Pakistan’s exit from FATF Grey List and India’s challenge

Source: The post is based on an article “Pakistan’s exit from FATF Grey List and India’s challenge” published in The Indian Express on 27^th October 2022.

Syllabus: GS 2 – International Relations

Relevance: removing Pakistan from the grey list of FATF

News: The Financial Action Task Force (FATF) has recently announced the removal of Pakistan from its “Grey List’. This announcement was unexpected and it also raises concerns for India.

What is the Financial Action Task Force (FATF) and what are its objectives?

How does FATF fulfil its objectives?

It draws a list of guidelines known as the “FATF Recommendations” or “FATF Standards”.

These standards include a range of regulatory and enforcement actions that states are expected to implement. More than 200 countries and jurisdictions are committed to implementing the FATF’s recommendations.

The decision against a country is taken on the basis of consensus between and FATF and its associate or regional members such as the Asia Pacific Group on Money Laundering (APG).

How does FATF monitors the implementation of its recommendations and what makes country to come in the grey/black list of FATF?

It monitors by periodic evaluations of the anti-money laundering (AML), combating financing of terrorism (CFT) and proliferation financing (PF) system.

Countries that have strategic deficiencies in their AML/CFT/PF regimes are placed under a scheme of increased monitoring also known as “Grey Listing.”

Countries placed in the grey list are expected to take the required measures to address their deficiencies on the basis of “Action Plans” drawn and evaluated by FATF.

Countries that have serious strategic deficiencies in their AML/CFT/ PF regimes are placed under a “Black List” also known as “High-Risk Jurisdictions subject to a Call for Action.”

Grey list acts as a warning to countries whereas black list have serious economic consequences by increasing check on the transaction made to the designated country.

Presently, there are 23 countries on the FATF’s “Grey List” excluding Pakistan while there are three countries on the “Black List” — North Korea, Iran and Myanmar.

How did listing in the grey list help to counter terror activities in Pakistan?

Pakistan has been pushed three times in the grey list and removed from it. It was placed for the third time in June, 2018.

The members of FATF have said that the adherence of FATF standards by a country should be judged on the basis of “effectiveness” of action taken against individuals and entities of concern, rather than pro-forma based “technical compliance”.

This approach was taken by FATF against Pakistan which increased a further threat of being black listed. These efforts made Pakistan to prosecute, convict, fine and jail, the wanted terrorists.

What are geopolitical concerns that favours Pakistan?

Although there was a threat to Pakistan of moving from grey list to black list but it could have not been possible. The decision could have been opposed by FATF members China, Malaysia, Turkey and Saudi Arabia due to their good relation with the country.

Moreover, the present listing of Pakistan in the grey list was done by the US. However, it was expected that Pakistan would be removed from the list after completion of US withdrawal from Afghanistan. It has proved to be true.

Further, the US have also remained back from declaring Pakistan a “state sponsor of terrorism” under American law despite the supportive evidence.

What India should do?

Although, there has been a decline in terrorist activities across the Line of Control (LoC) in J&K. However, regular sightings of drones bearing weapon payloads and infiltration along the LAC are indications of threat that is still present for India.

Therefore, India must continue with the available opportunities to counter terrorist activities and bring global pressure on Pakistan.

Moreover, there has also been geopolitical concerns that favors Pakistan at the global level.