Date: 21/10/2022

Relevance: GS-2: India and its neighborhood- relations; bilateral, regional and global groupings and agreements involving India and/or affecting India’s interests.

Relevance: GS-3: Challenges to internal security, money-laundering and its prevention.

Key Phrases: Financial Action Task Force (FATF), Grey List of FATF, FATF Plenary, FATF listing implications, Mutual Evaluation Report (MER)

Context:

• Pakistan is expected to be taken off the Financial Action Task Force (FATF) grey list at a plenary session of the FATF in Paris.
• Pakistani officials believe that the Pakistan government’s “strenuous efforts” and “a smooth and successful visit” on-site by an FATF delegation to Pakistan may favour Pakistan.

Financial Action Task Force

• About
  • The Financial Action Task Force (FATF) is an inter-governmental body.
  • It was established in 1989 during the G7 Summit in Paris.
  • Its Secretariat is located at the Organization for Economic Cooperation and Development (OECD) headquarters in Paris.
• Objective
  • 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.
    • Threats to the integrity of the international financial system.
• Member Countries
  • As of October 2022, it consists of 39 member jurisdictions which include 37 individual countries and 2 regional organizations.
  • India has been one of the members since 2010.
  • There are many associate members and observer members.
• FATF Plenary
  • The FATF Plenary is the supreme decision making body of the FATF.
  • It meets three times per year.
• FATF has two lists:
  • 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.
    • There are many countries in the grey list including Pakistan.
  • Black List:
    • Countries known as Non-Cooperative Countries or Territories (NCCTs) are put in the blacklist.
    • These countries support terror funding and money laundering activities.
    • The FATF revises the blacklist regularly, adding or deleting entries.
    • Iran and North Korea have been placed under the Black list.

What are the implications of the decision?

• The FATF grey list means Pakistan is “ under increased monitoring” since February 2018.
  • This has led Pakistan to stringent financial sanctions and difficulties in availing international loans.
• A reprieve from the grey list will be a major relief for Pakistan that is in the midst of an economic crisis.
  • It may help Pakistan in improving its relations with foreign states, especially the USA.

Scrutiny to continue

• In the event of Pakistan being cleared to exit the grey list will still be subject to continued scrutiny by the FATF.
• It will need to regularly report on its actions to continue the steps it has taken on Anti Money laundering and combating the Financing of Terrorism (AML/CFT).
• The Indian government will also face a scrutiny of India’s record on AML/CFT with a periodic Mutual Evaluation Report (MER) process for India beginning in 2023.

FATF has discussions to make

• The FATF is expected to take up China’s follow up of its evaluations in this plenary.
• Western proposals to suspend Russia from the FATF participation due to the war in Ukraine are also to be discussed
• It will also decide on Myanmar and its inclusion in Grey or Black list or “High-Risk Jurisdictions subject to a Call for Action”.

Improvement in the U.S.-Pakistan ties

• Pakistan’s grey-list exit process is coinciding with a sudden improvement in ties between Pakistan and the U. S.in the aftermath of a new government in Pakistan.
• The US president and the current Prime Minister of Pakistan have been engaging in talks in recent times vis-a-vis the previous government.
  • Even the U. S. has restarted its support for Pakistan’s F-16 programme.
• Recently there have been visits by Pakistan military officials to the US.
  • Even the killing of al-Qaeda chief Ayman al-Zawahiri in Kabul in a U. S. drone attack shows the increasing cooperation between the two countries.
• It is speculated that the proximity shows that the US has assured Pakistan of its support at FATF

How has Pakistan been evaluated at the FATF?

• The FATF had declared that Pakistan’s tasks on a 34-point checklist which includes
  • The prosecution of UN Security Council-designated terrorists.
  • Shutting down sources of funds for terror groups such as al-Qaeda, the Lashkar-e-Taiba and the Jaish-e-Mohammed.
  • Amending terror and money laundering laws to match international requirements.
• These demands had been “substantially completed” and warranted an “on-site” visit which was completed in September.
• Pakistan had provided “documentary evidence” of its efforts to seize funds and properties belonging to designated terror organisations, and of convictions of terror chiefs.

India has genuine concerns

• Despite FATF’s claims of Pakistan’s actions on the designated terrorists and terror organisation India has many concerns
  • Many designated terrorists are still not tracked down including Masood Azhar, mastermind behind 2001 Parliament Attacks.
  • India has protested on many fora about Pakistan’s subterfuge in actions against state-supported terrorist groups.
  • Most of them have only been charged with minor terror financing cases, and not for carrying out terror attacks in India including the 26/11, military attacks etc.
• Although Pakistan has claimed that Masood Azhar is not in Pakistan which has been denied by Afghanistan.

Conclusion:

• The FATF’s lists makes it hard for countries to get aid from organizations like the International Monetary Fund (IMF), Asian Development Bank (ADB), and the European Union.
• Pakistan has been under tremendous pressure since it has been put in grey list, so removing it from the grey list may be a right call to avoid another debt ridden country crisis like Srilanka.
• India can endorse this call provided Pakistan changes its policies of providing shelter to terrorists and associated organizations and commits to fight against the terrorism for a peaceful neighborhood.

Source: The Hindu

Mains Question:

Q. “Multilateral fora is used by powerful countries for their own interests” Do you agree? Examine the role of Financial Action Task Force (FATF) in curbing money laundering and terror funding. (250 words).