Financial Action Task Force
GS PAPER III: Indian Economy and issues relating to Planning, Mobilization of Resources, Growth, Development and Employment.
Context: FATF’s regional body retains Pakistan on ‘enhanced follow-up’ for sufficient outstanding requirements.
- Pakistan was placed on the grey list in June 2018 and was given a plan of action to complete by October 2019 or face the risk of being placed on the black list.
- The points on which Pakistan failed to deliver included its
- lack of action against the charitable organisations or non-profit organisations linked to the terror groups banned by the UN Security Council; and
- delays in the prosecution of banned individuals and entities like Lashkar-e-Taiba (LeT) chief Hafiz Saeed and LeT operations chief, Zaki Ur Rahman Lakhvi, as well as Jaish-e- Mohammad chief Masood Azhar.
- Only Saeed was sentenced for terror financing and Pakistan government claims the others are “untraceable”. Queries have been raised on efforts made to trace them.
- Pakistan was found non-compliant in cracking down on terror financing through narcotics and smuggling of mining products including precious stones.
- The FATF process also showed concern about the 4,000 names that were on Pakistan’s Schedule-IV list under the Anti-Terrorism Act up to January, but went missing in September 2020.
- The second Follow-Up Report (FUR) on Mutual Evaluation of Pakistan also downgraded the country on one criteria.
- All in all, Pakistan is now compliant or largely compliant with 31 out of 40 FATF recommendations.
What is FATF?
Other countries stand:
- Turkey support: At the FATF Plenary, Turkey proposed that the members should consider Pakistan’s good work and instead of waiting for completion of the remaining six of the 27 parameters, an FATF on-site team should visit Pakistan to finalise its assessment.
- On-site teams are permitted only after jurisdictions complete their Action Plans.
- Normally such a visit is a signal for exit from the grey or black list.
- When the proposal was placed before the 38-member Plenary, no other member seconded the move.
- It was not supported by even China, Malaysia and Saudi Arabia.
- China and Saudi Arabia had joined India, US and European countries, among others, to send Pakistan a stern message to complete the commitments on terrorist financing and money.
- India is a voting member of the FATF and Asia Pacific Group (APG), and co-chair of the Joint Group where it is represented by the Director General of India’s Financial Intelligence Unit (FIU).
- Pakistan had asked for India’s removal from the group, citing bias and motivated action, but that demand has been rejected.
- India was not part of the group that moved the resolution to greylist Pakistan last year in Paris. The movers were the US, UK, France, and Germany; China did not oppose.
What is ‘Grey List’ and ‘Black list”?
- The FATF “greylist” refers to countries that are under “monitored jurisdictions”.
- “Blacklist” refers to those facing a “call to action” or severe banking strictures, sanctions and difficulties in accessing loans.
What are the implications of placing a country under grey list?
Why FATF action matters?
- Pakistan faces an estimated annual loss of $10 billion if it stays in the greylist; if blacklisted, its already fragile economy will be dealt a powerful blow.
- Pakistan’s $6 billion loan agreement with the International Monetary Fund (IMF) could be threatened.
- The IMF has asked Pakistan to show commitment against money laundering and terror financing.