The lists of the FATF and Pakistan’s position

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Last Updated08/03/2022

Financial Action Task Force in its latest plenary meeting, decided to retain Pakistan on its terror financing ‘grey list’.
It asked Pakistan to expeditiously address the remaining deficiencies in its financial system.
It has also added UAE to the list this time, which has promised to take “robust” actions in countering terror financing and money laundering.

FATF is an international watchdog for financial crimes such as money laundering and terror financing.
It is an inter-governmental body that sets international standards that aim to prevent these illegal activities and the harm they cause to society.
FATF was established at the G7 Summit of 1989 in Paris, over concerns of the member countries about growing money laundering activities.
The heads of G7 countries and president of European Commission brought together a Task Force after addressing loopholes in the global financial system.
After 9/11 terror attack on the US, FATF also added terror financing as a main focus area.
This was broadened In 2012, to include restricting the funding of weapons of mass destruction.
Its meetings are attended by 206 countries of the global network, including members, and observer organizations, such as the World Bank, some offices of the United Nations and regional development banks.

The FATF sets standards or recommendations for countries to achieve in order to plug the holes in its financial system and make it less vulnerable to illegal financial activities.
FATF conducts regular peer-reviewed evaluations called Mutual Evaluations (ME) of countries, starting with member countries, to check their performance on standards prescribed by it.
The FATF recommendations for countries range from assessing risks of crimes to setting up legislative, investigative and judicial mechanisms to pursue cases of money laundering and terror funding.

Words ‘grey’ and ‘black’ list do not exist in the FATF lexicon
It designate countries that need to work on complying with FATF directives and those who are non-compliant, respectively.
Grey countries : actively working with FATF to counter criminal financial activities.
In their cases , the watchdog does not tell other members to carry out due-diligence measures vis-a-vis the listed country but does tell them to take into account the risks such countries possess.
Currently, there are 23 countries on the grey list, with one new addition and one removal.
UAE was added to the list while Zimbabwe was taken off it.
Black list: countries designated by FATF as ‘high-risk jurisdictions subject to call for action’.
In this case the countries have considerable deficiencies in their AML/CFT regimens.
For such countries, body calls on members and non-members to apply enhanced due-diligence and in the most serious cases, apply counter-measures such as sanctions.
Currently, two countries- North Korea and Iran are on the black list.
Being listed under the FATF’s two lists makes it difficult for countries to get aid from organisations like the IMF, ADB and the EU.

Pakistan is on the grey list frequently since 2008, for weaknesses in fighting terror financing and money laundering.
Due to significant progress made by the country, by early 2015, Pakistan was no longer on the grey list.
However, it came back to the list in 2018, and was given an action plan to restrict terror financing activities and monitor the actions of UN designated terrorists in the country.
In October 2019, Pakistan was warned by FATF for addressing only five out of the 27 tasks given to it in controlling funding to terror groups like the Lashkar-e-Taiba, Jaish-e-Mohammad and Hizbul Mujahideen, responsible for a series of attacks in India.
In June 2021, however, Pakistan was given another seven-point action plan by the APG, focused specifically on combating money laundering.
During the latest meeting, Pakistan informed that it had completed 32 of the total 34 action items in the two plans and was told to complete the rest at the earliest.
The FATF appreciated Pakistan’s commitment to fight financial crimes and said that the country now aims to complete the 2021 action plan by January 2023.