FATF flags state-sponsored terrorism as global risk, echoes India’s concerns on Pakistan

FATF is the global anti-money laundering and counter-terrorist financing watchdog

The Financial Action Task Force (FATF) has, for the first time, categorised state-sponsored terrorism as a material risk to the global financial system, echoing India’s long-standing concerns.

While the global financial crime watchdog didn’t name Pakistan, its report, shared by the finance ministry on July 9, mentions terrorist groups such as Lashkar-e-Taiba (LeT) and Jaish-e-Mohammed (JeM) as benefitting from state sponsorship.

“Certain terrorist organisations have been and continue to receive financial and other forms of support from several national governments”, posing a longstanding “terrorist financing threat to international peace and security”, the global financial crime watchdog said.

India has stepped up efforts to bring Pakistan back on the FATF’s grey list after the Pahalgam terror strike in April left 26 people dead.

The report reflects India’s 2022 national risk assessment on money laundering and terror financing, which flagged state-sponsored terrorism from Pakistan as a key threat.

The report provides detailed listings of Lashkar and Jaish, both UN-designated terror groups, as part of its global mapping of terrorist threats.

State-linked financing of terrorism violates core international obligations, FATF, the global anti-money laundering and counter-terrorist financing watchdog, said.

“The FATF has explicitly noted that the funding of terrorism, or the resourcing of a terrorist entity, by any state, is incompatible with adherence to the FATF Standards and mandate, as well as the international convention for the suppression of the financing of terrorism, and United Nations Security Council Resolution”.

State-backed terrorism

The report marks the first time FATF has categorised state sponsorship as a material factor influencing terrorist financing risk.

The inclusion marks a shift in the global discourse and is likely to increase pressure on countries or jurisdictions perceived to be supporting such entities, even if indirectly.

The report warned that designated terrorist organisations may continue to thrive in jurisdictions that avoid multilateral sanctions enforcement.

By introducing state-sponsored terrorism as a global terrorist financing risk, FATF has not only sharpened its lens on terror finance but also added institutional weight to India’s repeated international assertions regarding Pakistan-based outfits.

“When an organisation is not designated at the multilateral level, it is more likely to engage in financial activities, including fundraising and storing, in jurisdictions outside the reach of the sanction regime,” FATF said.

FATF grey list

The grey list also known as "jurisdictions under increased monitoring", identifies countries that don’t have proper systems in place to counter money laundering, terrorist financing, and proliferation financing. These countries are subject to increased monitoring by FATF to ensure they make progress on their action plans.

Pakistan has been on grey list earlier too — during 2008- 2009, 2012-2015 and 2018-2022.

As reported by Moneycontrol, countries on the grey list are not subjected to sanctions or enhanced diligence. Still, the inclusion can have economic consequences such as a decline in foreign direct investment, and businesses facing higher compliance costs due to intensified monitoring measures.