India is working to bring Pakistan back into the FATF ‘grey list’ following the Pahalgam terror attack.

India’s Current FATF Strategy Post-Pahalgam Attack

• Move to Relist Pakistan:India plans to initiate the nomination process to relist Pakistan in the FATF grey list by presenting evidence of terror financing and illicit fund flows.
• Support from Member Countries: India has received condolence messages from 23 FATF member countries, including the US, UK, France, Germany, and Gulf nations, indicating potential support.
• Efforts at IMF: India is also planning to raise objections to Pakistan’s ongoing $7 billion IMF aid package, citing misuse of funds for terror activities.

About Financial Action Task Force (FATF)

• Establishment and Objective: FATF is an inter-governmental body established in 1989 during the G7 Summit in Paris to develop global policies to combat money laundering and terrorist financing.
• Secretariat and Membership: Its secretariat is located in Paris, France. It currently has 39 members, including two regional organizations—the European Commission and the Gulf Cooperation Council.
• India’s Membership: India became an Observer in 2006 and was granted full membership on June 25, 2010.
  • It is also a member of regional partners, the Asia Pacific Group (APG) and the Eurasian Group (EAG).
• Governance and Decision-Making: The FATF Plenary, the main decision-making body, meets three times a year (February, June, and October), and decisions are made by consensus. Any three members can exercise a “veto.”
• FATF’s Working Mechanism : FATF has 40 standards covering areas such as money laundering, terrorist financing, transparency, preventive measures, and international cooperation.
• Countries undergo periodic peer-reviewed evaluations to assess their compliance and effectiveness in anti-money laundering and counter-terrorism financing frameworks.

FATF Grey List and Black List

• Grey List Definition: Countries under increased monitoring that fail to adequately prevent money laundering and terrorist financing are placed on the FATF grey list.
  • Countries currently listed under gery list include Nepal, Mali,Syria, Yemen, etc. 
• Blacklist Definition: High-risk countries with serious strategic deficiencies are placed on the FATF blacklist and subjected to a call for action
  • Democratic People’s Republic of Korea, Iran and Myanmar are currently listed under black list.

Implications of FATF Listing

• Economic Sanctions: Countries on the grey or black list face economic sanctions from global financial institutions like the IMF, World Bank, and ADB.
• Reduced Financial Access: It becomes harder for these countries to access foreign loans and capital markets.
• Reduced FDI and Trade: Listings result in decreased foreign direct investment, limited portfolio flows, and overall international trade disruptions.
• Increased Financial Scrutiny: Countries must undergo enhanced due diligence processes, discouraging international businesses from engaging economically.

Pakistan’s FATF Grey Listing History

• Grey List Tenure: Pakistan was on the FATF grey list from June 2018 to October 2022.
• Impact on Terror Funding: The grey list status forced Pakistan to act against terror groups and reduce illicit financial flows into India, particularly Jammu and Kashmir.
• India’s View on Delisting: New Delhi had stated that delisting should be contingent on Pakistan taking verifiable, irreversible actions against terrorism emanating from its territory.

Challenges with FATF Implementation

• Voluntary Nature: FATF relies on voluntary implementation, as it has no enforcement authority.
• Transparency Issues:Decision-making processes are confidential, and proceedings are not made public.
• Political Influence: Political agendas can influence decisions, as seen with countries like China opposing moves against Pakistan.
• Evolving Criminal Tactics:FATF must keep up with innovations in financial crime, such as the use of cryptocurrencies, AI, and wildlife trafficking for terror funding.

Way Forward 

• Periodic Review of Standards:  FATF should continuously update its standards to address emerging financial crimes.
• Capacity Building for Developing Nations: Technical assistance and training should be provided to improve global compliance.
• Technology Integration: FATF should involve tech experts to address threats from cryptocurrency, AI, and cyberterrorism.
• Strengthen Global Coordination: Enhanced partnerships with international bodies like the UN and Interpol are needed for comprehensive counter-terror financing efforts.
• Transparency in Evaluation: Clear, public methodologies and assessments can improve the credibility and effectiveness of FATF actions.

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