Tag: Grey list

Explained: Grey list of FATF

Reading time: 6-8 minutes.

Pakistan, over the years, has been involved in various activities that promote terrorism. One of the most popular actions followed by Pakistan is terror funding across the globe. To combat these terror funding policies of Pakistan, it was put on the ‘grey list’ of the Financial Action Task Force (FATF) in June 2019 and had to comply with 27 actions till October 2019 to come out of the grey list. Pakistan was able to comply with only five actions and therefore an extension till February 2020 was given.

At the plenary meeting of FATF in Paris from February 16-21, 2020, it is to be decided whether Pakistan will remain on the grey list or move to the white list. As per the sources, Pakistan will likely continue to remain in the grey list of the FATF as it is still not complaint of 13 of the 27 actions put forward to it.

Significance of the development

It is to be noted that Pakistan has been funding terror groups like the Lashkar-e-Taiba (LeT), the Jaish-e-Mohammad (JeM) and the Hizbul Mujahideen which are responsible for causing a series of attacks on India and thus spreading terrorism across the globe. The FATF laid down an action plan comprising of 27 actions that Pakistan had to comply with to combat the terror funding practices. Even after being given an extension Pakistan has complied with only 14 of the 27 actions, most of which are money laundering actions and not combating terror funding.

The main objective behind keeping Pakistan in the grey list is to stop funding to terrorist organizations. The economy of Pakistan is already in a slump and if it is continued to be on the grey list, it will force Pakistan to take action against the funding to terror organizations like the LeT and the JeM.

If Pakistan continues to act in the same way as it is doing today, it might as well be placed in the black list by the FATF. To avoid a lot of pressure at the plenary meeting, Pakistan just a week before the meeting, sentenced the LeT chief Hafiz Saeed on terror financing charges and arrested him. This action was taken on the eve of the plenary meeting which is an important point to be noted.

The efficacy of this decision will be noted only after the plenary meeting is over. However, the most important thing that has to be taken care of is that whether Pakistan would take similar actions against other terrorist entities operating under its control or not.

FATF: Powers and functions

The Financial Action Task Force (FATF) is an inter-governmental body established in 1989 by the Ministers of its Member jurisdictions. The FATF is a body that promotes and develops policies to protect the global financial system from misuse by terrorist organizations and other miscreants.

The main objective of the FATF is set standards that promote effective implementation of the legal, regulatory and operational measures to combat international problems of money laundering, terrorist financing and other threats to the international financial system. The FATF makes policies that work towards generating the will to bring about a change in these areas.

Therefore, it can be said that the FATF is a policy-making body that gives recommendations and suggestions which are recognized as an international standard for combating various problems like money laundering, terror funding, and proliferation of weapons of mass destruction.

the FATF currently comprises of 37 member jurisdictions and 2 regional jurisdictions that represent the major financial centers in all parts of the globe. India became a member of the FATF in 2010. Preventing money laundering is one of the most important functions of the FATF.

The FATF monitors the progress of its members in implementing necessary measures to combat money laundering and reviews the terrorist funding activities and gives measures to promote the adoption and implementation of such measures globally. The FATF’s decision making body meets three times in a year and the meeting is known as the FATF Plenary Meeting.

Grey list of the FATF

The Financial Action Task Force (FATF) has two types of lists: Black List and Grey List. Countries that support terror funding and are rigorously involved in money laundering activities are placed in the Black List. These countries are considered to be non-cooperative in the global fights against terror funding and money laundering.

The Grey List is not as severe as the Black List. The countries which are not considered as a safe heaven for supporting terror financing and money laundering activities are included in this list. The placement of countries in the Grey List serves as a warning to them that they might be included in the Black List and they are given a chance to combat these problems and mend their ways. If the country fails to curb the practices of terror funding and money laundering it is transferred from the Grey List to the Black List.

Significance of being placed in the Grey list

When a country is placed in the grey list, it faces various international problems like denial of getting economic sanctions from organizations like the International Monetary Fund, World Bank, ADB, and other countries.

The country also faces an issue in getting loans from international institutions like IMF, World Bank, ADB, etc and this causes a slump in the economy of the country.

The country also faces an overall reduction in international trade which comes as a direct consequence of the international boycott.

When a country is placed in the grey list and faces these problems, it puts a pressure on the government of that country to act quickly to combat terror funding and money laundering so that they can preserve the economy of their country which if the same continues would fall and lead to various internal problems like inflation and scarcity of resources.

Although the FATF is only a task force and not an international treaty that could make its measures binding on the countries, it is listing of any country harms that country as the country then struggles to gain financial support and international support and it becomes difficult for that country to survive in the international arena.

Conclusion

The Financial Action Task Force (FATF) is an organization that is working effectively to control the money laundering activities and terror funding to ensure that the international finances do not falter and the safety and security are maintained. The black list and grey list are very effective in bringing about a change by making countries work harder towards achieving international peace and solidarity. As we have seen in the case of Pakistan, the country has been given several extensions and after the completion of every extension period, it is completing more and more actions towards ensuring the combating of terror funding.

It can be concluded that once the economy of a country comes under threat, the country will work as much as it can to ensure that it is not involved in activities that can stop the loans and sanctions due to their actions.

