Financial Action Task Force (FATF)

Never Miss an Important Update! Assured Discounts on New Products!

Table of contents

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.

Terrorist financing refers to the process of funding terrorist groups to support their operations. It differs from money laundering in that funds are directly allocated to support terrorism.

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.

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.

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.

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 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.

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.