The FATF and Pakistan’s place on its ‘grey list’

The story thus far: Ahead of the plenary session of the Financial Action Task Force (FATF), the worldwide monetary crime watchdog, from June 14 to 17 in Berlin, Pakistan which continues to face an financial crunch, is hoping for some respite within the type of its removing from the FATF’s ‘grey list’ or the listing of nations presenting a threat to the worldwide monetary system.

In its final plenary assembly in March, the FATF had retained Pakistan’s itemizing, asking it to expeditiously handle the remaining deficiencies in its monetary system.

What is the FATF?

The Financial Action Task Force is a world watchdog for monetary crimes similar to cash laundering and terror financing. It was established on the G7 Summit of 1989 in Paris to deal with loopholes within the world monetary system after member international locations raised issues about rising cash laundering actions. In the aftermath of the 9/11 terror assault on the U.S., FATF additionally added terror financing as a important focus space. This was later broadened to incorporate limiting the funding of weapons of mass destruction.

The FATF at present has 39 members. The decision-making physique of the FATF, generally known as its plenary, meets thrice a yr. Its conferences are attended by 206 international locations of the worldwide community, together with members, and observer organisations, such because the World Bank, some workplaces of the United Nations, and regional growth banks.

The FATF units requirements or suggestions for international locations to realize in an effort to plug the holes of their monetary methods and make them much less weak to unlawful monetary actions. It conducts common peer-reviewed evaluations known as Mutual Evaluations (ME) of nations to test their efficiency on requirements prescribed by it. The evaluations are carried out by FATF and FATF-Style Regional Bodies (FSRBs), which then launch Mutual Evaluation Reports (MERs). For the international locations that do not carry out nicely on sure requirements, time-bound motion plans are drawn up. Recommendations for international locations vary from assessing dangers of crimes to establishing legislative, investigative and judicial mechanisms to pursue circumstances of cash laundering and terror funding.

What are FATF’s ‘grey’ and ‘black’ lists?

While the phrases ‘grey’ and ‘black’ listing don’t exist within the official FATF lexicon, they designate international locations that must work on complying with FATF directives and people who are non-compliant, respectively.

At the tip of each plenary assembly, FATF comes out with two lists of nations. The gray international locations are designated as “jurisdictions under increased monitoring”, working with the FATF to counter felony monetary actions. For such international locations, the watchdog doesn’t inform different members to hold out due-diligence measures vis-a-vis the listed nation however does inform them to contemplate the dangers such international locations possess. Currently, 23 international locations together with Pakistan are on the gray listing.

As for the black listing, it means international locations designated as ‘high-risk jurisdictions subject to call for action’. In this case, the international locations have appreciable deficiencies of their AML/CFT (anti-money laundering and counter terrorist financing) regimens and the physique calls on members and non-members to use enhanced due diligence. In probably the most critical circumstances, members are advised to use counter-measures similar to sanctions on the listed international locations. Currently, North Korea and Iran are on the black listing.

Being listed underneath the FATF’s lists makes it exhausting for international locations to get assist from organisations just like the International Monetary Fund (IMF), Asian Development Bank (ADB), and the European Union. It can also have an effect on capital inflows, overseas direct investments, and portfolio flows.

Why is Pakistan on the gray listing?

Pakistan was retained on the gray listing in March because it was but to deal with issues on the entrance of terror financing investigations and prosecutions concentrating on senior leaders and commanders of UN designated terrorist teams. Diplomatic sources in Pakistan advised The Hindu that steps had been taken on this course such because the sentencing of terror outfit chief Hafiz Saeed, prosecution of Masood Azhar, arrest of about 300 different designated terrorists, and the seizure of greater than 1,100 properties owned by terror teams. India in the meantime, a member of FATF, ​​suspects the efficacy and permanence of Pakistani actions.

Pakistan is at present banking on its potential exclusion from the gray listing to assist enhance the standing of robust negotiations with the International Monetary Fund to get bailout cash.

Pakistan has discovered itself on the gray listing regularly since 2008, for weaknesses in combating terror financing and cash laundering. In 2009, the nation started to cooperate with the FATF-like regional physique, Asia Pacific Group (APG), for a ME course of.

On completion of the ME in June 2010, Pakistan made a “high-level political commitment” to the FATF and APG to deal with its strategic AML/CFT deficiencies. It was given an motion plan which required demonstrating satisfactory criminalisation of cash laundering and terrorist financing in addition to exhibiting satisfactory measures to establish, freeze and confiscate terrorist property.

It was taken off the listing in 2015 owing to its progress however was put again on it in 2018. It was given a 27-point motion plan to limit terror financing actions. After warnings and two deadline extensions on the primary plan, Pakistan was prescribed one other seven-point motion plan by the APG in 2021, centered particularly on combating cash laundering. In March, Pakistan knowledgeable FATF that it had accomplished 32 of the entire 34 motion objects within the two plans however was retained on the listing. The FATF gave it time until January 2023 to finish the 2021 plan.