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‘FATF's keeps Pakistan on 'Enhanced Follow-up List'’

  • Category
    India & world
  • Published
    21st Oct, 2020

Noting that Pakistan's measures against money laundering and terror financing "is not yet sufficient to justify a re-rating", a regional affiliate of the Financial Action Task Force retained the country on its ''Enhanced Follow-up'' list.

Context

Noting that Pakistan's measures against money laundering and terror financing "is not yet sufficient to justify a re-rating", a regional affiliate of the Financial Action Task Force retained the country on its ''Enhanced Follow-up'' list.

About

What is Enhanced follow-up list?

  • ''Enhanced follow-up'' is an intensive process of correction that deals with members with significant deficiencies (for technical compliance or effectiveness) in their AML/CFT systems.
  • The list concluded that Pakistan’s progress on the 40 FATF recommendations on the effectiveness of anti-money laundering and combating financing terror (AML/CFT) system largely remained unchanged from a year before.
  • While Pakistan was found to be “partially compliant" on 25 of 40 recommendations, it was found to be “non compliant" on four, “largely compliant" on nine parameters and “fully complaint" on one.

About FATF

  •  The Financial Action Task Force (FATF) was established in July 1989 by a Group of Seven (G-7) Summit in Paris, initially to examine and develop measures to combat money laundering. 
    • In 2001, the FATF expanded its mandate to incorporate efforts to combat terrorist financing, in addition to money laundering. 
    • In 2012, it added efforts to counter the financing of proliferation of weapons of mass destruction.
    • Three decades after its, creation, in April 2019, FATF Ministers adopted a new, open-ended mandate for the FATF. 
  •  The objectives of the FATF are to set standards and promote 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.
  • FATF has two types of lists:
    • Black List: Countries that are supporting terror funding and money laundering activities are placed in the Blacklist.
    • Gray List: Those countries which are not considered as the safe heaven for supporting terror funding and money laundering; included in this list. The inclusion in this list is not as severe as blacklisted.

Background

  • FATF had placed Pakistan on its grey list in June 2018 and asked Islamabad to implement a plan of action to curb money laundering and terror financing by the end of 2019 but the deadline was extended later on due to COVID-19 pandemic.
  • Seeking to wriggle out of the FATF's grey list, debt-ridden Pakistan in August imposed financial sanctions on 88 banned terror groups and their leaders, including 26/11 Mumbai attack mastermind and Jamaat-ud-Dawa (JuD) chief Hafiz Saeed, Jaish-e-Mohammed (JeM) chief Masood Azhar and underworld don Dawood Ibrahim.
  • In February, the FATF gave Pakistan, which missed 13 targets, a four-month grace period to complete its 27-point action plan against ML&TF committed with the international community.
  • In its third plenary held virtually in June, the FATF decided to keep Pakistan in the grey list as Islamabad failed to check flow of money to terror groups like Lashkar-e-Taiba (LeT) and Jaish-e-Mohammed (JeM).

The APG Evaluation

  • The APG Mutual Evaluations is a peer-review system to determine whether countries meet the compliance standards for money laundering and terror financing.
  • After a country submits a Mutual Evaluation report, APG members can decide to place a member either through regular or enhanced follow-up.
  • While a regular follow-up means just biennial reports, a country put under enhanced follow-up has to send four reports of compliance the following year.

Asia/Pacific Group on Money Laundering (APG) 

  • The Asia/Pacific Group on Money Laundering (APG) is a FATF style regional inter-governmental (international) body, the members of which are committed to implement international standards against money laundering (AML), the financing of terrorism (CTF) and financing the proliferation of weapons of mass destruction.
  • APG was founded in 1997 in Bangkok, Thailand.
  • Currently, it consists of 41 member jurisdictions in the Asia-Pacific region and a number of observer jurisdictions and international/regional observer organisations.

Impact of Continuation

  • Continuation on the “gray list" means it becomes increasingly difficult for the countries to get financial aid from the International Monetary Fund (IMF), World Bank, Asian Development Bank (ADB) and the European institutions.
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