Context

Ahead of the plenary session of the Financial Action Task Force (FATF), the global financial crime watchdog, from June 14 to 17 in Berlin, Pakistan which continues to face an economic crunch, is hoping for some respite in the form of its removal from the FATF’s ‘grey list’ or the list of countries presenting a risk to the global financial system.

About

What is the FATF?

1. International watchdog for financial crimes -The Financial Action Task Force is an international watchdog for financial crimes such as money laundering and terror financing.
2. Address loopholes in the global financial system -It was established at the G7 Summit of 1989 in Paris to address loopholes in the global financial system after member countries raised concerns about growing money laundering activities.
3. Sets standards or recommendations for countries -The FATF sets standards or recommendations for countries to achieve in order to plug the holes in their financial systems and make them less vulnerable to illegal financial activities.

What are FATF’s ‘grey’ and ‘black’ lists?

1. Reason for the list- While the words ‘grey’ and ‘black’ list do not exist in the official FATF lexicon, they designate countries that need to work on complying with FATF directives and those who are non­compliant, respectively.
2. Grey list- The grey countries are designated as “jurisdictions under increased monitoring”, working with the FATF to counter criminal financial activities. For such countries, the watchdog does not tell other members to carry out due­diligence measures vis­a­vis the listed country but does tell them to consider the risks such countries possess. Currently, 23 countries including Pakistan are on the grey list.
3. Black list- As for the black list, it means countries designated as ‘high­risk jurisdictions subject to call for action’. In this case, the countries have considerable deficiencies in their AML/CFT (anti­money laundering and counter terrorist financing) regimens and the body calls on members and non­members to apply enhanced due diligence. In the most serious cases, members are told to apply counter­measures such as sanctions on the listed countries. Currently, North Korea and Iran are on the black list.

Why is Pakistan on the grey list?

1. Terror Financing- Pakistan was retained on the grey list in March as it was yet to address concerns on the front of terror financing investigations and prosecutions targeting senior leaders and commanders of UN designated terrorist groups.
2. Progression so far-It was taken off the list in 2015 owing to its progress but was put back on it in 2018. It was given a 27­point action plan to restrict terror financing activities. After warnings and two deadline extensions on the first plan, Pakistan was prescribed another seven­point action plan by the APG in 2021.
3. Current situation- Pakistan is currently banking on its potential exclusion from the grey list to help improve the status of tough negotiations with the International Monetary Fund to get bailout money.