What is FATF Blacklisting?
Financial Action Task Force (FATF) is an inter-governmental body that sets legal, operational, and regulatory, standards and norms to combat terror financing, money laundering, and other associated threats to maintain the integrity of the global financial system. Established in 1989 by G7 members and few other member nations, FATF provides policy suggestions for fighting the crimes mentioned above and the proliferation of mass-destruction weapons.
Countries that do not adhere to the standards and norms set by FATF are issued sanctions and are put on Blacklist. Blacklist includes countries that do not comply with the set norms and support money laundering activities, terror financing and other such activities. These countries are called Non-Cooperative Countries or Territories (NCCTs). Currently, North Korea and Iran are on FATF Blacklist.
Greylist countries are those that are a growing threat to international financial security because of the ongoing terror financing and money laundering activities. Greylisting is a warning. A country that fails to put curbs on the mentioned activities, is shifted to Blacklist.
A Greylisted country might face these restrictions:
- Economic sanctions from supranational bodies like World Bank, International Monetary Fund, etc.
- Loan curbs from supranational bodies.
- Trade curbs by FATF member nations and other nations.
- General international curb.
In June 2018, FATF put Pakistan on the Greylist and asked it to strengthen its structural and regulatory environment to properly identify, assess, and combat Anti-Money Laundering (AML) and Combating Financing of Terrorism (CFT). FATF presented Pakistan with a 27 point Action Plan, the covering or compliance of which before October 2019 would decrease chances of Pakistan being added in the Blacklist. As of mid-2019, Pakistan did not comply with 25 of 27 action points that included regulatory and legal action against terrorist group leaders, money laundering, and terror financing.
This is not the first time Pakistan is under Greylist. In 2008 and from 2012-15, Pakistan was on the Greylist. In the current greylist period, Pakistan might face the risk of downgrading its credit score by international agencies like Moody’s and Fitch. FATF member nations and other world nations might impose a trade restriction on Pakistan. Economic sanctions could be placed by the World Bank, IMF, etc.
After Pakistan failed to comply with the October 2019 deadline, it was given an extension of another 4 months after which in a FATF meet at Paris, Pakistan’s fate was decided. In the FATF meet in Paris, the organization noted that Pakistan has made progress on 14 of the 27 action plans. Pakistan had sentenced LeT leader Hafiz Saeed a few days before the FATF meeting. With the vote of countries like Malaysia and Turkey, Pakistan saved itself from going to the Blacklist. However, if Pakistan is not added back to the Whitelist before April 2020, it would automatically be blacklisted.
India has been staunch on blacklisting Pakistan after the Pulwama and Balakot attacks. India has alleged Pakistan of financing terrorist groups like Jaish-e-Mohammed (JeM), Lashkar-e-Taiba (LeT), and Hizbul Mujahideen (HM). US has been putting a lot of pressure on Pakistan as part of US’s agenda to curb terrorism.
China, which is also the chair of the FATF, had always backed Pakistan in FATF. However, China along with Saudi Arabia seems to have aligned with US, European Union, and India to put a leash on Pakistan’s money laundering and terror financing activities.