Financial Action Task Force (FATF)

Why is it in news?

Condemning the Pulwama attack, FATF had issued a stern statement to Pakistan to comply with the action plan on terror financing or face severe actions.

What is FATF?

The Financial Action Task Force (FATF) is an intergovernmental organization founded in 1989 on the initiative of the G7 Countries to develop policies to combat money laundering.
In 2001, its mandate expanded to include terrorism financing, so it is also referred to as ‘International Terror Financing Watchdog’. The FATF Secretariat is housed at the OECD headquarters in Paris.

Objective 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.

Domain of FATF:

When FATF was mandated to look into the issues of money laundering only, it set 40 recommendations which countries needed to follow but when the terror financing was included in its domain it further added 9 more recommendations. In totality FATF works through 40+9 Recommendations.
In short it can be said that FATF is a ‘policy-making body’ which works to generate the necessary political will to bring about national legislative and regulatory reforms in these areas.

How does FATF work?

The decision making body is FATF Plenary which meets thrice a year.
FATF uses ‘Peer Review (review by member countries)’ technique to look into the lacunae which criminal exploits. At the end it gives the detailed analysis of each country’s financial architecture.

What is the FATF Listing?

1. FATF Black List:

It includes those countries which are non-cooperative in the fight against terror financing and money laundering i.e. they are the part of that nexus.
Iran and North Korea are listed in the FATF Black list.

2. FATF Grey List:

It includes those countries which have acknowledged that their financial architecture has some lacunae and are working in collaboration with FATF to fix those loopholes.
Pakistan, Sri Lanka, Ethopia, Yemen, Syria are some of the countries listed under the Grey list.

What happens when Countries are listed in Grey List?

The listing means downgrading of the country by multilateral lenders like- IMF, World Bank, ADB, EU etc. This leads to poor investment and business flow to the country as investor fears the backlash.

Will Pakistan be affected by Grey Listing by FATF?

Pakistan at present has only $7 billion in its Forex reserve, so Grey Listing will lead to more stringent conditions by IMF in case of bailout. Therefore it will put strain on Pakistan.

Milan Tomic

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