What is FATF? (FATF stands for Financial Action Task Force)

The Financial Action Task Force (FATF) is an inter-governmental body set up in 1989 to combat money laundering, terror financing and other related threats to the international financial system. They also help to establish policies and coordinate national efforts to ensure compliance with this objective by governments and the private sector. Currently, it has 39 members.

What is the Objective of FATF?

The Financial Action Task Force (FATF) is the global money laundering and terrorist financing watchdog which sets international standards that aim to prevent these illegal activities and the harm they cause to society. The FATF also works to stop funding for weapons of mass destruction.

What are the Significance of FATF?

The FATF plays a central role in global efforts in combatting terrorist financing, through its role in setting global standards to combat terrorist financing, assisting jurisdictions in implementing financial provisions of the United Nations Security Council resolutions on terrorism, and evaluating countries’ ability to prevent, detect, investigate and prosecute the financing of terrorism.

Yet many countries have not yet implemented the FATF Standards effectively. They do not understand the nature of TF risks they face, nor have effective means to combat them.

The FATF Strategy on Combating Terrorist Financing sets out the broad objectives for FATF’s work in this area. Under this strategy, the FATF, in close collaboration with the regional FATF-style regional bodies and other partners such as the UN, the FATF has completed work to support countries around the world in combatting terrorist financing.

What are the various list of FATF?

Financial Action Task Force (FATF) has 2 types of lists which are-

FATF Black List:

The FATF blacklist is the common shorthand description for the Financial Action Task Force (FATF) list of “Non-Cooperative Countries or Territories”. The FATF blacklist has been issued by the FATF since 2000, and lists countries which FATF judges to be non-cooperative in the global fight against money laundering and terrorist financing, calling them “Non-Cooperative Countries or Territories” (NCCTs). There are two countries comes under the Black List of FATF namely Iran and North Korea/

FATF Grey List:

Those countries which are not considered as the safe Heaven for supporting terror funding and money laundering; included in this list. The inclusion in this list is not as severe as blacklisted. Now Grey list is a warning given to the country that it might come in Black list (Just like a yellow card in a football match). If a country is unable to curb mushrooming of terror funding and money laundering; it is shifted from grey list to black list by the FATF. The countries comes under FATF gray list are- Albania, Barbados, Botswana, Cambodia, Ghana, Jamaica, Mauritius, Myanmar (Burma), Nicaragua, Pakistan, Panama, Syria, Uganda, Yemen, Zimbabwe.

Why Pakistan comes under FATF Grey list

FATF again put Pakistan on its grey list due to failure to comply with all the points of a plan of action set by it to combat terror financing.

Pakistan was removed from the Financial Action Task Force lists in 2015. But in 2018, it was again put on the list. Pakistan was provided with a 27-point action list to fulfill, to come out of the FATF grey list.

FATF President Marcus Pleyer acknowledged Pakistan’s “significant progress”. However, He further mentioned that Pakistan fulfilled 3 points on the list only partially. Notably, 3 of them in the area of curbing terror financing.

The FATF mentions the few important areas of non-compliance such as, demonstrating terror-funding prosecution is accurate, effective, and dissuasive and implementing financial sanctions against all terrorists designated by the UN Security Council. This includes LeT founder Hafiz Saeed, JeM chief Masood Azhar and those who belong to al-Qaeda.

How FATF Grey list effects Pakistan’s Economy

Pakistan sustained a total of USD 38 billion in economic losses due to FATF’s decision to thrice place the country on its grey list since 2008.

The report published by Tabadlab said the losses are worked out on the basis of a decrease in consumption expenditures, foreign direct investment and exports.

Pakistan has been on the FATF’s grey list since June 2018 and the government was given a final warning in February 2020 to complete the 27 action points by June in the same year.

Pakistan is facing the difficult task of clearing its name from the FATF grey list. As things stand, Islamabad is finding it difficult to shield terror perpetrators and implement the FATF action plan at the same time.