The FATF is a great policy-making organization and its recommendations are bringing a change in the current scenario of terror funding and money laundering.

Author: Nivedita Guliani from Symbiosis Law School, NOIDA.

Editor: Tamanna Gupta from RGNUL, Patiala

Analysis: Retention of Pakistan in grey list

Reading time: 6-8 minutes.

The Financial Action Task Force (FATF), the international money laundering watchdog, is to closely scrutinize Pakistan’s progress record on curbing money flows to terrorists and terrorist organizations when it meets in Paris next week.

Three votes were required to avoid black-listing and Pakistan gathered the desired votes from its allies Malaysia, Turkey and the chair itself(China) voted to keep Pakistan out of the black list and the chances of Pakistan being in the grey list are were nil.

Background of this development:

The Asia Pacific Group on Money Laundering discovered a lot of gaps in the efforts being to curb the flow of finances to the various terrorist groups and reduce the activities of various UN-terrorist groups.

Also a stern warning was issued to the Pakistan Government because of its poor performance in the grey list and it was warned of being black listed by the global watchdog that would definitely be impacting its fragile economy.

It has been granted time till February 2020 to improve its activities otherwise high chances of Pakistan exiting the grey list. Pakistan was placed in the grey list in June 2018 by the Financial action task force for its inability to control the anti terror financing inspite of its political and diplomatic tricks to avert the action.

However after an on the site assessment by the FATF in October 2018 of the steps taken by Pakistan to curb the terror funding and money laundering, it was decided to delist Pakistan in the September 2019.

 But after the assessment it was noticed that Pakistan was able to achieve only 5 tasks out of 27 tasks given to it. However it with its allies Turkey and Malaysia and the chair China was able to gather the desired votes to avoid being blacklisted.

Pakistan had been there on the FATF grey list from 2012-2015. The presence of Pakistan in the grey list will make it difficult for the Pakistan to seek aid from the International Monetary Fund, World bank and European Union.

FATF and its functions:

The Financial Action Task Force (FATF) better known in French as Groupe d’action financiere(GAFI) an intergovernmental organisation established in 1989 as initiated on the efforts of G7 countries in order to develop policies to curb money laundering further the mandate was to combat the terror funding too.

The progress is monitored through the reviews and assessment of the member countries. The secretariat is located at Paris. It consists of 37 members and two regional organizations including the European Commission and the Gulf Cooperation Council.

The Task Force was assigned with the job of analyzing the money hoarding techniques and trends further examining the plans initiated at national or international level and further chalking out ways of combating money laundering. The Task force to further aid to its goals launched a report containing Forty Recommendations that intended to provide with a plan to fight against money laundering.

The objectives of the FATF are to set standards and promote effective implementation of legal, regulatory and operational measures for combating money laundering, terrorist financing and other related threats to the integrity of the international financial system

The FATF monitors the progress of its members in implementing necessary measures, reviews money laundering and terrorist financing techniques and counter-measures, and promotes the adoption and implementation of appropriate measures globally.  In collaboration with other international stakeholders, the FATF works to identify national-level vulnerabilities with the aim of protecting the international financial system from misuse.

Significance of grey list and other lists:

FATF has namely two lists which are primarily the black list and the grey list.

  • BLACK LIST

It is also known as the ‘call for action’ .Those countries form a part of Black List are that which are considered the havens for terror funding. These are often called as Non-cooperative Countries or Territories (NCCTs). The countries instead of curbing the terror funding and money laundering are supporting the activities are included in the Black List.

The List was launched in 2000 and the countries are judged as the non-cooperative in the fight against terror funding and money hoarding. The List is updated by adding or deleting entries.

  • GREY LIST  

It is commonly referred to as the “other monitored jurisdictions”. These countries are enroute to become the part of black list if they don’t combat the terror funding and money laundering and it serves as warning to the country that it might be soon included in the black list.

The consequence that might be faced by the countries including problems in getting economic sanctions and loans from international institutions such as (IMF,World Bank, ADB), further leading to complete reduction in the international trade and further boycott by the other nations.

Criticism:

Though Pakistan has not been able to combat terrorism funding and money laundering since last many years and still the infiltration from Pakistan continue but with the help of its allies Pakistan escaped Black-listing. It was only able to achieve 5 targets out of 27 and it has been given four months’ time to achieve otherwise it would become a part of the black list. The need is to blacklist it of it is unable to achieve the set standards within the set time frame.

Conclusion: The way forward

Though the FATF is not a legally empowered body international body to impose sanctions like UN Security Council or European Union. G-7 established FATF in 1989 only as an expert inter-governmental body for setting global standards on anti- money laundering (AML), countering financing of terrorism (CFT) and proliferation of Weapons of mass destruction (WMD).

The public statement to be issued by the Task Force advising its members about the counter-measures to save the financial system from the money hoarding or money supply for terrorist activities from the countries. The countries making to the Black list were North Korea and Iran however N. Korea crawled up the list in June 2016.

Though Pakistan hasn’t reached the Public statement stage but has begun to be a threat. If it fails to achieve the full action plan by February 2020 it would face serious consequences also it won’t be given any extensions.

–This article is brought to you in collaboration with Harsh Gupta from Symbiosis Law School, Noida.