India prepares dossier to push Pakistan back on FATF's 'grey list': Decoding New Delhi's game plan

File Photo (2017)

India is preparing to intensify its diplomatic campaign against Pakistan by making a strong case at the Financial Action Task Force (FATF) to relist its neighbour on the "grey list" over continued and systemic failures to clamp down on money laundering and terror financing, reported PTI quoting a government source.

New Delhi will highlight Islamabad’s failures to comply with anti-money laundering (AML) and counter-terror financing (CFT) obligations. The move comes in the wake of the Pahalgam terror attack and mounting evidence that Pakistan continues to shelter and finance UN-designated terrorist groups.

A senior Indian government official told PTI, “We will be taking it up (with the FATF),” when asked if New Delhi would press for Pakistan's grey listing.

The government is preparing a dossier to be submitted at the FATF plenary meeting, which is scheduled to be held in June.

India has gathered sufficient evidence to argue that Pakistan’s compliance with FATF’s recommendations remains superficial and incomplete, especially regarding curbing financing of groups like Lashkar-e-Taiba (LeT) and Jaish-e-Mohammed (JeM).

Alongside, India would also be raising objections to a review of World Bank funding to Pakistan which is slated for June. Earlier this month, New Delhi had raised objections at the board meeting of the International Monetary Fund (IMF) for the release of funds under the $7-billion aid package for Pakistan that commenced July 2024, citing diversion of funds by the neighbouring country for terror financing.

FATF Grey List: What it means and why it matters

The Financial Action Task Force, based in Paris, is a global intergovernmental watchdog that sets standards to combat money laundering, terrorist financing, and other threats to the integrity of the international financial system. When a country is placed on its “grey list”, it is recognized as having “strategic deficiencies” in its anti-money laundering/countering financing of terrorism (AML/CFT) regime, but one that has committed to resolving them within a set timeframe.

Being on the grey list does not trigger automatic sanctions, but it significantly impacts a country's access to global finance. Foreign investors, multilateral institutions, and banks become wary of engaging with grey-listed countries due to compliance risks, often leading to reduced capital inflows, higher borrowing costs, and reputational damage.

Pakistan spent four years on the grey list – from June 2018 to October 2022 – until the FATF acknowledged progress on a 34-point action plan. However, many observers, including India and independent analysts, have argued that Pakistan’s “compliance” was largely performative, with key terror infrastructure remaining untouched.

What lies ahead: The FATF roadmap

The next FATF plenary session is scheduled for June 2025 in Paris. While India is not a full voting member of FATF, it is an active participant through the Asia/Pacific Group (APG).

To push for Pakistan’s inclusion on the FATF grey list, India would need backing from other member nations. The FATF's plenary — its key decision-making body — convenes three times annually, typically in February, June, and October.

The FATF comprises 40 member countries, while more than 200 jurisdictions adhere to its recommendations through FATF-Style Regional Bodies. Although Pakistan is not a member of the FATF itself, it belongs to the Asia Pacific Group on Money Laundering (APG), the largest of these regional bodies. India, on the other hand, is a member of both the FATF and the APG.

If enough members support India’s case, Pakistan may be required to undergo a fresh mutual evaluation review, which could lead to re-listing depending on the findings.

Pakistan, for its part, is expected to counter India’s lobbying by leaning on its allies like China, Saudi Arabia, and Turkey to block any grey-list proposal.

Pakistan’s historical dance with FATF

Pakistan has had a long and contentious history with the FATF. The country was previously grey-listed from 2008 to 2010, and again from 2012 to 2015. Its most recent grey-listing in 2018 came amid international concerns about funding to groups like LeT, JeM, and the Haqqani Network.

Despite assurances and action plans, Pakistan consistently fell short of full compliance until October 2022, when FATF decided to take it off the list – arguably due to geopolitical lobbying by China, Turkey, and some Gulf nations.

India had objected to this removal at the time, arguing that Pakistan had simply created new terror fronts such as TRF and People’s Anti-Fascist Front (PAFF) to bypass international scrutiny, allowing the same terrorist leadership to operate under new banners.