The FATF and Pakistan’s position on its ‘grey list’

How is Pakistan aiming to get itself removed from the Financial Action Task Force’s grey list?

The story so far: Ahead of the plenary session of the Financial Action Task Force (FATF), the global financial crime watchdog, from June 14 to 17 in Berlin, Pakistan which continues to face an economic crunch, is hoping for some respite in the form of its removal from the FATF’s ‘grey list’ or the list of countries presenting a risk to the global financial system.

In its last plenary meeting in March, the FATF had retained Pakistan’s listing, asking it to expeditiously address the remaining deficiencies in its financial system.

The Financial Action Task Force is an international watchdog for financial crimes such as money laundering and terror financing. It was established at the G7 Summit of 1989 in Paris to address loopholes in the global financial system after member countries raised concerns about growing money laundering activities. In the aftermath of the 9/11 terror attack on the U.S., FATF also added terror financing as a main focus area. This was later broadened to include restricting the funding of weapons of mass destruction.

The FATF currently has 39 members. The decision-making body of the FATF, known as its plenary, meets thrice a year. Its meetings are attended by 206 countries of the global network, including members, and observer organisations, such as the World Bank, some offices of the United Nations, and regional development banks.

The FATF sets standards or recommendations for countries to achieve in order to plug the holes in their financial systems and make them less vulnerable to illegal financial activities. It conducts regular peer-reviewed evaluations called Mutual Evaluations (ME) of countries to check their performance on standards prescribed by it. The reviews are carried out by FATF and FATF-Style Regional Bodies (FSRBs), which then release Mutual Evaluation Reports (MERs). For the countries that don't perform well on certain standards, time-bound action plans are drawn up. Recommendations for countries range from assessing risks of crimes to setting up legislative, investigative and judicial mechanisms to pursue cases of money laundering and terror funding.

While the words ‘grey’ and ‘black’ list do not exist in the official FATF lexicon, they designate countries that need to work on complying with FATF directives and those who are non-compliant, respectively.

At the end of every plenary meeting, FATF comes out with two lists of countries. The grey countries are designated as “jurisdictions under increased monitoring”, working with the FATF to counter criminal financial activities. For such countries, the watchdog does not tell other members to carry out due-diligence measures vis-a-vis the listed country but does tell them to consider the risks such countries possess. Currently, 23 countries including Pakistan are on the grey list.