Financial Action Task Force (FATF)

Context:

LeT operations commander Zakiur Rehman Lakhvi arrested on charges of terror financing. The arrest came weeks ahead of the Financial Action Task Force’s (FATF) planned reassessment of Pakistan’s efforts to counter terror financing. In October last year, the multilateral watchdog retained Pakistan in its “grey list” for failing to fully deliver on an action plan to fight terror financing.

What is the Financial Action Task Force (FATF)?

• FATF is an intergovernmental organization founded in 1989 on the initiative of the G7 to develop policies to combat money laundering.
• 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.
• The FATF Secretariat is housed at the OECD headquarters in Paris.
• It holds three Plenary meetings in the course of each of its 12-month rotating presidencies.
• As of 2019, FATF consisted of 37 member jurisdictions.
• India became an Observer at FATF in 2006. Since then, it had been working towards full-fledged membership. On June 25, 2010, India was taken in as the 34th country member of FATF.

EAG of FATF

• The EAG is a regional body comprising nine countries: India, Russia, China, Kazakhstan, Kyrgyzstan, Tajikistan, Turkmenistan, Uzbekistan and Belarus.
• It is an associate member of the FATF.

What is the role of FATF?

• The rise of the global economy and international trade has given rise to financial crimes such as money laundering.
• The FATF makes recommendations for combating financial crime, reviews members’ policies and procedures, and seeks to increase acceptance of anti-money laundering regulations across the globe.
• Because money launderers and others alter their techniques to avoid apprehension, the FATF updates its recommendations every few years.

What is the Black List and the Grey List?

• Black List: The blacklist, now called the “Call for action” was the common shorthand description for the FATF list of “Non-Cooperative Countries or Territories” (NCCTs).
• Grey List: Countries that are considered safe haven for supporting terror funding and money laundering are put in the FATF grey list. This inclusion serves as a warning to the country that it may enter the blacklist.

Consequences of being in the FATF grey list:

• Economic sanctions from IMF, World Bank, ADB
• Problem in getting loans from IMF, World Bank, ADB and other countries
• Reduction in international trade
• International boycott

Pakistan and FATF

• Pakistan, which continues to remain on the “grey list” of FATF, had earlier been given the deadline till the June to ensure compliance with the 27-point action plan against terror funding networks.
• It has been under the FATF’s scanner since June 2018, when it was put on the Grey List for terror financing and money laundering risks.

FATF and its partners such as the Asia Pacific Group (APG) are reviewing Pakistan’s processes, systems, and weaknesses on the basis of a standard matrix for anti-money laundering (AML) and combating the financing of terrorism (CFT) regime