The above topic gains relevance due to many reasons – Grey listing of Pakistan, Pulwama attack by Pakistan, US making fund transfer to Pakistan conditional etc. The topics should be covered thoroughly linking with economy, Indian Society, Internal Security and International Institutions.
Financial Action Task Force gives 10 point agenda to Pak
Placing it in the syllabus
- International relations – International institutions
- Internal Security – Terrorism
- Indian Society – Terrorism
- The Financial Action Task Force (FATF) and its objectives
- Different Kinds of Listing done by FATF
- Greylisting of Pakistan
About FATF: History, growth and its Functions
The Financial Action Task Force (FATF) was established in July 1989 by a Group of Seven (G-7) Summit in Paris, initially to examine and develop measures to combat money laundering.
In October 2001, the FATF expanded its mandate to incorporate efforts to combat terrorist financing, in addition to money laundering.
Since its inception, the FATF has operated under a fixed life-span, requiring a specific decision by its Ministers to continue. The current mandate of the FATF (2012-2020) was adopted at a Ministerial meeting in April 2012.
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.
Starting with its own members, the FATF monitors countries’ progress in implementing the FATF Recommendations; reviews money laundering and terrorist financing techniques and counter-measures; and, promotes the adoption and implementation of the FATF Recommendations globally.
Its achievements (famous 40+9 recommendations)
- The Task Force was given the responsibility of examining money laundering techniques and trends, reviewing the action which had already been taken at a national or international level, and setting out the measures that still needed to be taken to combat money laundering. In April 1990, less than one year after its creation, the FATF issued a report containing a set of Forty Recommendations, which were intended to provide a comprehensive plan of action needed to fight against money laundering.
- In 2001, the development of standards in the fight against terrorist financing was added to the mission of the FATF. In October 2001 the FATF issued the Eight Special Recommendations to deal with the issue of terrorist financing. The continued evolution of money laundering techniques led the FATF to revise the FATF standards comprehensively in June 2003. In October 2004 the FATF published a Ninth Special Recommendations, further strengthening the agreed international standards for combating money laundering and terrorist financing – the 40+9 Recommendations.
- In February 2012, the FATF completed a thorough review of its standards and published the revised FATF recomendations. This revision is intended to strengthen global and further protect the integrity of the financial system by providing governments with stronger tools to take action against financial crime. They have been expanded to deal with new threats such as the financing of proliferation of weapons of mass destruction, and to be clearer on transparency and tougher on corruption. The 9 Special Recommendations on terrorist financing have been fully integrated with the measures against money laundering. This has resulted in a stronger and clearer set of standards.
The 9 recommendations include:
- Ratification and implementation of UN instruments.
- Criminalizing the financing of terrorism and associated money laundering.
- Freezing and confiscating terrorist assets.
- Reporting suspicious transactions related to terrorism.
- International co-operation.
- Alternative remittance.
- Wire transfers.
- Non-profit organizations.
- Cash couriers.
Following are some of the 40 recommendations related to terrorist financing and financing of proliferation: (revised in 2012)
- Terrorist financing offence: countries should criminalize terrorist financing on the basis of the Terrorist Financing Convention, and should criminalize not only the financing of terrorist acts but also the financing of terrorist organizations and individual terrorists even in the absence of a link to a specific terrorist act or acts.
- Targeted financial sanctions related to terrorism and terrorist financing: countries should implement targeted financial sanctions to comply with UNSC resolutions relating to the prevention, suppression and disruption of the proliferation of weapons of mass destruction and its financing.
Non-profit organizations: countries should review the adequacy of laws and regulations that relate to non-profit which the country has identified as being vulnerable to terrorist financing abuse. Countries should apply focused and proportionate measure, in line with the risk-based approach, to such non-profit organizations to protect them from terrorist financing abuse, including:
- By terrorist organizations posing as legitimate entities.
- By exploiting legitimate entities as conduits for terrorist financing, including for the purpose of escaping asset-freezing measures, and
- By concealing or obscuring the clandestine diversion of funds intended for legitimate purposes to terrorist organizations.
Different kinds of the listing and their importance
There are two types listing under FATF they are:
1.”Non-Cooperative Countries or Territories” (NCCTs) / The FATF blacklist.
- The FATF blacklist or OECD blacklist has been issued by the Financial Action Task Force since 2000 and lists countries which it judges to be non-cooperative in the global fight against money laundering and terrorist financing, calling them “Non-Cooperative Countries or Territories” (NCCTs). In other words; countries which are not supporting terror funding and money laundering activities are listed in the Black list.
- Although non-appearance on the blacklist was perceived to be a mark of approbation for offshore financial centres (or “tax havens”) who are sufficiently well regulated to meet all of the FATF’s criteria, in practice the list included countries that did not operate as offshore financial centres.
- The principal objective of the Non-Cooperative Countries and Territories (NCCT) Initiative was to reduce the vulnerability of the financial system to money laundering by ensuring that all financial centres adopt and implement measures for the prevention, detection and punishment of money laundering according to internationally recognised standards.
2. FATF Watch list or greylist
- Those countries which are considered as the safe heaven for supporting terror funding and money laundering; included in this list.
- Grey list is a warning given to the country that it might come in Black list. If a country is unable to curb mushrooming of terror funding and money laundering; it is shifted from black list to grey list by the FATF.
When a country comes in the Grey list, it faces many problems like;
- Economic sanctions from international institutions (IMF, World Bank, ADB etc.) and countries
- Problem in getting loans from international institutions (IMF, World Bank, ADB etc.) and countries
- Overall Reduction in its international trade
- International boycott
Recently,Financial Action Task Force (FATF), has put Pakistan on a list of “jurisdictions with strategic deficiencies”, also known as the grey list for the second time.