What is the Financial Action Task Force (FATF)?

Many of us have heard about Pakistan being on the grey list or that Pakistan can be blacklisted by the FATF. These are the common terms that one hears in context to terrorism. But what does FATF mean? What does one mean by saying that a country is on the grey list of FATF? Read on to find out.

What is FATF?

Financial Action Task Force (FATF), an intergovernmental organization, is responsible for making decisions and policies to fight financial crime. It was established in Paris during the 1989 G7 Summit and is still known as the Groupe d’action Financiere in Paris. It is responsible for developing policies against money laundering and terrorist financing. It acts as a “policy-making organization” and works to create the political will necessary to implement national regulatory and legislative reforms in money laundering.

FATF sets certain standards, promotes effective implementation of legal, regulatory, and operational measures to combat money laundering. It also works to identify national-level vulnerabilities in order to protect the international financial system. FATF was originally established to fight money laundering. Today, it has been expanded to deal with virtual currencies and targets corruption, financing weapons, and terrorist financing. All developed countries support FATF today or its members.

Why was FATF Set Up?

International trade was growing rapidly, which led to money laundering and other financial crimes. To combat financial crime, review members’ policies and procedures, and increase acceptance of anti-money laundering regulations across the globe, the Financial Action Task Force (FATF) was established. 

Money launderers and other criminals change their methods from time to time to avoid being caught. Therefore, the FATF must update its recommendations every few years.

In 2001, a list of recommendations was created to combat terrorist financing. The latest update where the recommendations have been expanded to address new threats such as financing the spread and financing of weapons of mass destruction was published in 2012. To improve transparency and reduce corruption, additional recommendations were added.

How Many Countries are Members of FATF?

There are 39 members in the Financial Action Task Force as of 2021, including 37 jurisdictions and two regional organizations (the Gulf Cooperation Council and the European Commission). This includes the United Nations and World Bank as well. A country must meet internationally accepted financial standards and participate in important international organizations to be a member of FATF. Additionally, it must also be strategically important to become a member. It must have:

• Large population
• Developed banking and insurance sector
• Large GDP, etc.

A country or organization that becomes a member must endorse and support the FATF’s most recent recommendations. It also has to agree to be evaluated by other members and collaborate with FATF to develop future recommendations.

A large number of international organizations participate in the FATF as observers. Each of these organizations has some involvement with anti-money laundering activities. These organizations include:

• International Monetary Fund (IMF)
• Interpol
• Organization for Economic Cooperation and Development
• World Bank

FATF on Terror Financing

After the September 11th terrorist attacks in the USA, the FATF’s role was made more prominent. Its mandate was expanded to include terrorist financing in 2001. Financing terrorist financing means providing financial support or money to terrorists.

FATF maintains two types of lists.

Black List: Countries that are known as Non-Cooperative Countries and Territories (NCCTs) are placed on the blacklist. These countries are known to support terrorist funding and money laundering. The FATF regularly updates the blacklist, adding or removing entries. As of 2019, FATF has blacklisted North Korea and Iran over terror financing. 

Grey List: These are countries that are safe havens for money laundering and terrorist funding. This is a warning to the country about the possibility of it being added to the blacklist. Twelve countries are on the grey list, namely: 

• Botswana
• Bahamas
• Cambodia
• Ethiopia
• Ghana
• Pakistan
• Panama
• Sri Lanka
• Syria
• Trinidad and Tobago
• Tunisia
• Yemen

FATF and Pakistan

Since June 2018, Pakistan has been on the FATF gray list. It has been requested to implement the FATF Action Plan by September 2019 fully. It was also in the same category between 2012 and 2015. Pakistan’s inclusion in the grey list can be attributed to the fact that the country’s anti-terror laws are still not in line with FATF standards and also with the latest UN resolution 2462 that pitches for criminalizing terrorist financing. In the past, Pakistan has mainly detained Masood Azhar as well as Hafiz Saeed to ‘apprehend’ breach of peace. The FATF seeks to freeze funds, deny weapons access, and ban travel to Pakistan for funding terrorism.

Although LeT and JeM cadres were arrested, all were apprehended according to the country’s Maintenance of Public Order Act, not the Anti-Terrorism Act of 1997. Consequences of being on the FATF grey list for Pakistan are:

• Economic sanctions from IMF, World Bank, ADB 
• A problem in obtaining loans from IMF, World Bank, ADB, and other countries
•  Reduction in international trade
• International boycott

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