The Financial Action Task Force (FATF) came to a decision in its recent 5-day plenary, held in Paris and ended on 19th October 2019. Pakistan, will continue to be on the FATF’s ‘Grey List’. The possibility of blacklisting looms over the country if it doesn’t manage to control terror financing by February 2020. It has been said that all FATF members couldn’t agree on the immediate blacklisting of Pakistan. India stood at the forefront, instigating an offensive against Pakistan for its blacklisting, an action that was endorsed by France, the US, and the European Union countries. Despite this, China, Turkey, and Malaysia resisted India’s efforts.
About the Financial Action Task Force
The Financial Action Task Force or FATF is an inter-governmental body that came into existence in 1989 during the G7 Summit in Paris. Its primary responsibilities are to establish standards and encourage the 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. The OECD headquarters in Paris serves as the secretariat for the FATF.
As of 2019, thirty-seven member jurisdictions form the FATF, with India being one of them. The FATF devised two lists – the Grey List and the Black List. Countries with a perceived risk of supporting terror funding and money laundering activities are placed on the Grey List. This acts as a warning, implying their impending entry into the Blacklist. Non-Cooperative Countries or Territories or NCCTs known for backing terror funding and money laundering are enlisted in the Blacklist. Depending on the countries’ activities, the FATF revises the Blacklist. The decision-making body of the FATF, called the Plenary, has three sessions annually.
FATF and Pakistan
In June 2018, FATF placed Pakistan on its Grey List and provided a plan of action to be completed by October 2019. If failed, Pakistan would face the potential risk of joining Iran and North Korea on the Blacklist. Previously, in February 2012, Pakistan was also included in the Grey List, but it was removed in February 2015 following the passage of a National Action Plan (NAP) in response to the Peshawar School massacre in December 2014. Between the years 2008-2012, severe restrictions were imposed on the country.
| FATF Actions on Pakistan | Year |
|---|---|
| Placed on Grey List | 2018 |
| Removed from Grey List | 2015 |
| Placed on Grey List | 2012 |
| Faced stringent restrictions | 2008-2012 |
FATF’s Recent Review on Pakistan
Pakistan only managed to fulfill 5 out of the 27 tasks given to control funding to terror groups such as Lashkar-e-Taiba and Jaish-e-Mohammad, both responsible for numerous attacks in India. FATF expressed “serious concerns” regarding Pakistan’s insufficient implementation. Retaining Pakistan in the ‘Grey List’ indicates the extension of time until February 2020 for Pakistan to meet its commitments or face potential blacklisting. The decision primarily aims to incentivize rather than punish, urging for faster and necessary changes.
Impact on Pakistan
While staying on the ‘Grey List’, obtaining financial aid from the International Monetary Fund (IMF), World Bank, and European Union could be a challenge for Pakistan, thereby making its financial condition even more unstable. However, the recently negotiated $6 billion loan with the IMF, set to be disbursed over the next three years, is not immediately affected. Currently, the country is encountering numerous economic challenges, expecting an economic growth of merely 3.3 % in 2019 and 2.6% in 2020 as per the IMF. Inflation is expected to reach 7.3% in 2019, a significant increase from 3.9% in 2018, and rise to 13% in 2020. The fiscal deficit is projected at 7.1% of GDP in 2020, marking the highest in the past seven years.
