Context: The Indian authorities are planning to apprise the Financial Action Task Force (FATF) of the latest evidence related to the terror bases in Pakistan destroyed by the Indian defence forces as part of Operation Sindoor, and the existing terror infrastructure in Pakistan. India seeks FATF grey list re-entry for Pakistan.
Relevance of the Topic: Prelims: Key facts related to Financial Action Task Force.
Financial Action Task Force
- FATF is an independent inter-governmental body that develops and promotes policies to protect the global financial system against money laundering, terrorist financing and the financing of proliferation of weapons of mass destruction.
- The FATF Recommendations are recognised as the global anti-money laundering (AML) and counter-terrorist financing (CFT) standard.
- Established in: 1989 by the G7 countries to combat money laundering. In 2001, the mandate was expanded to combat terrorist financing.
- Headquarters: Paris, France.
FATF Members:
- Currently 39 members: 37 jurisdictions and 2 regional organisations (Gulf Cooperation Council and European Commission).
- India, China, Israel, UK and USA are the members. Pakistan, North Korea, and Iran are not the members.
Key Functions
- The FATF has developed the FATF Recommendations, or FATF Standards, which ensure a coordinated global response to prevent organised crime, corruption and terrorism.
- 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 works to stop funding for weapons of mass destruction.
- FATF does not address issues related to low tax jurisdiction, tax evasion/avoidance or tax competition.
- The FATF conducts peer reviews of each member to assess levels of implementation of the FATF Recommendations. It holds countries to account that do not comply.
FATF 40+9 Standards
- FATF issues a report containing a set of 40 Recommendations- intended to provide a comprehensive plan of action needed to fight against money laundering.
- In 2001, the development of standards in the fight against terrorist financing was added to the mission of the FATF, thereby further adding 9 Special Recommendations.
- Hence, FATF has 40 recommendations against money laundering (AML) and 9 special recommendations against terrorist financing (CFT), commonly known as ‘40+9’ FATF Standards.
FATF Lists:
- Black List: FATF issues a list of ‘Non-Cooperative Countries or Territories’ (NCCTs), commonly called FATF Blacklist. These countries or territories are uncooperative in international efforts against money laundering and terrorism financing. Presently, Iran and North Korea are in Black list.
- Grey List (Jurisdictions under increased monitoring): List of countries or territories with strategic anti-money laundering/countering financing of terrorism deficiencies, for which they have developed an action plan with the FATF. Greylisting is said to limit a country’s access to loans from international bodies.
FATF Grey List and Pakistan:
- Pakistan has a fluctuating FATF status. It was initially greylisted in 2008, removed in 2009, and re-added to the list between 2012 and 2015, with a fresh greylisting in 2018 that lasted until 2022.
- Pakistan was removed from the FATF Grey List in 2022 with the reminder that Pakistan will continue to work with the Asia Pacific Group to further improve its AML/CFT system. Pakistan was told to implement the action plan, which included demonstration of effective action against United Nations-designated terror outfits, individuals and their associates in terms of financial sanctions, asset seizures, investigation, prosecution, and convictions.
The decision making in the FATF is based on technical compliance of its anti-money laundering (AML) and counter-terrorism financing (CTF) recommendations, which is evaluated through the measures taken by the country concerned and on-ground verification.