From UPSC perspective, the following things are important :
Prelims level : FATF
Mains level : Terror financing and money laundering
Global terror-financing watchdog FATF has announced Pakistan‘s removal from its grey list, saying the country has largely completed its action plans on anti-money laundering and financing of terrorism.
What is the FATF?
- FATF is an intergovernmental organization founded in 1989 on the initiative of the G7 to develop policies to combat money laundering.
- The FATF Secretariat is housed at the OECD headquarters in Paris.
- It holds three Plenary meetings in the course of each of its 12-month rotating presidencies.
- As of 2019, FATF consisted of 37 member jurisdictions.
India’s say in FATF
- India became an Observer at FATF in 2006. Since then, it had been working towards full-fledged membership.
- On June 25, 2010, India was taken in as the 34th country member of FATF.
EAG of FATF
- The EAG is a regional body comprising nine countries: India, Russia, China, Kazakhstan, Kyrgyzstan, Tajikistan, Turkmenistan, Uzbekistan and Belarus.
- It is an associate member of the FATF.
What is the role of FATF?
- The rise of the global economy and international trade has given rise to financial crimes such as money laundering.
- The FATF makes recommendations for combating financial crime, reviews members’ policies and procedures, and seeks to increase the acceptance of anti-money laundering regulations across the globe.
- Because money launderers and others alter their techniques to avoid apprehension, the FATF updates its recommendations every few years.
What is the Black List and the Grey List?
- Black List: The blacklist, now called the “Call for action” was the common shorthand description for the FATF list of “Non-Cooperative Countries or Territories” (NCCTs).
- 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.
Consequences of being in the FATF grey list:
- Economic sanctions from IMF, World Bank, ADB
- Problem in getting loans from IMF, World Bank, ADB and other countries
- Reduction in international trade
- International boycott
How had it impacted Pakistan economically?
- A country on the ‘grey list’ is not subject to sanctions.
- However, the ‘grey list’ signals to the international banking system that there could be enhanced transaction risks from doing business with the said country.
- In 2018, the Economist noted that there had been no direct economic implications when Pakistan was on the grey list from 2012 to 2015.
- Instead, Pakistan managed to obtain a $6 billion bailout package from IMF in 2013 and raise additional funding in global debt markets in 2015.
Pakistan claimed the politicization of FATF. Is that true?
- In the run-up to the February 2018 decision, the US had weaned Saudi Arabia away, leaving only China and Turkey supporting Pakistan.
- China eventually withdrew its objection.
- A few days later, India publicly congratulated China for its election as vice president of FATF, lending credence to the speculation that a deal had been reached behind closed doors.
How Pakistan managed to get out of the ‘inglorious’ list?
- Removal from the list mark the culmination of a four-year reform process that has required far-reaching changes to Pakistan’s financial system.
- It appears that, Pakistan has performed well in particular to laws governing money laundering and terrorism financing.
- Pakistan was given an action plan by FATF in 2018 to address strategic counter-terrorist financing-related deficiencies.
- This is not the first time for Pakistan to exit Grey List. It has been swinging on its position on terror financing.
- Pakistan first figured in a FATF statement after the plenary of February 2008.