One last chance to improve for Pakistan, on the verge of being included in the Dark-Grey List in FATF.

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What is the Financial Action Task Force [FATF]?

The Financial Action Task Force [FATF] is an intergovernmental body which works independently. The primary task of the FATF is to protect the domestic as well as the global financial system from unlawful activities like terror funding and money laundering. Therefore, this body looks towards ways and means to develop and promote policies for a sound global financial system. It assess all countries in the world on the parameter of their support or abstinence from terror funding and money laundering and places them in different lists. The FATF was established in the year 1989 in a summit held at Paris by the Group of Seven Countries [G-7]. It took off as an examining body meant to develop measures to combat money laundering. However, it later expanded its scope of work and welcomed efforts to combat terror funding and human trafficking as well. Now it is mandated to develop a system so that the financial domain of a country cannot be misused by terrorist organisation, terrorists and other anti-social element. However, as an international policy making body, FATF does not much power to advice the credentials on any work organisation. Moreover, it also does not have any powers related to enforcement, investigation or prosecution.

 

Black List and Grey List of FATF:

It works on the basis of creating international pressure on the countries by monitoring and assessing the financial activities of a country. Currently, FATF has two types of list- Grey List and Black List. The countries which are listed in the black list are considered uncooperative by FATF and is seen as a tax haven for terror funding. Alternatively, these countries are also known as the Non-CooperatiVe Countries or Territories (NCCTs). Therefore countries supporting terror or transactions of money-laundering are black listed in the FATF. The system of preparing a black-list has been on going at the FATF since 2000, with regular additions and modifications to the list. Apart from the black list, there is another list which is the grey-list. Grey-list comprises of those countries which are not considered as in support of terror funding or safe haven for money laundering. Therefore the inclusions in the grey-list is not very severe but rather serves as a warning given to a particular country regarding their activities with regard to money laundering and terror funding. If despite inclusion in the grey list, a country is unable to curb the mushrooming of terror funding as previously warned about, it is shifted from the grey list to the black-list with Iran and North Korea. When a country is included in the grey-list, it can face severe problems like international institutions like IMF and World Bank putting economic sanctions, problem in obtaining loans from financial institutions, overall reduction in international trade, boycott by other international players etc.

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Pakistan included in the Dark-Grey List again after 2015 and 2018:

This is not the first time for Pakistan to be included in the Grey list. It has been classified as such twice before in 2012 and 2018. The International Cooperation Review Group (ICRG) of the FATF nominated Pakistan in February 2018 for its inclusion in the grey list. The major proponents supporting its inclusion in the grey list are India, United States and United Kingdom, while China and Turkey were against such an inclusion. On its nomination, Pakistan was asked to come up with a plan addressing the concerns by the international body to avoid being shifted to the black-list. However, recently it has been again included in the grey-list and is now susceptible to strong action by the financial watchdog, FATF. There are chances of the country be given the last warning and its inclusion in the Dark Grey list because on no action on its part. In the ongoing plenary of the FATF, there have been indications that because the country has not taken enough initiatives, it might be isolated by other members of the body. Dark Grey is an essential stage between Grey and Black lists of the international body. In 2018, a plan of action was suggested for the country with a total of 27 items were suggested to Pakistan earlier, of which it has been able to pass only six, resulting in grossly inadequate performance.

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Unwelcome Trade Sanctions for Pakistan:

The final decision of the FATF on the status of Pakistan and its inclusion in either of the lists will be declared by 18th October this year. Dark-Grey list indicated that there is a strong issuance of warning, giving the country a last chance to act on the suggested measures. The phrase ‘Dark Grey’ indicates warning up to the 3rd phase. It is anticipated that the continued presence of the country on the Dark Grey list will make it very difficult for it to obtain any financial aid from the IMF, World Bank or European Union, adding more difficulties to its already precarious financial condition.                                                                                                                                          

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