Pakistan added to FATF grey-list

• The global money laundering watchdog FATF or the Financial Action Task Force has decided to put Islamabad back on its terrorist financing watch list, the move that could seriously hurt Pakistan's economy.
• However there is no direct mentioning of Pakistan in official statements but Islamabad has been put on what's called the Grey List for not doing enough to crackdown on terror and that this will come into force in June when the body meets next.
• The resolution against Pakistan was moved by the US which wants to put pressure on Islamabad for not doing enough to comply with anti-terrorist financing and anti-money laundering regulations.
• The move is part of a broader US strategy to pressure Pakistan to cut its links to terror groups in Afghanistan.
• The move is expected to inflict serious damage on Pakistan. Being placed on the FATF watch list brings extra scrutiny from regulators and financial institutions which will be wary of doing business with Pakistani banks.
• It would be counterproductive to put Pakistan on the watch list as it would hurt its capability to fight terrorism. Also, being put back on the grey list would heighten Pakistan’s risk profile and some financial institutions would be wary of transacting with Pakistani banks and counterparties.
• Being placed on the FATF watchlist carries no direct legal implications, but brings extra scrutiny from regulators and financial institutions that can chill trade and investment and increase transaction costs.
• Pakistan was on the watch list between 2012- 2015 as well but only for money laundering.

About FATF:

• The Financial Action Task Force (FATF) is an inter-governmental body established in 1989 by the Ministers of its Member jurisdictions. 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. The FATF is therefore a “policy-making body” which works to generate the necessary political will to bring about national legislative and regulatory reforms in these areas.
• The FATF has developed a series of Recommendations that are recognised as the international standard for combating of money laundering and the financing of terrorism and proliferation of weapons of mass destruction. They form the basis for a co-ordinated response to these threats to the integrity of the financial system and help ensure a level playing field. First issued in 1990, the FATF Recommendations were revised in 1996, 2001, 2003 and most recently in 2012 to ensure that they remain up to date and relevant, and they are intended to be of universal application.
• The FATF monitors the progress of its members in implementing necessary measures, reviews money laundering and terrorist financing techniques and counter-measures, and promotes the adoption and implementation of appropriate measures globally. In collaboration with other international stakeholders, the FATF works to identify national-level vulnerabilities with the aim of protecting the international financial system from misuse.
• The FATF's decision making body, the FATF Plenary, meets three times per year.

By: Vishal