiction or black list.
  • The FATF Plenary is the decision making body of the FATF. It meets three times per year.
  • Being listed under the FATF’s list makes it hard for countries to get aid from organizations like the International Monetary Fund (IMF), Asian Development Bank (ADB), and the European Union.
  • It may also affect capital inflows, foreign direct investments, and portfolio flows.

 

Why is Pakistan on the grey list?

  • Pakistan was retained on the grey list in March as it was yet to address concerns on the front of terror financing investigations and prosecutions targeting senior leaders and commanders of UN designated terrorist groups.
  • The FATF had issued the 27-point action plan after placing Pakistan on the ‘Grey List’ in June 2018. The action plan pertains to curbing money laundering and terror financing.

 

Concerns:

  • Though steps had been taken in this direction such as the sentencing of terror outfit chief Hafiz Saeed, prosecution of Masood Azhar, arrest of about 300 other designated terrorists, and the seizure of more than 1,100 properties owned by terror groups. India meanwhile, member of FATF, suspects the efficacy and permanence of Pakistani actions.
  • FATF last time decided against existing Pakistan from the category despite the country meeting 32 out of 34 action points.
  • Pakistan was taken off the list in 2015 owing to its progress but was put back on it in 2018.

 

Way Forward

  • Pakistan has taken steps in the direction such as the sentencing of terror outfit chief Hafiz Saeed, prosecution of Masood Azhar, arrest of about 300 other designated terrorists, and the seizure of more than 1,100 properties owned by terror groups. However, concerns by India need to be addressed.
  • In March,Pakistan informed FATF that it had completed 32 of the total 34 action items in the two plans but was retained on the list.
  • Pakistan had completed 26 of the 27 action items in its 2018 action plan of the FATF and of the seven action items of the 2021 action plan of the FATF’s Asia Pacific Group on Money Laundering (APG).
  • The FATF encouraged Pakistan to continue making progress to address, as soon as possible, the one remaining item by continuing to demonstrate that terror financing investigations and prosecutions target senior leaders and commanders of UN-designated terrorist groups.

 

QUESTION FOR PRACTICE

Ahead of the plenary session of the Financial Action Task Force(FATF), Pakistan is hoping to get its name removed from the FATF’s ‘grey list’. Critically analyze. (200 WORDS, 10 MARKS)