Financial Action Task Force

APR 8

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Why in news?

India will raise the acquittal of Ahmad Omar Sheikh Saeed by a Pakistani court at the next meeting of the Financial Action Task Force, where Pakistan’s greylist status will come up for discussion.

What is FATF?

  • The Financial Action Task Force (FATF) is the global money laundering and terrorist financing watchdog.
  • The FATF was established in July 1989 by a Group of Seven (G7) Summit in Paris
  • The inter-governmental body sets international standards that aims to prevent illegal money laundering activities and the harm they cause to society.
  • As a policy-making body, the FATF works to generate the necessary political will to bring about national legislative and regulatory reforms in these areas.

Structure

  • The FATF comprises of 37 member nations and 2 regional organizations, representing most major financial centers on the globe. India became an Observer at FATF in 2006 and became a full member in 2010.
  • The FATF Plenary is the decision-making body of the FATF. It meets three times per year. It also works in close co-operation with a number of international and regional bodies involved in combating money laundering and terrorism financing.
  • The FATF Secretariat is located at the OECD headquarters in Paris.

Functions

  • Set standards for combating money laundering, terrorist financing and other related threats to the integrity of the international financial system.
  • Promote effective implementation of legal, regulatory and operational measures and implementation of the FATF Recommendations globally.
  • Review money laundering and terrorist financing techniques and continuously strengthens its standards to address new risks, such as the regulation of digital currencies. 
  • Monitor countries to ensure they implement the FATF Standards fully and effectively, and holds countries to account that do not comply.

Black and Grey lists:

  • Black List:  
    • Officially known as ‘High-Risk Jurisdictions subject to a Call for Action’, it is a list of countries that the FATF considers non-cooperative in the global effort to combat money laundering and the financing of terrorism.
    • The FATF revises the blacklist regularly, adding or deleting entries. The current FATF blacklist includes two countries: North Korea and Iran.
    • Blacklisted countries will be subject to economic sanctions and other prohibitive measures by FATF member states and other international organizations such as World Bank.
  • Grey List:
    • Officially referred to as ‘Jurisdictions Under Increased Monitoring’, it represents countries with higher risk of money laundering and terrorism financing but have formally committed to working with the FATF to develop action plans that will address their deficiencies.
    • The inclusion serves as a warning to the country that it may enter the blacklist.
    • Countries in the grey list may face economic sanctions, problem in getting loans from international institutions and other countries, reduction in international trade or International boycotts.
    • Firms must screen customers against the FATF blacklist and grey list during onboarding and throughout their business relationship and monitor their transactions on an ongoing basis.

India and FATF

  • India became an observer at FATF in 2006. Even before that, India took proactive steps in eliminating money laundering through measures such as the enactment of Prevention of Money Laundering Act, 2002 and creation of Financial Intelligence Unit of India (FIU -IND) in 2004.
  • Later, based on India’s compliance with the 40+9 Recommendations India was admitted as the 34th Country Member of FATF.
  • It helps India in securing transparent and stable financial system, thereby in its quest to become a major player in the International market.
  • It improves the international credit ratings and attracts foreign investments into the country.
  • It helps India to trace, investigate and prosecute money laundering and terrorist financing offences, especially those of cross border nature.
  • FATF has become an important measure to put pressure on Pakistan to dismantle the infrastructure that supports cross-border attacks.
  • It can help break the nexus between organized crime and terrorism.
  • It provides a platform for capacity-building, sharing experiences and developing best practices in countering money laundering and terror financing among the member nations.