Pakistan on FATF Grey List

 

In news:

• Pakistan continues to be on the Grey List of the international terror financing watchdog Financial Action Task Force. The decision of FATF was taken after the completion of its five-day plenary session in Paris. 

 

Why is Pakistan in Grey list?

• Pakistan has failed to comply with the anti-money laundering and terror funding guidelines despite repeated attempts.
• The case against Pakistan is its inaction against UN-banned terror groups like the  Taliban and Haqqani Network, Jaish-e-Mohammed, Lashkar-e-Taiba, Jamaat-ud Dawa and its affiliate Falah-i-Insaaniyat Foundation, besides terrorists like Hafiz Saeed and Masood Azhar.

 

 

 

Why has Pakistan failed to comply or choke terror funding?

• Pakistan has been claiming its economy is highly cash driven so they are not able to control cash transactions that is espousing terrorism
• Jamaat-ud-Dawa has been on the UN sanctions list in terms of financial transactions and one of its affiliated groups listed by United Nations has built up huge ambulance service. So, with JuD running a number of social and development programs all across Pakistan, it is garnering popular support from various sections of society. So, Pakistan administration is not able to control the spread.
• System of denial and mindset in Pakistan that everything seems to be fine but the world is just targeting them.

 

 

 

How this move will help India?

This will benefit India in many ways, such as:

• Pakistan will be put under closer scrutiny immediately to curb terror financing. 
• Reduced Pakistan funded terrorist attacks and infiltrations such as Pulwama and Mumbai attacks.
• Economic benefits to India as FATF has increased the cost of doing business with Pakistan which will attract less FDI now.
• Enhanced image of India in international forums as Pakistan will face an international boycott.
• Pakistan’s already fragile economy will have a powerful blow which will be in India’s favour in international trade.

 

India and the Financial Action Task Force (FATF): 

• India became a member of the Financial Action Task Force (FATF) in 2010. 
• It will help India to build the capacity to fight terrorism and trace terrorist money and help to successfully investigate and prosecute money laundering and terrorist financing offences. 
• India will benefit from securing a more transparent and stable financial system by ensuring that financial institutions are not vulnerable to infiltration or abuse by organized crime groups.
• In recent past, Pakistan had asked for India’s removal from the group, citing bias and motivated action, but that demand was rejected. 

 

Additional Information:

Financial Action Task Force:

• Financial Action Task Force is an inter-governmental body that was established by G-7 summit held in Paris in 1989.
•  G-7 is a group consisting of seven countries with the world’s largest developed economies.
• FATF is a policy making body which promotes and recommends effective implementation of legal, regulatory and operational measures for fighting against issues like money laundering, terrorist financing and threats related to international financial system.
• The FATF has 38 members out of which 36 are member jurisdiction and 2 are regional organisations. It also has associate members and Observer Organisations.
• FATF wants to see effective implementation of targeted financial sanctions against all terrorists designated under UN Security Council Resolutions 1267 and 1373.
• In October 2001, the FATF expanded its wings to incorporate efforts to combat terror financing, money laundering and human trafficking.

 

 

 

Functions of the FATF:

• The FATF is an independent inter-governmental body that develops and promotes policies to protect the global financial system so that it could bot be used by the terrorists and other anti social elements.  
• However, the FATF is not in a position to give any advice regarding the credentials or work of associations.
• Now the FATF has started dealing with the Virtual currency.
• The FATF is an international policy-making body. It does not have any role in law enforcement matters, investigations or prosecution.

 

What are Black List and Grey List of the FATF?

FATF has 2 types of lists;

1.  Black List

2. Grey List

• Black List: 

• Only those countries are included in this list that FATF considers as unco-operative tax havens for terror funding. These countries are known as Non-Cooperative Countries or Territories (NCCTs). In other words; countries which are supporting terror funding and money laundering activities are listed in the Black list.
• The FATF blacklist or OECD blacklist has been issued by the Financial Action Task Force since 2000 and lists countries which it judges to be non-cooperative in the global fight against money laundering and terror funding.
• The FATF updates the blacklist regularly, adding or deleting entries.

 

Grey List: 

• Those countries which are not considered as the safe heaven for supporting terror funding and money laundering; included in this list. The inclusion in this list is not as severe as black listed.
• Now Grey list is a warning given to the country that it might come in Black list (Just like a yellow card in a football match). If a country is unable to curb mushrooming of terror funding and money laundering; it is shifted from grey list to black list by the FATF.

