Financial Action Task Force (FATF)

• Context (IE): India intensified its push to re-list Pakistan on the FATF grey list following the April 2025 Pahalgam terror attack to curb cross-border terror financing.

About Financial Action Task Force (FATF)

• Formation: Established in 1989 by the G7 for anti-money laundering (AML) and later expanded (2001) to counter terrorist financing (CTF).
• Function: FATF monitors countries to ensure compliance with its 40 Recommendations.
  • The FATF’s framework is designed to help countries tackle illicit financial flows, with recommendations covering policies, money laundering, terrorist financing, preventive measures, transparency, and international cooperation.
• Key Areas: AML/CTF policies, terrorist financing, preventive measures, transparency, powers of competent authorities, and international cooperation.
• Jurisdictions: Includes 40 members, comprising 38 jurisdictions and two regional organisations (Gulf Cooperation Council, European Commission). India became a member of FATF in 2010.
• Headquarters located at the OECD in Paris.

Types of lists maintained by FATF

Grey List

• Countries under increased monitoring due to strategic deficiencies in combating money laundering and terrorist financing.
• These countries work with FATF to resolve deficiencies. Countries that are considered a safe haven for supporting terror funding and money laundering are put on the FATF grey list.
• This inclusion serves as a warning to the country that it may enter the blacklist.

Impact of FATF’s Grey List

• Financial Consequences: Countries on the grey list face heightened scrutiny, leading to increased due diligence by international businesses and financial institutions. This impedes foreign investments and restricts financial flows into such countries.
• Enhanced Monitoring: Countries on the grey list are subject to rigorous monitoring by FATF to ensure compliance with the 40 Recommendations.

Black List

• Jurisdictions with serious strategic deficiencies, where countries are urged to apply counter-measures.
• Countries known as Non-Cooperative Countries or Territories are put on the blacklist.
• These countries support terror funding and money laundering activities.
• As of February 2025, North Korea, Iran, and Myanmar are on the black list.

Consequences of being on the FATF blacklist

• No financial aid is given to them by the IMF, World Bank, Asian Development Bank (ADB) etc.
• They also face a number of international economic and financial restrictions and sanctions.

FATF Mutual Evaluations and Reports

• FATF conducts in-depth evaluations to assess a country’s anti-money laundering and counter-terrorism financing systems.
• India’s Evaluation: After the September 2024 evaluation, India was placed in the “regular follow-up” category, indicating good progress but highlighting areas for improvement, such as strengthening prosecutions in money laundering and terrorism financing cases.

FATF’s Assessment and Pakistan’s Compliance

• Risk Areas: FATF identifies risks related to terrorist groups such as those linked to Islamic State and Al-Qaeda, particularly in regions like Jammu and Kashmir.
• Actions Post 2018: While Pakistan made efforts to comply with FATF’s recommendations, India believes these measures are insufficient, especially considering the continuation of cross-border terrorism.