What is the FATF?
The FATF is a global watchdog for money laundering and terror financing.
“The inter-governmental body sets international standards that aim to prevent these illegal activities and the harm they cause to society. As a policy-making body, the FATF works to generate the necessary political will to bring about national legislative and regulatory reforms in these areas.”
The organisation was established by the G-7 Summit that was held in Paris in 1989 in response to mounting concern over money laundering.
Originally comprising 16 members and has since expanded to 39 members.
The FATF Plenary, it’s decision-making body, meets thrice a year.
What’s the significance of ‘Grey List’ and ‘Black List’?
First, the terms ‘Grey List’ and ‘Black List’ don’t officially exist in FATF parlance. Instead, you have “Jurisdictions Under Increased Monitoring” and “High-Risk Jurisdictions subject to a Call for Action”. The FATF places a country on the ‘Grey List’ as a final warning to get it to comply with its directives.
While being on grey list does not invoke international sanctions, it warns banking institutions and trade bodies of increased risks in transactions with the countries under the FATF’s enhanced monitoring regime.
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, thus further enhancing problems for the nation which is in a precarious financial situation.
If a country still refuses to comply, it will be blacklisted by the organisation or be put on the ‘Black List’.
Nineteen countries including Pakistan have been placed on the FATF ‘Grey List’, while only two countries have been placed on the ‘Black List’: Iran and North Korea.
Why Pakistan is struggling to get out of its ‘grey list?’
Pakistan has been scrambling to avoid being added to a list of countries deemed non-compliant with anti-money laundering and terrorist financing regulations by the global watchdog, a measure that officials fear could further hurt its economy.
Over the past 12 years, Pakistan has been placed on the ‘Grey List’ thrice.
Most recently in June 2018, when the FATF urged Islamabad to implement a 27-point action plan to curb money laundering and terror financing by the end of 2019. However, the deadline was extended due to the coronavirus pandemic.
In February, the FATF gave a fourth extension to Pakistan to fully implement a 27-point action plan and “strongly urged” it to meet the remaining three conditions about terror financing investigations and the United Nations Security Council resolutions.
The three red flags that FATF concluded still needed work were:
- “Demonstrating that terrorist financing investigations and prosecutions target persons and entities acting on behalf or at the direction of the designated persons or entities”; An US terror report said that “they have made no effort to use domestic authorities to prosecute other terrorist leaders such as JeM founder Masood Azhar and Sajid Mir, the mastermind of LeT’s 2008 Mumbai attacks”.
- “Demonstrating that terrorist financing prosecutions result in effective, proportionate and dissuasive sanctions”;
- “Demonstrating effective implementation of targeted financial sanctions against all 1,267 and 1,373 designated terrorists, specifically those acting for or on their behalf.”
Pakistan would remain on the grey list till June 2021, a statement issued by the FATF from Paris had said.
What are Pakistan’s chances of exiting ‘Grey List?’
According to the sources, Pakistan has implemented 26 of the 27-point FATF action plan. “There is partial progress on the point of conviction.”
In view of the US withdrawal from Afghanistan, Pakistan is likely to remain on the grey list as it would require two to three more months to implement the remaining one point.
According to the report, the situation is likely to change further by September when the US withdraws its troops from Afghanistan and due to Pakistan’s best strategy, the influence of the FATF is expected to be diminished.
President Joe Biden wouldn’t be interested in offering complete support to India in the form of pushing for Pakistan’s inclusion on the blacklist.
This is partially because it will only harm Washington’s interests in Afghanistan and the ongoing collaboration with Islamabad to secure an exit from the country. Also it could further ruin Pakistan’s struggling economy, something which Washington may not be interested in seeing happen.
What is India’s stand of Pakistan’s ‘Grey List’ status?
The US terror report said that progress by Islamabad “remains unfulfilled” on “the most difficult aspects of its 2015 National Action Plan to counter terrorism”.
New Delhi has deep misgivings about Pakistan’s commitment to discourage terror actors from using its territory to launch attacks in India even as it is widely believed that terrorist groups have access to support at the official level inside the country.