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Context:

India aims to push for Pakistan’s re-entry into the FATF grey list due to non-compliance with anti-terror and money laundering commitments.

Financial Action Task Force (FATF)

The FATF is a global organization that fights money laundering, terrorist financing, and other financial crimes.

It was established in 1989 by the G7 countries, including 40 members, such as India, the United States, and China. Russia’s membership was suspended in 2023 due to its actions in Ukraine.

Monitoring & Research => The FATF continuously monitors how criminals and terrorists "raise, use and move funds" while researching the latest money laundering and terrorist financing techniques. This intelligence helps shape global anti-financial crime strategies.

Setting Standards => Based on extensive research, FATF develops recommendations to ensure coordinated global responses against organized crime, corruption, and terrorism. These standards help countries implement best practices for financial security. Its 40 recommendations guide nations to strengthen their laws, track suspicious transactions, and punish offenders.

Compliance Monitoring => FATF flags non-compliant jurisdictions through its grey and black list system, creating international pressure for countries to strengthen their anti-money laundering and counter-terrorism financing (AML/CFT) regimes.

FATF’s Grey and Black Lists

The FATF identifies countries with weak anti-money laundering and counter-terrorist financing (AML/CFT) systems through two public lists, updated three times a year (February, June, October).

Grey List (Jurisdictions under Increased Monitoring)

This list includes countries with flaws in their AML/CFT systems but which are working with the FATF to fix them within set deadlines. Currently, 24 countries, like Uganda and Turkey, are on this list.

Being grey-listed means a country faces extra scrutiny, which can hurt its economy by discouraging foreign investment and limiting access to international aid. For example, banks and investors may hesitate to deal with a grey-listed country due to risks of financial crime.

Black List (High-Risk Jurisdictions Subject to a Call for Action)

This is more severe. It includes countries with critical deficiencies in their AML/CFT systems, like North Korea, Iran, and Myanmar.

The FATF urges all nations to apply strict measures, such as enhanced due diligence or economic sanctions, to protect the global financial system from these high-risk countries.

Grey-listing signals a warning, while black-listing is a global call to isolate a country financially => Name in the lists impacts a nation’s reputation, trade, and economic stability, which make them powerful tools in international diplomacy.

Pakistan’s Potential Grey-Listing Matter

India is pushing to return Pakistan to the FATF grey list, quoting its failure to curb terrorist financing and money laundering. Pakistan was on the grey list from 2018 to 2022, during which it promised to strengthen its AML/CFT measures. It was removed in 2022 after implementing an action plan, but India now argues that Pakistan has not fully complied, especially in stopping terror funding.  

Regional & Global Impact

Impact on India => Potential reduction in cross-border terrorism financing and enhanced security in Jammu & Kashmir region. Previous greylisting (2018-2022) helped curtail illicit fund flows into India.

Impact on Pakistan => Economic consequences including reduced FDI, difficulty in international trade financing, and challenges in accessing international capital markets.

• Strain on Pakistan's relationships with international partners and potential isolation in global financial systems.
• Estimated economic losses of $10-15 billion annually during previous greylisting period, including reduced remittances and trade difficulties.

FATF Assessment Process

Dossier Submission => India will submit clear proof of Pakistan's non-compliance to FATF administration, including detailed violations and backing documentation.

Technical Review => FATF technical experts will review the proposal and seek Pakistan's response over the allegations and evidence presented.

Plenary Discussion => The case will be discussed in FATF plenary sessions, where member countries will debate the evidence and Pakistan's compliance status.

Decision => FATF will make a consensus-based decision on whether to re-greylist Pakistan.

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Source: 

INDIAN EXPRESS