FATF group ‘blacklists’ Pakistan

Headline : FATF group ‘blacklists’ Pakistan

Details :In News:

  • In a huge victory for India, the Asia-Pacific Group on Money Laundering and Terror Financing (APG) has put Pakistan in the Enhanced Expedited Follow Up List (Blacklist) for its failure to meet its standards.
  • The APG is one of nine regional affiliates of the FATF.

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Background:

  • In June 2018, Financial Action Task Force (FATF) placed Pakistan on the ‘grey list’, because of its deficiencies in the anti-money laundering and counter terrorist financing (AML/CTF) regime.
  • Grey-listed countries are those whose domestic laws are considered weak to tackle the challenges of money laundering and terrorism financing.
  • Pakistan was given a 27-point action plan that was to be implemented by September 2019, and its progress on these 27 points is being monitored by the FATF Asia-Pacific sub-group (APG).
  • If Pakistan does not act based on the action plan of FATF, it could be placed in the Blacklist that comes with stringent restrictions on its financial system.
  • In February 2019, FATF continued the ‘Grey’ listing of Pakistan.

News Summary:

  • The APG recently discussed a five-year review of the Mutual Evaluation Report (MER) for Pakistan.
  • Pakistan failed in 32 of 40 ‘compliance’ parameters for its legal and financial systems, and failed 10 of 11 ‘effectiveness’ parameters for enforcing safeguards against terror-financing and money-laundering.
  • Pakistan has been placed on the lowest rung, or Enhanced Expedited Follow Up List (Blacklist), of the APG for non-compliance and non-enforcement of safeguards against terror financing and money laundering.
  • The APG’s final report will be published in October.

Impact:

  • While the placing does not bring any new punitive measures on Pakistan, it will mean quarterly reporting to the group on improvement in its financial safeguards.
  • The APG process is one of three review processes that Pakistan faces in the next few months.
  • In early September, the APG will meet again, to take forward the main 15-month process of Pakistan’s FATF evaluation.
  • APG will present its recommendations for the FATF plenary session in Paris in mid-October.

FATF review in October:

  • At present, Pakistan is on the “greylist” of the FATF. It is at the risk of being blacklisted by FATF, if it does not take appropriate compliance action against its 27-point action plan, before the October 2019.
  • The Paris FATF plenary in October will decide whether to remove Pakistan from the greylist, continue the listing, or downgrade it to a blacklist of non-cooperative countries.
  • The downgrade might not occur, given that any three countries in the FATF can veto it, and Pakistan is likely to secure the backing of China, Turkey and Malaysia.
  • However, the APG decision on Friday would make it difficult for Pakistan to extricate itself from the greylist.

About: Financial Action Task Force (FATF)

  • The Financial Action Task Force is an intergovernmental organization founded in 1989 on the initiative of the G7 to develop policies to combat money laundering.
  • In 2001 its mandate expanded to include terrorism financing.
  • It is also termed as “international terror financing watchdog”.
  • The FATF Can be seen as a “policy-making body” which works to generate the necessary political will to bring about national legislative and regulatory reforms in combating money laundering, terrorist financing and other related threats to the integrity of the international financial system.
  • The FATF has developed a series of recommendations that are recognised as the international standard for combating of money laundering and terror financing.
  • The FATF Secretariat is housed at the OECD headquarters in Paris.

Members:

  • Currently, FATF consists of 39 members, including
    • 37 member jurisdictions with voting powers
    • Two regional organisations – the European Commission and the Gulf Co-operation Council
  • India is a member, as well as important countries like China, US, UK, France, Germany, Russia and Saudi Arabia.
  • Interestingly, Hong Kong is also a separate member jurisdiction. 
  • Pakistan is not a member.
  • Indonesia is an FATF Observer.
  • Asia/Pacific Group on Money Laundering (APG), Eurasian Group (EAG), Caribbean Financial Action Task Force (CFATF), Financial Action Task Force of Latin America (GAFILAT) etc. are FATF Associate Members.

Functions

  • Sets international standards to combat money laundering and terrorist financing, and promotes effective implementation of legal, regulatory and operational measures
  • Assesses and monitors compliance with the FATF standards
  • Conducts typologies studies of money laundering and terrorist financing methods, trends and techniques
  • Responds to new and emerging threats, such as proliferation financing

Lists maintained by FATF

  • FATF maintains two different lists of countries:
  • Grey List:
    • Those countries that have deficiencies in their Anti Money Laundering /Counter Terrorist Financing (AML/CTF) regimes but they commit to an action plan to address these loopholes.
    • There are eight countries in Grey list: Pakistan, Ethiopia, Serbia, Sri Lanka, Syria, Trinidad and Tobago, Tunisia and Yemen.
  • Black List:
    • The FATF black list means the country concerned is “non-cooperative” in the global fight against money laundering and terrorist financing.
    • Once a country is blacklisted, FATF calls on other countries to apply enhanced due diligence and counter measures, increasing the cost of doing business with the country and in some cases severing it altogether.
    • There are two countries in the blacklist: Iran and North Korea
  • Note:Following grey listing, three reviews are conducted, followed by a round at which it will be decided whether a country is to be blacklisted.

About: Asia/Pacific Group on Money Laundering (APG)

  • The APG is the FATF-style autonomous regional anti-money laundering body for the Asia-Pacific region, established by unanimous agreement among 13 original founding members.
  • Its secretariat was established in Sydney, Australia. 
  • APG is an FATF Associate Member.
  • It is an inter-governmental organisation founded in 1997 in Bangkok, Thailand.
  • The mutual evaluation process by the APG is separate from the FATF but it is based on the implementation of 40 FATF recommendations.
  • It consists of 41 member jurisdictions, focused on ensuring that its members effectively implement the international standards against money laundering, terrorist financing and proliferation financing related to weapons of mass destruction.

Primary FunctionsofAPG

  • Mutual evaluations: The APG assesses the levels of compliance by its member jurisdictions with the global Anti-Money Laundering and Countering Financing of Terrorism standards through a mutual evaluation (peer review) programme.
  • Global engagement:  The APG contributes to international Anti-Money Laundering and Countering Financing of Terrorism policy development and actively engages with the global network of FATF-Style Regional Bodies (FSRBs). The APG also participates in a number of FATF working groups and in its plenary meetings.
  • Technical assistance and training: The APG Secretariat coordinates bi-lateral and donor-agency technical assistance and training in the Asia/Pacific region for its member jurisdictions in order to improve compliance with the global standards.

Section : International Relation

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