The Financial Action Task Force (FATF) is an intergovernmental organization monitoring the international financial crimes that aid terrorism. Read here to know more about it.
- Financial Action Task Force (FATF) announced that a country could be removed from the grey list.
- FATF is expected to decide whether to take Pakistan off the ‘grey’ list at the end of its plenary session in Berlin in October.
- Pakistan has been on the FATF grey list continuously since June 2018.
Financial Action Task Force (FATF)
The Financial Action Task Force (FATF) is the global money laundering and terrorist financing watchdog.
- The inter-governmental body sets international standards that aim to prevent these illegal activities and the harm they cause to society.
- As a policy-making body, the FATF works to generate the necessary political will to bring about national legislative and regulatory reforms in these areas.
The FATF has developed the FATF Recommendations, or FATF Standards, which ensure a coordinated global response to prevent organized crime, corruption, and terrorism.
- They help authorities go after the money of criminals dealing with illegal drugs, human trafficking, and other crimes.
- The FATF also works to stop funding for weapons of mass destruction.
Functions of FATF:
- The FATF reviews money laundering and terrorist financing techniques and continuously strengthens its standards to address new risks, such as the regulation of virtual assets, which have spread as cryptocurrencies gain popularity.
- The FATF monitors countries to ensure they implement the FATF Standards fully and effectively and holds countries to account that does not comply.
Its Secretariat is located at the Organisation for Economic Cooperation and Development (OECD) headquarters in Paris.
History of the Financial Action Task Force (FATF)
In response to mounting concern over money laundering, the Financial Action Task Force on Money Laundering was established by the G-7 Summit that was held in Paris in 1989.
Recognizing the threat posed to the banking system and financial institutions, the G-7 Heads of State or Government and the President of the European Commission convened the Task Force from the G-7 member States, the European Commission, and eight other countries.
Members: During 1991 and 1992, the FATF expanded its membership from the original 16 to 28 members. In 2000 the FATF expanded to 31 members and has since expanded to its current 39 members.
In April 2012, it added efforts to counter the financing of proliferation of weapons of mass destruction.
The objectives of the FATF are:
- To set standards and promote effective implementation of legal, regulatory, and operational measures for combating money laundering, terrorist financing, and other related threats to the integrity of the international financial system.
Starting with its members, the FATF monitors countries’ progress in:
- Implementing the FATF Recommendations;
- Reviews money laundering and terrorist financing techniques and counter-measures;
- Promotes the adoption and implementation of the FATF Recommendations globally.
The FATF’s decision-making body, the FATF Plenary, meets three times per year.
The FATF currently comprises 37 member jurisdictions and 2 regional organizations (GCC and European commission), representing most major financial centers in all parts of the globe.
- India has been a member of the FATF since 2010.
- India is also a member of its regional partners, the Asia Pacific Group (APG) and the Eurasian Group (EAG).
- Countries that are considered to be supporting terror funding and money laundering are put on the FATF grey list.
- This inclusion serves as a warning to the country that it may enter the blacklist.
- Greylisting means FATF has placed a country under increased monitoring to check its progress on measures against money laundering and terrorism financing.
- The “grey list” is also known as the “increased monitoring list”.
Countries in Grey List:
As of March 2022, there are 23 countries on the FATF’s increased monitoring list (officially referred to as “jurisdictions with strategic deficiencies”):
- Pakistan, Syria, Turkey, Myanmar, Philippines, South Sudan, Uganda, and Yemen.
- Countries are known as Non-Cooperative Countries or Territories (NCCTs) are put on the blacklist.
- These countries support terror funding and money laundering activities.
The Financial Action Task Force revises the blacklist regularly, adding or deleting entries.
Currently, Iran and the Democratic People’s Republic of Korea (DPRK) are under High-risk Jurisdiction or black list.
Removal from the list:
The Financial Action Task Force removes countries from the list if it fulfills the recommendations of the FATF.
The FATF most recently took Zimbabwe, and before that Botswana and Mauritius, off the grey list.
Pakistan first entered the list in 2008 but was removed later on. Then it was again on the list from 2012 to 2015.
Since 2018, it has not been removed from the list.
The FATF issued the 27-point action plan after placing Pakistan on the ‘Grey List’ in June 2018.
The action plan pertains to curbing money laundering and terror financing. A parallel action plan was handed out by the FATF’s regional partner – the Asia Pacific Group (APG) – in 2019.
Impact of Financial Action Task Force lists on countries
When the Financial Action Task Force (FATF) places a jurisdiction under increased monitoring, it means the country has committed to resolving swiftly the identified strategic deficiencies within agreed timeframes and is subject to increased monitoring.
Greylisting adversely impacts the imports, exports, and remittances of the country and limits access to international lending.
Major financial institutions like the IMF and World Bank are affiliated with FATF as observers; a grey-listed country faces complications in accessing international lending instruments.