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14 April 2021, 12:26

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The FATF and the third grey-listing of Pakistan

The Financial Action Task Force

The Financial Action Task Force or the FATF is an inter-governmental decision making body. It was created in 1989 during the G7 Summit in Paris in response to the global concern over money laundering. Its current president is Marcus Pleyer as of the 1st of July 2020.

The policy body works towards bringing about a global legislative and regulatory revolution to money laundering. Additionally, since the occurrence of rising international terrorism such as 9/11 terror attacks in USA, the FATF has expanded to include such actions of terror finance under its governance.

Who are the members of FATF

The FATF currently comprises of 39 member jurisdictions and 2 regional organisations, representing most major financial centres in all parts of the globe.




What does the FATF do?

FATF scope primarily covers:

  1. In setting international standards to combat money laundering and terrorist financing.
  2. It assesses and monitors compliance with the FATF standards.
  3. FATF also, conducts typologies studies of money laundering and terrorist financing methods, trends and techniques.
  4. Finally, it responds to new and emerging threats, such as proliferation financing.



The FATF Recommendations

The FATF have created internationally endorsed global standards for implementing effective AML/CFT measures. The aim of these recommendations were to increase the transparency of the financial system aka making it easier to detect criminal activity while giving countries the capacity to successfully take action against money launderers and terrorist financiers.

To see how DX Compliance can help your company prevent and protect you from these occurrences check out Our Buyers Guide.

The United Nations Office on Drugs and Crime (UNODC) study in 2009 determined criminal proceeds amounted to 3.6% of global GDP, with 2.7% (or USD 1.6 trillion) being laundered.

FATF

22 Grey List Countries




The FATF Country Status List

The Financial Action Task Force list also referred as the OECD (Organisation for Economic Co-operation and Development) list is a list of countries that the intergovernmental organisation considers non- cooperative in the global effort to combat money laundering and the financing of terrorism.

By issuing these lists, the FATF hopes to encourage countries to improve their regulatory regimes and establish a global set of AML/CFT standards and norms.

Even though the “grey” and “black” list does not exist in the parlance of the FATF these are the two categories associated with the status of a country under investigation.

Grey-list Status:

These countries have been deemed as a safe haven for supporting terror funding and money laundering and in consequence are put on to the FATF “Grey- list”. This inclusion serves as a warning to the country that it may enter the blacklist.

Consequences of being in the FATF Grey-list:

  1. Economic sanctions from IMF, World Bank, ADB.
  2. Problem in getting loans from IMF, World Bank, ADB and other countries.
  3. Reduction in international trade.
  4. International boycott.

Black-list Status

Such countries are knowns as “High-Risk Jurisdictions subject to a Call for Action” or Non-Cooperative Countries or Territories (NCCTs). In theory, these countries are supporting terror funding and money laundering activities. The FATF revises the blacklist regularly, adding or deleting entries.

The countries on this list have:

Significant strategic deficiencies in their regimes to counter money laundering and terror financing. There are two countries on the “Black List” as of 2020. They are North Korea and Iran.

In response the FATF:

Urges members to undergo enhanced due diligence, and in the most serious cases, countries are called upon to apply counter- measures to protect the international financial system against these ML/FT emanating from the country.

To see a full detailed list of the FATF countries and their status please visit: FATF Find a Country.




Why is Pakistan on the FATF Grey-list?

As of June 2018, Pakistan has been placed on the “grey- list” three times in the past 12 years.

“It was noted by FATF member countries that Pakistan is subject to perhaps the most challenging and comprehensive action plan ever given to any country,”

Pakistan Federal Minister, Hammad Azhar

FATF has done so due to the inadequate controls over terrorism financing in 2018, which made foreign firms more cautious about investing in Pakistan.

Previously, the FATF had given Pakistan till the end of 2019 to implement a plan of action to curb its ML and FT problem. However, due to Covid-19 it was extended with a final warning until June 2021.




How Pakistan can change its listing

The FATF, has said in order to address its issues it should work on implementing these three recommendations:

  1. Demonstrating that terror funding investigations and prosecutions target persons and entities acting on behalf or at the direction of the designated persons or entities.
  2. Demonstrating that terror funding prosecutions result in effective, proportionate, and dissuasive sanctions.
  3. Demonstrating effective implementation of targeted financial sanctions against all 1267 and 1373 designated terrorists, specifically those acting for or on their behalf.

    Additionally, noted by the FATF was that Pakistan has made progress across all action plan items and has now largely addressed 24 of the 27 action items.




The Future for Pakistan and The FATF

Due to the continued ‘grey list’ status has resulted in extremely high- cost debts for Pakistan, which has incurred a $38 billion economic losses due to the FATF decision.

Pakistan will also not be receiving any respite in trying to access finances in the form of investments and aid from various international bodies including International Monetary Fund (IMF). This latest decision will add to its problems given its perilous financial situation.

If Pakistan is to prevent future economic impacts and Black-listing it must complete the final 3 steps our of the FATF’s 27 action plan by June 21-25.

To know more about AML and the preventative services available, click the link to see how DX Compliance Solutions can help Your Industry.


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