Upcoming Webinar:Join our experts for discussion on ‘Re-inventing Finance: with Process, People & Technology’.
you are here: HomeNewsPolitics

Explained : What is FATF, why is Pakistan on its 'Grey' List

Pakistan has been placed in the ‘grey list’ three times in the last 12 years.

February 26, 2021 / 03:15 PM IST

The Financial Action Task Force (FATF) on February 25 decided to keep Pakistan on its “grey list” until the global terror watchdog’s next plenary session in June 2021.

Marcus Pleyer, president of the Paris-based FATF, made the announcement saying that the deadline given to Pakistan has already expired. Pleyer asked Islamabad to address their concerns "as quickly as possible".

Here is all you need to know what the designation means :

 What is FATF?

The FATF,  the global money-laundering and terror-financing watchdog, was established as an inter-governmental body by the G-7 Summit held in Paris in 1989 in response to mounting concern over money laundering. But, post the 9/11 terror attacks in the USA, the FATF, based in Paris, France, expanded its operations and included terror financing under its purview.

Close

The FATF has developed the FATF Recommendations, or FATF Standards, which ensure a co-ordinated global response to prevent organised crime, corruption, and terrorism.

Today, FATF comprises 37 member jurisdictions and 2 regional organisations, representing most major financial centres in all parts of the globe.

The “Grey List” and the “Black List”

The terms “grey list” and “blacklist” do not exist in the official FATF parlance. The watchdog identifies the outcomes of the plenary through two public documents --Strategic Initiatives and Country-Specific Processes --  issued at the end of the plenary held thrice a year. The plenary that concluded on February 25 had begun on February 22.

The 'Country-Specific Processes' lists two sets of countries.

The list of countries referred externally as ‘black list’, is actually a list called “High-Risk Jurisdictions subject to a Call for Action”.

The countries in this list, FATF says, have significant strategic deficiencies in their regimes to counter money laundering and terror financing. In this case, the FATF calls on all members and urges all jurisdictions to apply enhanced due diligence, and in the most serious cases, countries are called upon to apply counter-measures to protect the international financial system from the ongoing money laundering and terror-financing emanating from the country.

READ: India-Pakistan joint statement pushes for strict ceasefire observance along LoC

The other list, “Jurisdictions Under Increased Monitoring”, referred colloquially, as the ‘grey list’ is the list of countries actively working with the FATF in achieving its goals. Once listed named in this list by the FATF, the countries are bound to complete an action plan within a certain time period.

Currently, two countries are on the ‘black list’ and 19 others on the ‘grey list’

Why is Pakistan on the ‘Grey List’

Pakistan has been placed in the ‘grey list’ three times in the last 12 years. The FATF last-placed Pakistan on the ‘grey list’ in June 2018 and urged the country to implement a plan of action to curb money laundering and terror financing by the end of 2019.

A note on the FATF website, about the plenary that concluded on February 25, says that since June 2018, Pakistan’s has made significant progress in Countering the Finances of Terrorism (CFT) action plan, including demonstrating that law enforcement agencies are identifying and investigating the widest range of terror funding activity.

The FATF, however, said that Pakistan should continue to work on implementing the three remaining items in its action plan to address its strategically important deficiencies. The three recommendations are :

  1. Demonstrating that terror funding investigations and prosecutions target persons and entities acting on behalf or at the direction of the designated persons or entities.

  2. Demonstrating that terror funding prosecutions result in effective, proportionate, and dissuasive sanctions.

  3. Demonstrating effective implementation of targeted financial sanctions against all 1267 and 1373 designated terrorists, specifically those acting for or on their behalf.

The FATF noted that Pakistan has made progress across all action plan items and has now largely addressed 24 of the 27 action items.

“As all action plan deadlines have expired, the FATF strongly urges Pakistan to swiftly complete its full action plan before June 2021,” it said.

What does it mean for Pakistan?

The continued ‘grey list’ tag means access to only high-cost debts, something that Pakistan has denied. Many reports said that Pakistan will not get any respite in trying to access finances in the form of investments and aid from various international bodies including International Monetary Fund (IMF).The latest decision will add to its problems given its perilous financial situation.

A research paper by an Islamabad-based think tank, as reported by media recently, revealed that Pakistan incurred $ 38 billion economic losses due to the FATF decision to place it in its ‘grey list’ three times since 2008.

North Korea and Iran on the "Black List"

The FATF has kept North Korea and Iran as the only two countries on its blacklist. This means international financial transactions with the two countries are closely scrutinised, making it costly and cumbersome to do business with them. International creditors can also enforce restrictions on lending to blacklisted countries.

The FATF, however, added four new countries-- Morocco, Burkina Faso, Senegal, and the Cayman Islands --in its grey list for increased monitoring.

In all, there are 19 countries and territories that are only partially fulfilling international rules for fighting terrorism financing and money laundering.
Gulam Jeelani is a journalist with over 11 years of reporting experience. Based in New Delhi, he covers politics and governance for Moneycontrol.

stay updated

Get Daily News on your Browser
Sections