Financial Action Task Force (FATF): Establishment and Objective

Introduction

The Financial Action Task Force (FATF) is an intergovernmental organization established in 1989 to combat money laundering, terrorist financing, and other threats to the integrity of the international financial system. Financial Action Task Force (FATF) sets global standards and promotes effective implementation of measures to prevent illicit financial activities. It conducts assessments of countries’ anti-money laundering and counter-terrorist financing systems, and issues recommendations, and guides to enhance compliance with international standards. 

Establishment and Objective of Financial Action Task Force (FATF): 

• Established in 1989 as a global money laundering and terrorist financing watchdog.
• Evolution of Mandate: Originally formed to combat money laundering, it expanded its mandate after the 9/11 attacks to include efforts against terrorist financing. 
  • Later, efforts to counter the financing of Weapons of Mass Destruction (WMD) were added in 2012.
• Sessions and Decision-Making:Financial Action Task Force (FATF) Plenary is the decision-making body, meeting three times per year to discuss Mutual Evaluation Reports (MERs) of countries.
• Countries with major deficiencies in their Anti-Money Laundering/Combating the Financing of Terrorism (AML/CFT) regimes are listed under “jurisdictions under increased monitoring” (grey list) or “high-risk jurisdictions” (black list).
• Membership: Currently, a 39-member body representing major financial centers globally.
  • Includes two regional organizations: the European Commission and the Gulf Cooperation Council.
• Members: Argentina, Australia, Austria, Belgium, Brazil, Canada, China, Denmark, Finland, France, Germany, Greece, Hong Kong (China), Iceland, India, Ireland, Israel, Italy, Japan, Republic of Korea, Luxembourg, Malaysia, Mexico, Netherlands, New Zealand, Norway, Portugal, Russia, Saudi Arabia, Singapore, South Africa, Spain, Sweden, Switzerland, Turkey, the UK, and the US.
• India’s Association: India joined as an observer in 2006 and became a full member in 2010.
  • Additionally, India is part of its regional partners, the Asia Pacific Group (APG) and the Eurasian Group (EAG).
  • Observers: Indonesia is the sole observer country of the Financial Action Task Force (FATF).
• Observer: Organizations with observer status include the Asian Development Bank (ADB), International Monetary Fund (IMF), Interpol, and the World Bank, among others.
• Financial Action Task Force (FATF) President: TheFinancial Action Task Force (FATF) President is appointed by the FATF Plenary and serves as the principal spokesperson for the organization.
  • Term begins on July 1 and ends on June 30 two years after assuming office.
  • As of July 2022, T. Raja Kumar from Singapore holds the position.
• Financial Action Task Force (FATF) Secretariat: Located at the OECD headquarters in Paris, it supports the substantive work of the Financial Action Task Force (FATF) membership and global network.
• Grey and Black Lists:
  • Grey List: Includes countries considered safe havens for supporting terror funding and money laundering, serving as a warning.
  • Black List: Comprises Non-Cooperative Countries or Territories (NCCTs) supporting such activities. 
    • As of now, Iran, North Korea, and Myanmar are on the blacklist.
• Consequences of Enlistment: Countries on the lists face economic sanctions, loan difficulties, trade reductions, and international boycotts.
• India-Pakistan andFinancial Action Task Force (FATF): Recently, FATF removed Pakistan from the grey list after four years, citing significant progress.
  • Pakistan’s removal followed the submission of “documentary evidence” of its actions against designated terrorists.
  • India agreed to the decision, signifying international acknowledgment of Pakistan’s efforts against terrorist financing.

Conclusion

• The Financial Action Task Force (FATF) has significantly evolved its mandate since its inception, expanding from combating money laundering to addressing terrorist financing and the financing of Weapons of Mass Destruction (WMD). 
• These expansions highlight the Financial Action Task Force (FATF)’s commitment to enhancing global efforts to combat financial crimes and safeguard the integrity of the international financial system.
• Various initiatives have been undertaken to disrupt and deter money laundering activities, ultimately strengthening the integrity of the global financial system and safeguarding against illicit financial flows.