Financial Action Task Force Current Affairs

Financial Action Task Force places Pakistan in Grey List for failing to curb terror financing

The Financial Action Task Force (FATF) at its plenary meeting in Paris, France has officially placed Pakistan on its Grey List of countries involved in providing monetary assistance to terrorism and related causes for failing to curb terror financing on its soil. FATF also has laid out 10-point action plan for Pakistan for compliance with its guidelines. If Pakistan fails in implementing the elaborate action plan, it may result in being included in FAFT’s Black List in 2019. This will be second time Pakistan has been grey listed by FATF, for first time it was placed in the list for three years from 2012 to 2015.

Impact of Grey-listing

It will endanger Pakistan’s handful of remaining banking links to outside world, causing real financial pain to its fragile economy. It will squeeze Pakistan’s economy and make it harder to meet its mounting foreign financing needs, including potential future borrowings from International Monetary Fund (IMF). It will lead to downgrading of Pakistan’s debt ratings by international banking and credit rating agencies, making it more difficult to tap funds from international bond markets. It will also suspend international funds and aid to Pakistan such as Coalition Support Funds (CSF), money which US owes to Pakistan for military operations. It will lessen investors’ confidence in Pakistan and also impacts its imports and exports, widening its existing huge current account deficit (CAD).

Financial Action Task Force (FATF)

FATF is an inter‐governmental policy making body that aims to establish international standards for combating money laundering and terrorist financing. It was established in 1989 during the G7 Summit in Paris (France) to combat the growing problem of money laundering.

It comprises over 39 member countries including India. FATF Secretariat is housed at headquarters of OECD in Paris, France. Initially, FATF was only dealing with developing policies to combat money laundering. But in 2001 its purpose was expanded to act against terrorism financing.

Mandate

FATF sets standards and promote effective implementation of legal, regulatory and operational measures for combating money laundering, terrorist financing and other related threats to integrity of international financial system.

Functions

  • Sets international standards to combat money laundering and terrorist financing.
  • Assess and monitor compliance with the FATF standards.
  • Conducts studies of money laundering and terrorist financing methods, trends and techniques.
  • Responds to new and emerging threats, such as proliferation financing used for promoting proliferation of nuclear, chemical and biological weapons.

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Pakistan admits being added grey list of FATF

Pakistan has confirmed that it will be added on ‘grey list’ of the Financial Action Task Force (FATF) in June 2018, once an action plan is mutually negotiated. But it has disputed claims of being put on ‘black list’ from ‘grey list’, which are mainly non-cooperative countries. Earlier, Pakistan was on the FATF grey-list from 2012 to 2015.

Background

In February 2018 plenary session of FATF, US, UK, Germany and France had pushed for putting Pakistan on grey list for its ineffectiveness to deal Islamist terrorists especially Haqqani Network and its facilitators. FATF had decided to put Pakistan back on “grey list,” subjecting it to direct monitoring and intense scrutiny by the International Co-operation Review Group (ICRG) on terror financing, pending further review in June 2018. The FATF decision was by consensus, after days of closed-door discussions within the 37-member group.

Impact of Grey-listing

It will endanger Pakistan’s handful of remaining banking links to t outside world, causing real financial pain to the economy. It will squeeze Pakistan’s economy and make it harder to meet its mounting foreign financing needs, including potential future borrowings from International Monetary Fund (IMF). It will lead to downgrading of Pakistan’s debt ratings by international banking and credit rating agencies, making it more difficult to tap funds from international bond markets. It will also suspend international funds and aid to Pakistan such as Coalition Support Funds (CSF), money which US owes to Pakistan for military operations.

Financial Action Task Force (FATF)

FATF is an inter‐governmental policy making body that aims to establish international standards for combating money laundering and terrorist financing. It was established in 1989 during the G7 Summit in Paris (France) to combat the growing problem of money laundering.

It comprises over 39 member countries including India. FATF Secretariat is housed at the headquarters of the OECD in Paris. Initially, FATF was only dealing with developing policies to combat money laundering. But in 2001 its purpose was expanded to act against terrorism financing.

Mandate

FATF set standards and promote effective implementation of legal, regulatory and operational measures for combating money laundering, terrorist financing and other related threats to integrity of international financial system.

Functions

  • Set international standards to combat money laundering and terrorist financing.
  • Assess and monitor compliance with the FATF standards.
  • Conduct studies of money laundering and terrorist financing methods, trends and techniques.
  • Respond to new and emerging threats, such as proliferation financing used for promoting proliferation of nuclear, chemical and biological weapons.

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