The lists of the FATF and Pakistan’s position

Why has the neighbouring country been repeatedly featured in the ‘grey list’ of the Financial Action Task Force?

The story so far: The global financial crime watchdog Financial Action Task Force (FATF) in its latest plenary meeting, decided to retain Pakistan on its terror financing ‘grey list’, asking the neighbouring country to expeditiously address the remaining deficiencies in its financial system. It has also added UAE to the list this time, which has promised to take “robust” actions in countering terror financing and money laundering.

The Financial Action Task Force is an international watchdog for financial crimes such as money laundering and terror financing. As per the official definition, it is an inter-governmental body that sets international standards that aim to prevent these illegal activities and the harm they cause to society.

The FATF was established at the G7 Summit of 1989 in Paris, over concerns of the member countries about growing money laundering activities. The heads of G7 countries and the president of the European Commission brought together a Task Force after addressing loopholes in the global financial system.

Later, in the aftermath of the 9/11 terror attack on the United States, FATF also added terror financing as a main focus area. This was broadened In 2012, to include restricting the funding of weapons of mass destruction.

The FATF currently has 39 members. The decision making body of the FATF is known as its plenary, which meets thrice a year. Its meetings are attended by 206 countries of the global network, including members, and observer organisations, such as the World Bank, some offices of the United Nations and regional development banks.

The FATF sets standards or recommendations for countries to achieve in order to plug the holes in its financial system and make it less vulnerable to illegal financial activities. According to the last update in 2012, FATF has 49 consolidated recommendations for countries to follow in order to set up an Anti-Money Laundering/Combating the Financing of Terrorism (AML/ CFT) regime.

The FATF conducts regular peer-reviewed evaluations called Mutual Evaluations (ME) of countries, starting with member countries, to check their performance on standards prescribed by it. The reviews are carried out by FATF and FATF-Style Regional Bodies (FSRBs), which then release Mutual Evaluation Reports (MERs). For the countries that don't perform well on certain standards, the FATF and FSRBs draw up time-bound action plans to fight financial crimes.