What is FATF and why Pakistan is on its grey list?

 Pakistan compliance on 21 points out of 27 points plan of FATF

What is FATF?

According to the statement on website of 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.

With more than 200 countries and jurisdictions committed to implementing them.  The FATF has developed the FATF recommendations, or FATF Standards, which ensure a coordinated global response to prevent organised crime, corruption and terrorism.

They help authorities go after the money of criminals dealing in illegal drugs, human trafficking and other crimes.  The FATF also works to stop funding for weapons of mass destruction.

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 crypto currencies gain popularity.  The FATF monitors countries to ensure they implement the FATF Standards fully and effectively, and holds countries to account that do not comply.

The Financial Action Task Force (FATF) was established in July 1989 by a Group of Seven (G-7) Summit in Paris, initially to examine and develop measures to combat money laundering.  In October 2001, the FATF expanded its mandate to incorporate efforts to combat terrorist financing, in addition to money laundering.  In April 2012, it added efforts to counter the financing of proliferation of weapons of mass destruction.

Since its inception, the FATF has operated under a fixed life-span, requiring a specific decision by its Ministers to continue.  Three decades after its, creation, in April 2019, FATF Ministers adopted a new, open-ended mandate for the FATF. 

FATF is an inter-governmental organisation that was established in 1989 and comprises 35 member states, the European Commission and the Gulf Cooperation Council. Its recommendations are deemed to be the international standard for steps required for AML/CFT.

The objectives of FATF

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 own members, the FATF monitors countries' progress in implementing the FATF Recommendations; reviews money laundering and terrorist financing techniques and counter-measures; and, promotes the adoption and implementation of the FATF Recommendations globally.

FATF's role in combating terror financing became prominent after the 9/11 terror attacks in the US. In 2001 its mandate expanded to include terrorism financing. Financing of terrorism involves providing money or financial support to terrorists.

As of 2019, FATF has blacklisted North Korea and Iran over terror financing. Twelve countries are in the grey list, namely: Bahamas, Botswana, Cambodia, Ethiopia, Ghana, Pakistan, Panama, Sri Lanka, Syria, Trinidad and Tobago, Tunisia and Yemen.

What is Grey and black list of FATF

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.

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.

 A list of high-risk and other monitored jurisdictions is maintained by FATF of countries which, in the organisation's opinion, need to take further actions and provide more cooperation in relation to AML/CFT. The current list includes countries such as Iran, Iraq, Sri Lanka, Syria and Yemen.

Pakistan is not a member state of FATF: instead, it is a FATF Associate Member of the Asia/Pacific Group on Money Laundering (APG).

Why Pakistan is placed on FATF watch list?

The US had spearheaded the move that led to the FATF plenary to first propose that Pakistan be assigned to the ‘grey list’ in three months in 2018. The US wants Pakistan to take decisive action against JUD of Hafiz Saeed and other militant groups. Pakistan took some actions against proscribed organisations but failed to satisfy America and some European powers.

Pakistan was included in the grey list for the first time in 2012 and remained in it till 2015. It was removed from the watch list in 2015 after Pakistan complied with FATF standards and plan of action. On 29 June, 2018 FATF Grey listed Pakistan for the second time.  The process began in February 2018 when FATF approved the nomination of Pakistan for monitoring under its International Cooperation Review Group (ICRG) commonly known as the 'Grey list'.

It was removed from the watch list in 2015 after Pakistan complied with FATF standards and plan of action. On 29 June, 2018 FATF Grey listed Pakistan for the second time.  The process began in February 2018 when FATF approved the nomination of Pakistan for monitoring under its International Cooperation Review Group (ICRG) commonly known as the 'Grey list'.

Pakistan had first figured in a FATF statement after the plenary of February 2008. At that time, FATF had noted Pakistan’s recent progress in adopting anti-money laundering legislation but urged financial institutions to be aware of the “remaining deficiencies” that could constitute vulnerability in the international financial system.

The FATF in 2012 listed Pakistan among countries that have “Jurisdictions with strategic AML/CFT deficiencies that have not made sufficient progress in addressing the deficiencies or have not committed to an action plan developed with the FATF to address the deficiencies”. A senior minister in then Nawaz Sharif government and opposition leader Khawaja Asif described this move as a “black list”.

The FATF’s main concern was that Pakistan did not have appropriate legislation to identify terror financing, as well as, confiscate terrorist assets. Pakistan went out of the Public Statement to the second statement of “Improving public compliance” from June 2014, which noted that the country had made “significant progress”.

The terror financing and money laundering for terrorism purpose is the main concern of FATF. 

  Pakistan was placed on watch list of FATF called Grey List in June 2018 soon after the end of PML-N government’s five year term. It was the second time that Pakistan was placed on grey list.

A public statement from FATF on February 27, 2015, which announced the removal of Pakistan from the watch-list, had stated the following:

“The FATF welcomes Pakistan’s significant progress in improving its AML/CFT regime and notes that Pakistan has established the legal and regulatory framework to meet its commitments in its action plan regarding the strategic deficiencies that the FATF had identified in June 2010.

"Pakistan is therefore no longer subject to the FATF’s monitoring process under its on-going global AML/CFT compliance process.

"Pakistan will work with APG as it continues to address the full range of AML/CFT issues identified in its mutual evaluation report, in particular, fully implementing UNSC (United Nations Security Council) Resolution 1267.”

The reference to APG in the statement is important as it highlights that FATF does not and cannot directly impose conditions on Pakistan since it is not a member state. Instead, it is the APG (and international financial institutions such as the World Bank) which have worked with Pakistan in the past to address FATF’s concerns.

What are the main areas of concern for FATF/APG

There are certain specific steps that FATF wants the countries to undertake to support the existence of a universal system of AML/CFT. These typically include:

Legislative action to criminalise money laundering and terrorist financing;

Harmonising criminalisation of money laundering across different laws and to streamline definitions of related offences;

Establishing legal framework for freezing assets deemed to be linked to proscribed terrorist organisations;

Developing and implementing procedures for the confiscation of assets identified in the AML/CFT context;

Establishing and enhancing suspicious transaction reporting procedures;

Implementing systems to be able to identify beneficial ownership of companies and assets; and

Ensuring the legal and prosecution frameworks are working effectively to achieve convictions of offenders before local courts.

                                                                         Rukhsana Manzoor Deputy Editor



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