Blacklisting Pakistan under FATF

Blacklisting Pakistan under FATF
GS2&3: Important International institutions, agencies and fora, their structure, mandate Role of external state and non-state actors in creating challenges to internal security.

What is the issue?

  • The Financial Action Task Force (FATF) is to hold its Plenary and Working Group meeting in Orlando, Florida.
  • It is likely to take up a proposal to downgrade Pakistan to the blacklist on terrorist financing from its current grey list status.

BACKGROUND

  • The Financial Action Task Force (FATF) was set up in 1989 by the western G7 countries, with headquarters in Paris.
  • It acts as an ‘international watchdog’ on issues of money-laundering and financing of terrorism.
  • FATF has 37 members that include all 5 permanent members of the Security Council, and other countries with economic influence.
  • Two regional organisations, the Gulf Cooperation Council (GCC) and the European Commission (EC) are also its members.
  • Saudi Arabia and Israel are “observer countries” (partial membership).
  • India became a full member in 2010.
  • Pakistan was placed on the grey list by the FATF in June for failing to curb anti-terror financing.
  • It has been scrambling in recent months to avoid being added to a list of countries deemed non-compliant with anti-money laundering and terrorist financing regulations by the Paris-based FATF, a measure that officials here fear could further hurt its economy.

Present status of Pakistan

  • Pakistan has been under the FATF’s scanner since June, 2018.
  • It was put under the greylist for terror financing and money laundering risks.
  • This was done after an assessment of its financial system and law enforcement mechanisms.
  • FATF and its partners such as the Asia Pacific Group (APG) review Pakistan’s processes, systems, and weaknesses.
  • This is done on the basis of a standard matrix for anti-money laundering (AML) and combating the financing of terrorism (CFT) regime.

Pakistan’s subsequent commitment

  • In June 2018, Pakistan gave a high-level political commitment to work with the FATF and APG.
  • It promised to strengthen its AML/CFT regime, and to address its strategic counter-terrorism financing-related deficiencies.
  • Based on this commitment, Pakistan and the FATF agreed on the monitoring of 27 indicators under a 10-point action plan, with deadlines.
  • Successful implementation of the action plan and its physical verification by the APG will lead the FATF to move Pakistan out of the grey list.
  • But failure in implementation and in meeting the deadlines would result in Pakistan’s blacklisting by September 2019.

FATF’s current stance on Pakistan

  • There was only limited progress by Pakistan on action plan items due in January 2019.
  • So FATF, in February, 2019, urged Pakistan to swiftly complete its action plan, particularly those with timelines of May 2019.
  • Pakistan, recently, presented its progress on the 27 indicators in a meeting with the Joint Group of the APG.
  • It was agreed that there have been improvements in the AML/CFT regime and the integrated database for currency declaration arrangements.
  • But the Joint Group informed Pakistan that its compliance on 18 of the 27 indicators was unsatisfactory.
  • The other gaps in progress include the following:
  • contradictory situations and poor coordination among stakeholders
  • lack of cooperation among law enforcement agencies at various tiers of Pakistan’s government
  • insufficient physical action against proscribed organisations to block the flow of funds
  • Pakistan was thus asked to do more to demonstrate strict action against 8 terrorist groups, and in combating money laundering.
  • It must show that terror financing prosecutions result in effective, proportionate and restrictive sanctions.

Location: Thiruvananthapuram, Kerala, India

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