 

 

Countries in the Grey list shown in the map:

 

 

Problem faced by countries if come under grey list:

When a country comes in the Grey list, it faces many problems like;

1. Economic sanctions from international institutions (IMF, World Bank, ADB etc.) and countries

2. Problem in getting loans from international institutions (IMF, World Bank, ADB etc.) and countries

3. Overall Reduction in its international trade

4. International boycott

 

India’s Role

• India is a member of both the APG and the FATF consultations and is represented by a team of officials from the Ministries of Finance, External Affairs and Home Affairs.
• India is a voting member of the FATF and APG, and co-chair of the Joint Group.

• India was not part of the group that moved the resolution to greylist Pakistan in 2018 in Paris. The movers were the US, UK, France, and Germany and China did not oppose.
• As of now, India is pushing for Pakistan to be blacklisted.
• There is also an opinion that by keeping Pakistan in the grey list one can continue to pressure the country as well as scrutinise its actions.

 

Pakistan’s status:

• Pakistan has been under the FATF’s scanner since June, 2018, when it was put on the greylist for terror financing and money laundering risks, after an assessment of its financial system and law enforcement mechanisms.
• In June 2018, Pakistan gave a high-level political commitment to work with the FATF and the Asia Pacific Group (APG) to strengthen its anti-money laundering/combating the financing of terrorism (AML/CFT) regime.
• Based on this commitment, Pakistan and the FATF agreed on the monitoring of 27 indicators under a 10-point action plan, with deadlines.

 

Impact on Pakistan of  being blacklisted

• Pakistan’s $6 billion loan agreement with the International Monetary Fund (IMF) could be threatened.
• Pakistan faces an estimated annual loss of $10 billion if it stays in the greylist; if blacklisted, its already fragile economy will dealt with a powerful blow.
• If Pakistan continues with the ‘Grey List’ or is put in the ‘Dark Grey’ list, it would be very difficult for the country to get financial aid from the IMF, the World Bank and the European Union.
• It would worsen the country’s macroeconomic position which is already under pressure due to a widening trade deficit and falling foreign exchange reserves.
• Grey-listing could also lead to a downgrade in Pakistan’s debt ratings, making it more difficult to tap into the international bond markets.

 

 

26 Point action plan

It has been created in consensus with Asia Pacific Group

• Pakistan has told the FATF that it will implement its action plan to accomplish these objectives of properly identifying, assessing and supervising the removal of terrorism financing risks on a risk-sensitive basis.
• It will improve inter-agency coordination between provincial and federal authorities to combat terror financing risks.
• It will demonstrate that Law-Enforcement Agencies (LEAs) are identifying and investigating the widest range of terrorism financing activity.
• As per the plan approved by the FATF, nine targets have to be met in January 2018, about 13 by May 2019 and the remaining in September 2019.

 

 

How far can China help Pakistan?

• China will bail out Pakistan as long as monetary disbursement is within its range, until it pinches their purse. So if China feels it will impact their banking they will start rethinking
• China in the past has advised Pakistan to move to international organisations like World Bank in case the loan amount is huge
• Moody’s has downgraded the bond value, Pakistan has devalued its currency two to three times, exports have reduced and imports have been increasing. With all this China alone won’t do the heavy lifting to bail out Pakistan.

 

 

Way ahead:

• In an assessment Pakistan has failed to meet 22 of the 27 targets set by it. 
• If it does not comply with the FATF’s demands fully by February 2020, however, it risks ending up in the company of Iran and North Korea on its black list, which could result in its financial isolation.
• Pakistan should democratize its politics and military rule should be restricted.

 

Asia Pacific Group The Asia/Pacific Group on Money Laundering is an inter-governmental organisation, consisting of 41 member jurisdictions, focused on ensuring that its members effectively implement the international standards against money laundering, terrorist financing and proliferation financing related to weapons of mass destruction. UN Security Council Resolutions 1267 and 1373 The UNSC resolution 1267 was adopted unanimously on October 15, 1999. It is a consolidated list of people and entities that UN has determined as being associated with Al Qaeda or the Taliban, and laws which must be passed within each member nation to implement the sanctions. The UNSC Resolution 1373 was adopted on 28th September, 2001. It declares international terrorism a threat to international peace and security and imposes binding obligations on all UN member states.

 

 

Source)

https://economictimes.indiatimes.com/news/defence/pakistan-hopes-to-come-out-of-fatfs-grey-list-by-february-2020/articleshow/71664105.cms