Relevance: Mains: G.S paper II: Polity
Context: Financial Action Task Force (FATF) has asked Pakistan more questions on the action it has taken against madrassas run by proscribed outfits.
What is FATF?
The Financial Action Task Force (FATF) is an inter-governmental body established in 1989 on the initiative of the G7. It is a “policy-making body” which works to generate the necessary political will to bring about national legislative and regulatory reforms in various areas. The FATF Secretariat is housed at the OECD headquarters in Paris.
Objectives:
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.
What is blacklist and grey list?
FATF maintains two different lists of countries: those that have deficiencies in their AML/CTF regimes, but they commit to an action plan to address these loopholes, and those that do not end up doing enough. The former is commonly known as grey list and latter as blacklist.
Implications: Once a country is blacklisted, FATF calls on other countries to apply enhanced due diligence and counter measures, increasing the cost of doing business with the country and in some cases severing it altogether. As of now there are only two countries in the blacklist — Iran and North Korea — and seven on the grey list, including Pakistan, Sri Lanka, Syria and Yemen.
What is Dark Grey list?
According to FATF rules there is one essential stage between ‘Grey’ and ‘Black’ lists, referred to as ‘Dark Grey’.
‘Dark Grey’ means issuance of a strong warning, so that the country concerned gets one last chance to improve.
‘Dark Grey’ was the term used for warning upto 3rd Phase. Now it’s just called warning — that is the 4th phase.
Asia-Pacific Group on Money Laundering (APG):
FATF Asia-Pacific Group is one of the regional affiliates of the Financial Action Task Force.
The Asia-Pacific Group on Money Laundering works to ensure that all the countries adopt and implement the anti-money laundering and counter-terrorist financing standards that are set out in the FATF’s 40 Recommendations and Eight Special Recommendations.
APG assists countries in implementing laws to deal with crime, assistance, punishment, investigations; provides guidance in setting proper reporting systems and helps in establishing financial intelligence units.
At present, there are 41 members of APG. Of these, 11 countries are also the members of the head FATF – India, China, Australia, Canada, Hong Kong, Japan, Korea, Malaysia, New Zealand Singapore and the United States.
Key facts:
The FATF has kept Pakistan on the Grey List until February 2020.
In October, it had warned that Pakistan would be put on the Black List if it did not comply with the remaining 22 points in a list of 27 questions.
Pakistan is required to show effective implementation of targeted financial sanctions against all UN designated terrorists like Lashkar-e-Taiba founder Hafiz Saeed, Jaish-e-Muhammad founder Masood Azhar, and those acting for or on their behalf.
Analysis
FATF and its partners such as the Asia Pacific Group (APG) are reviewing Pakistan’s processes, systems, and weaknesses on the basis of a standard matrix for anti-money laundering (AML) and combating the financing of terrorism (CFT) regime.
Pakistan has been under the FATF’s scanner since June 2018, when it was put on the Grey List for terror financing and money laundering risks, after an assessment of its financial system and law enforcement mechanisms.
The timeline:
In June 2018, Pakistan gave a high-level political commitment to work with the FATF and APG to strengthen its AML/CFT regime, and to address its strategic counter-terrorism financing-related deficiencies.
Pakistan and the FATF then agreed on the monitoring of 27 indicators under a 10-point action plan, with specific deadlines. The understanding was that the successful implementation of the action plan, and its physical verification by the APG, would lead the FATF to move Pakistan out of the Grey List.
However, Islamabad managed to satisfy the global watchdog over just five of them.
After an extension of the deadline for compliance, on December 6, Pakistan submitted a report to the FATF containing answers to the remaining 22 questions.
In response, the FATF’s Joint Group has now sent 150 questions to Pakistan, asking for clarifications, updates, and actions taken against the madrassas.
What next for Pakistan?
For time being, Pakistan must respond by January 8, 2020. And at the next FATF meeting in Beijing, Pakistan will have an opportunity to defend the points in the report.
Seems that, Pakistan will likely ask for another relaxation of the deadline to ensure compliance with the remaining 22 action plans.
If Pakistan is actually moved out of the Grey List, it will be placed on the Black List with Iran and North Korea.