Financial Action Task Force (FATF)  

Why in News? India has expressed concerns over Pakistan’s alleged involvement in terrorism and terror financing, urging the Financial Action Task Force (FATF) to reconsider placing Pakistan back on its “grey list.

Relevance: UPSC Pre & Mains

Prelims : FATF/Grey & Black Lists

Mains : GS Paper II (International Relations)/  GS Paper III (Economy & Security):

India’s Objections:

India plans to raise objections at the International Monetary Fund (IMF) over continued financial aid to Pakistan, arguing that such aid supports a country potentially linked to terrorism.

FATF Grey List Concern: Indian officials, citing the Indian Express, note that Pakistan was removed from the FATF grey list in October 2022 after being on it since 2018. However, recent developments suggest Pakistan may be reinstated due to ongoing issues with terror financing and money laundering.

What is the FATF?

The Financial Action Task Force (FATF) is an intergovernmental organization established in 1989 by the G7 to combat money laundering, terrorist financing, and other threats to the global financial system. It sets international standards, develops policies, and promotes their implementation to ensure financial transparency and security.

Headquarters: Paris, France.

Membership: 39 members (37 countries + 2 regional organizations, including the European Commission and Gulf Cooperation Council). India is a member since 2010.

Mandate:

• Develops 40 Recommendations to fight money laundering and terrorist financing.
• Monitors compliance through mutual evaluations of member countries.
• Identifies high-risk jurisdictions and enforces measures to address deficiencies.

Significance for India:

• India uses FATF frameworks to combat terror financing (e.g., by groups like Lashkar-e-Taiba, Jaish-e-Mohammed) and money laundering.
• It aligns with India’s Prevention of Money Laundering Act (PMLA) and Unlawful Activities (Prevention) Act (UAPA).

FATF Lists:

The FATF maintains lists to classify countries based on their compliance with anti-money laundering (AML) and counter-terrorist financing (CFT) standards. These lists impact a country’s access to global financial systems, foreign investment, and international aid.

Grey List:

Official Name: Jurisdictions under Increased Monitoring

 Purpose:

• Countries on the grey list are identified as having strategic deficiencies in their AML/CFT frameworks but are actively working with FATF to address these issues.

Implications:

• These countries are subject to increased international scrutiny.
• The FATF monitors the progress of their reforms and provides guidelines to improve their AML/CFT systems.
• Grey-listing can have negative effects, such as:

• Reduced foreign investment.
• Stricter controls by global financial institutions.
• A damaged international reputation.

Examples:

Countries like Pakistan (until October 2022), the Philippines (earlier), and others have been placed on the grey list.

Black List:

Official Name: High-Risk Jurisdictions subject to a Call for Action

Purpose:

• This list identifies countries that have severe strategic deficiencies in their AML/CFT systems and have either:

• Failed to make progress.
• Refused to cooperate with FATF.

Implications:

Countries on the black list face severe economic sanctions and restrictions, including:

• International isolation from financial markets.
• Limited access to foreign investments, loans, and banking systems.
• Economic sanctions by FATF member countries.

Examples:

• North Korea and Iran are currently on the black list.