In News:

• Pakistan is hoping for some reprieve as the international watchdog Financial Action Task Force (FATF) will begin meetings in Berlin ahead of its plenary session.

What’s in Today’s Article:

• Financial Action Task Force (FATF) – About, functions, black/grey-listing, possible impact of grey-listing, India and FATF
• News Summary

In Focus:  Financial Action Task Force (FATF)

• 
• FATF is an inter-governmental decision-making body to develop policies against money laundering.
  • It is the global money laundering and terrorist financing watchdog.
• It was established in 1989 during the G7 Summit in Paris.
• The FATF Secretariat is located at the OECD headquarters in Paris.
• Currently, there are 39 members of the FATF including the European Commission and the Gulf Cooperation Council.

Functions

• FATF sets standards and promotes effective implementation of:
  • legal, regulatory and operational measures for combating money laundering.
  • The FATF works to identify national-level vulnerabilities with the aim of protecting the international financial system from misuse.
• It has also started dealing with virtual currencies.

Black or grey-listing of non-compliant nations

• Since 2000, FATF has maintained the
  • FATF blacklist (formally called the Call for action) and
  • the FATF grey-list (formally called the Other monitored jurisdictions).
• The blacklist has led financial institutions to shift resources and services away from the listed countries.
• This in turn creates pressure on the governments of the listed countries to introduce regulations that are compliant with the FATF.

Possible impact of placing a country in FATF Grey-List

• Squeeze the economy
  • It is believed that the grey-listing will squeeze a country’s economy and make it harder for it to meet its mounting foreign financing needs.
  • This includes potential future borrowings from the International Monetary Fund.
• Might lead to downgrading in credit rating
  • Grey-listing could lead to a downgrade in credit rating by the rating agencies.
  • It will affect country’s ability to float international bonds, borrow from multilateral bodies, receive or send remittances or conduct international trade.
• Increase the compliance burden
  • The status raises the compliance burden on entities within country’s financial system.
  • Therefore, it attaches an additional cost to many external sector transactions.
• Will not change everything miraculously
  • Many others experts believe that the FATF listing will not miraculously change everything.
  • They claim that Pakistan was on the FATF grey-list from 2012 to 2015.
  • During this period, it successfully completed an IMF program and raised over $5 billion from the international bond markets.
  • Its imports and exports remained stable. This is evidence that the grey-listing did not raise any significant barriers to trade.

India & FATF

• India became an Observer at FATF in 2006.
• On June 25, 2010 India was taken in as the 34th country member of FATF.

News Summary

• The plenary session of Financial Action Task Force (FATF) is scheduled to be held from June 14 to 17.
• During this session, it will discuss the progress made by some jurisdictions identified as presenting a risk to the financial system, referring to entities on the grey list.
  • Grey list includes Pakistan and 22 other countries.

Background

• Pakistan was previously on increased monitoring lists in 2008-2009 and 2012-2015.
  • In 2015, it was removed from the grey list by international consensus
• Pakistan was again placed on the grey list by the FATF in June 2018 and was given a 27-point action plan to complete it.
• Since then, it has been in the same list as the Paris-based watchdog is not satisfied with the actions taken by the Pakistan to control terror financing.
  • Last year, Pakistan was adjudged as making significant progress and completing 26 of 27 tasks.
  • The FATF had held that its failure to prosecute the groups and its leaders like Hafiz Saeed and Masood Azhar was the one remaining task on that list.

Number of steps taken by Pakistan

• In order to complete the 27-point action plan, a number of steps had been taken by Pakistan in the past year. This includes:
  • the conviction of Hafiz Saeed and arrest of about 300 other designated terrorists,
  • the seizure of more than 1,100 properties owned by terror groups under the guise of running educational, medical and charitable trusts,
  • changes in law to bring Pakistan’s anti-Terrorism Act in line with international designations for terrorists as well as
  • changes to money-laundering laws, and the freezing of bank accounts belonging to terror groups and their leaders.
• However, New Delhi has been sceptical of the efficacy and permanence of Pakistani actions on terror taken thus far.