Mint Explainer: What does Pakistan’s exit from FATF gray list mean for the world

FATF is one of the alphabet soup of international organizations that act as nodes of coordinating national conduct to enable international coordination in a globalized world of interdependence of nations. Think World Trade Organization (WTO), Financial Stability Board (FSB), Bank for International Settlements (BIS), International Court of Justice (ICJ), International Organization of Securities Commissions (IOSCO), International Labor Organization. (ILO) etc. Countries voluntarily give some part of their sovereignty to accept the norms set by these organizations, not because they have to, but because other countries may find it difficult to transact with them if they do so. Decide to march on unique beats.

The FATF was established following a decision by the G7 (Group of Rich, Pro-Western Countries, US, Japan, Germany, France, Britain, Italy and Canada) at the 1989 Paris meeting to find ways to combat money laundering. In 2001, following the 9/11 attacks on the US, the body’s mandate to combat the financing of terrorism was extended. In 2012, an investigation into the funding of nuclear proliferation was added to its functions. It is housed in the secretariat of the Paris-based Organization for Economic Co-operation and Development, but is completely separate from the OECD.

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Membership and Coverage

Originally, it consisted of G7 countries, the European Commission and eight other states, but its membership increased to 39, with 37 nations and two regional organisations, the European Commission and the Gulf Cooperation Council. It has an observer (as is common with other international organizations, the path to membership goes through becoming an observer), Indonesia. Its associate members are: regional organizations such as the Asia Pacific Group that work to advance the FATF agenda in various regions of the world; and many associate supervisors, mostly financial organizations. Apart from most of the larger economies, India is a member, as is China. Pakistan is not a member, but is one of more than 200 countries that have signed up to comply with FATF norms and are observed by FATF-style regulatory bodies, such as the Asia Pacific Group.

What does FATF do?

Its task is to “set standards and promote the effective implementation of legal, regulatory and operational measures” to prevent money laundering, combat terror financing, and check the financing of nuclear proliferation.

Its members hold plenary meetings three times a year in a rotating, two-year presidency. The current President is from Singapore. The FATF conducts so-called “Mutual Evaluation Reports” that identify vulnerabilities and recommend measures to address them. FATF-style regulatory bodies conduct such reviews for countries in their jurisdiction and notify the FATF of their findings. The FATF has worked on the FATF. Recommendations, International Anti-Money Laundering and Combating the Financing of Terrorism and Proliferation (AML/CFT) standards, and the FATF methodology for assessing the effectiveness of the AML/CFT system.

Countries that are found to be lacking in their preparedness or ability to meet its standards are placed under one of two categories: jurisdictions under increased surveillance (countries on the so-called gray list) and jurisdictions at high risk of action. (so-called blacklisted countries – right now, only Myanmar is eligible for this honour).

Pakistan and FATF

Twice in 2012-15 and 2018-22: Pakistan has been found willing and under obligations to reform its systems and practices twice. If a country fails to comply or ‘mostly comply’ with the measures recommended by the task force, it may find it difficult to obtain external financing, whether from commercial sources or from multilateral agencies such as the IMF and the World Bank.

34 measures were recommended to Pakistan to take action against money laundering and terror funding. At the FATF’s latest plenary meeting, members chose to certify that Pakistan has complied with all or most of the suggested measures.

exit and later

India is concerned about Pakistan-based terror organizations like Jaish-e-Mohammed for easy funding for anti-India attacks and activities. Decisions are taken by consensus and India joins the decision.

After Pakistan was removed from the gray list, India’s Foreign Ministry spokesman Arindam Bagchi said: “As a result of the FATF investigation, Pakistan has been compelled to take certain actions against well-known terrorists, including those involved in the attack. The entire international community in Mumbai on 26/11.

“It is in the global interest that the world is clear that Pakistan must continue to take credible, verifiable, irreversible and sustained action against terrorism and terrorist financing from territories under its control.” India also noted that Pakistan was obliged to continue with the Asia-Pacific grouping to further improve its measures against money laundering and the financing of terrorism.

It may be worth noting that there is a motivation to certify compliance in countries other than Pakistan’s readiness to change. Pakistan has been devastated by the floods, which the United Nations estimates have caused economic losses of around $30 billion. The country needs a massive amount of money to rebuild. If it continues on the gray list, the lack of funds for relief and rehabilitation will fall on some of the patron states: the US and China.

conclusion

We should note that not all shortcomings in combating money laundering and terror funding come from state sponsorship of terror. Some nations have not foreseen the extent of cynicism that can be tolerated to achieve nefarious goals. For example, a FATF report on Japan’s progress in strengthening measures to combat money laundering and terrorist financing.

In the world of crime, innovation stays two steps ahead of law enforcement. Therefore, we can expect the FATF to be actively engaged in the near future.

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