Pakistan Is Out Of FATF’s Grey List, What Does It Mean?

After more than four years, Pakistan’s name was removed from the  Financial Action Task Force (FATF) grey list on Friday. The decision was made at the end of the FATF plenary session, following a unanimous agreement by all 39 countries, including India, to accept a review of Pakistan's efforts to strengthen its anti-money laundering and counter-terror financing (AML&CFT) procedures.

Furthermore, the process has ensured that Pakistan's laws on AML and CFT are aligned with international laws and that UNSC-banned terrorists are pursued, which has resulted in the prosecution of several terror groups and leaders, including Lashkar-e-Hafiz Taiba's Saeed, 26/11 handler Sajid Mir, commander Zaki Ur Rahman Lakhvi and others.

The FATF declared on Friday, after a two-day plenary in Paris, that Pakistan has fully completed the 34-point action plan. A field visit by a FATF technical team confirmed the implementation.

What is FATF?

The FATF is an intergovernmental organisation that monitors global money laundering and terrorism financing. The intergovernmental group establishes international standards to prevent illicit actions and the societal harm they create. As a policy-making body, the FATF aims to build the political will needed to bring about national legislative and regulatory reforms in these areas.

Its relevance grew after 9/11 when its mandate broadened to include money laundering and terrorist financing. More than 200 countries and jurisdictions are currently committed to implementing FATF policies and reforms.

The FATF's central decision-making body, plenary, meets three times a year and the findings are approved by agreement by all 37 member states and two regional bodies (EU and GCC).

What are the FATF's 'black' and 'grey' listings?

The two names do not exist in official FATF nomenclature but are colloquial terms used to characterise the organisation's classification of countries.

The word "blacklist" refers to the FATF list of "High-Risk Jurisdictions subject to a Call for Action." North Korea, Iran and Myanmar are on the "blacklist." These countries' financial systems are seen to have "major strategic inadequacies," putting them at risk of becoming part of the wider international financial system and steps are being done to rectify them.

This "blacklist" category includes a tiny subset that is less stringent and just requires members to undertake extra due diligence steps proportionate to the risk posed by country-related faults.

A second public list includes countries with "strategic shortcomings" in anti-money laundering and counter-terrorism financing. When a country is designated as a "jurisdiction under heightened monitoring" by the FATF, it must complete an action plan by a certain deadline. This is known colloquially as "grey-listing."

Implications for Pakistan

The Economist observed in 2018 that when Pakistan was on the grey list from 2012 to 2015, there were no immediate economic consequences. Instead, Pakistan was able to secure a $6 billion IMF bailout package in 2013 and further funding in global debt markets in 2015.

The Economist also stated that "being placed on the grey list may have minimal impact on its own, but when combined with a deteriorating balance-of-payments position, it may compound economic issues for the government."

According to research published by the Pakistani think tank Tadbadlab, Pakistan's placement on the grey list from 2008 to 2019 may have resulted in $38 billion in cumulative GDP losses, with this response driven by a decrease in consumption expenditures, exports and foreign direct investment.

India's commitments to the FATF

The Ministry of External Affairs official spokeswoman, Arindam Bagchi said, “The FATF has been a significant and strategic measure for India in combating terrorism and dismantling the infrastructure that supports cross-border assaults. As a result of the FATF investigation, Pakistan was forced to take action against well-known terrorists, including those implicated in the 26/11 Mumbai attacks.”

The Ministry further said, "We understand that Pakistan will continue to collaborate with the Asia Pacific Group on Money Laundering (APG) to improve further its Anti Money Laundering (AML) and Counter Terror Financing (CFT) system."