- Ahead of the plenary session of the Financial Action Task Force (FATF), the global financial crime watchdog, from June 14 to 17 in Berlin, Pakistan which continues to face an economic crunch, is hoping for some respite in the form of its removal from the FATF’s ‘grey list’ or the list of countries presenting a risk to the global financial system.
- The Financial Action Task Force (FATF) is a global watchdog for financial crimes like money laundering and terror financing.
- After member countries raised worries about growing money laundering operations, it was founded at the G7 Summit in Paris in 1989 to fix gaps in the global financial system.
- FATF included terror funding as a key emphasis area in the aftermath of the 9/11 terrorist attacks in the United States. Later, this was expanded to include a ban on the funding of weapons of mass devastation.
- There are presently 39 members of the FATF. The FATF’s plenary, or decision-making body, meets three times a year. 206 countries from the global network, including members and observer organisations like the World Bank, attend its meetings.
- The FATF establishes standards or suggestions for countries to follow in order to close loopholes in their financial systems and reduce their vulnerability to unlawful financial activity.
- It performs frequent peer-reviewed evaluations of countries called Mutual Evaluations (ME) to assess their performance against the standards it sets.
- FATF and FATF-Style Regional Bodies (FSRBs) conduct the reviews, which are then published as Mutual Evaluation Reports (MERs).
- Time-bound action plans are developed for countries that do not meet specific benchmarks. The recommendations for governments vary from analysing criminal threats to establishing legislative, investigative, and judicial tools to prosecute money laundering and terror financing cases.
What are the various lists?
- While the terms ‘grey’ and ‘black’ lists do not appear in the official FATF lexicon, they denote countries that need to improve their compliance with FATF regulations and those that are not.
- FATF publishes two lists of countries at the conclusion of each plenary meeting. The grey countries have been identified as “jurisdictions under heightened supervision,” and they are collaborating with the FATF to combat unlawful financial activity.
- The watchdog does not advise other members to take due diligence measures in relation to the listed country, but it does advise them to examine the risks that such countries pose. There are now 23 countries on the grey list, including Pakistan.
- The term “black list” refers to countries that have been identified as “high-risk jurisdictions subject to demand for action.”
- In this situation, the countries’ AML/CFT (anti-money laundering and counter-terrorist financing) regimes are very deficient, and the body urges members and non-members to exercise increased due diligence.
- In the most extreme incidents, members are instructed to take countermeasures, such as imposing penalties on the countries on the list. North Korea and Iran are currently on the black list.
Status of Pakistan:
- In March, Pakistan was kept on the grey list because it had not addressed concerns about terror financing investigations and prosecutions aimed at senior leaders and commanders of UN-designated terrorist groups.
- Pakistan is presently relying on the possibility of being removed from the grey list to help improve the status of difficult bailout negotiations with the International Monetary Fund.
- Since 2008, Pakistan has been on the grey list several times for failing to combat terror financing and money laundering.
Source The Hindu