Explained: FATF Origin, Objectives, functions and why Pakistan is in trouble

Explained: FATF Origin, Objectives, functions and why Pakistan is in trouble

FATF expanded as Financial Action task Force was established during the G7 summit that was conducted in Paris in the year 1989. The stakeholders in this organization include the heads of the G7 countries, the heads of eight other countries and the President of the European Commission.

FATF Objectives

The principal objective of FATF is to evolve the standards and norms pertaining to the regulatory measures to combat money laundering, terrorist financing and a range of other related threats that pose a risk tot eh health of the international financial system.

FATF works with the nation states to encourage some legislative changes and reforms in the sectors discussed above. Also, FATF provides policy recommendations that comply with the international standards in the line of combating money laundering, proliferation of the weapons of mass destruction, and terrorism funding. Since 1990, FATF has revised its recommendations four times.

FATF Member Nations

The official website of FATF says the organization has 39 members. The members of the FATF represent major financial centers around the world.

What is FATF Blacklist?

FATF Blacklist refers to the FATF list of "Non-Cooperative Countries or Territories" (NCCTs). The OECD Blacklist has been published from the year 2000 and this list consists of the names of the countries that are non-cooperative with regard to the global measures to combat money laundering and terrorism financing. The FATF updates this blacklist regularly by adding or deleting the entries made.

The case of Pakistan and FATF Blacklist

The FATF review entered Pakistan in the grey list in June 2018. The organization gave 27 action plans for the country to be fulfilled before September 2019 for being considered to get the country out of the grey list. The recent reviews have discovered that the country could only fulfill 7 conditions out of the 27 which will mean a bad performance by Pakistan in the lines of addressing the AML/CFT deficiencies.

What can be expected during the FATF meeting in Paris on October 18, 2019?

The FATF meeting in Paris on October 18, 2019 will decide what has to happen with the grey listing of Pakistan. The three possibilities in front of the country would be to get out of the grey list, to continue in the grey list or in the worst case, enter the black list. Only if three countries support the motion, Pakistan has chances of not entering the blacklist. In order to get out of the grey list, Pakistan will need the support of not less than 15 countries, which might not come through this time. So, the greatest chances are there for the country to be continued in the grey list.

Implications of grey / black listing for Pakistan

At a time when Pakistan is already facing a severe economic crisis, grey listing of the country will take a further toll on the country. It will make borrowing of money from other countries a difficult thing for Pakistan. The only choice for Pakistan could be to request for the International Monetary Fund (IMF) for help. If this has to come through, Pakistan will be forced to share the complete details about its foreign funding including China-Pakistan Economic Corridor (CPEC), the Chinese funded project. If this happens, it will create a serious setback for both China and Pakistan as this project has been kept as a secrecy till date for some ulterior reasons.

Summary of FATF Statements from 2012

FATF February 2012 statement identified 23 countries that had not implemented the FATF standards. The list said the countries that committed and addressing the AML/CFT deficiencies included Algeria, Angola, Antigua and Barbuda, Argentina, Bangladesh, Brunei Darussalam, Cambodia, Kyrgyzstan, Mongolia, Morocco, Namibia, Nepal, Nicaragua, Sudan, Tajikistan, Trinidad and Tobago, Turkmenistan, Venezuela, and Zimbabwe. The countries that had committed, but did not make sufficient progress included Ecuador, Philippines, Vietnam, and Yemen. The 2012 FATF list also listed 17 countries as high-risk and non-cooperative including Iran, North Korea, Bolivia, Cuba, Ethiopia, Ghana, Indonesia, Kenya, Myanmar, Nigeria, Pakistan, Sao Tome and Principe, Sri Lanka, Syria, Tanzania, Thailand, and Turkey.

FATF June 2013 statement listed 14 countries that were said to have strategic deficiencies coming as risk to the international financial system including Iran, North Korea, Ecuador, Ethiopia, Indonesia, Kenya, Myanmar, Pakistan, São Tomé and Príncipe, Syria, Tanzania, Turkey, Vietnam, and Yemen. The list also mentioned that the above said countries had not made sufficient progress with regard to addressing the deficiencies and had not committed to an action plan.

FATF October 2013 statement mentioned the names of 13 countries that had strategic AML/CFT deficiencies and had not made the desired progress in rectifying the deficiencies or committing to an action plan. The names of the countries included Iran, North Korea, Algeria, Ecuador, Ethiopia, Indonesia, Kenya, Myanmar, Tanzania, Turkey, and Yemen.

FATF February 2014 statement listed 11 countries that posed a risk to the international financial system including Iran, North Korea, Algeria, Ecuador, Ethiopia, Indonesia, Myanmar, Syria, Turkey, and Yemen.

FATF June 2014 statement listed 6 countries that did not make sufficient progress in line with rectifying the AML/CFT deficiencies including Iran, North Korea, Algeria, Ecuador, Indonesia, and Myanmar.

FATF February 2015 statement listed 6 counties that had made a significant progress with regard to improving their AML/CFT regime and said these countries were no longer subject to the FATF monitoring process. The countries included Cambodia, Kuwait, Namibia, Nicaragua, Pakistan, and Zimbabwe.

The FATF October 2015 statement listed three counties including Iran, North Korea and Myanmar as non-cooperative jurisdictions and high risk countries with strategic deficiencies.

February 2016 FATF statement dropped Panama from the grey list and called the two countries namely Iran and North Korea to apply counter-measures.

Through the FATF February 2017 statement, the FATF published the following concern regarding North Korea saying, “The FATF remains concerned by the DPRK’s failure to address the significant deficiencies in its anti‑money laundering and combating the financing of terrorism (AML/CFT) regime and the serious threat this poses to the integrity of the international financial system. The FATF urges the DPRK to immediately and meaningfully address its AML/CFT deficiencies. Further, FATF has serious concerns with the threat posed by DPRK’s illicit activities related to the proliferation of weapons of mass destruction (WMDs) and its financing.”

In November 2017, Uganda was removed from the FATF review process since the country had improved its AML/CFT regime. On the same grounds, Bosnia and Herzegovina were removed from the list in February 2018 and Iraq and Vanuatu were removed from the list in June 2018.

The June 2018 Public Statement by FATF expressed its disappointment over Iran’s failure to implement its action plan to rectify the AML/CFT deficiencies. In the same Public statement, FATF grey listed Pakistan for the second time.

See Also: Pakistan's fate hangs in balance as FATF begins meeting in Paris