Master Complete FATF [UPSC]

How does FATF Works?

The Financial Action Task Force (FATF) is an international organization that works to combat money laundering and terrorist financing. Money laundering is the process of disguising the proceeds of illegal activities as legitimate funds, while terrorist financing refers to the provision of funds or other support to terrorist groups. The FATF works to identify and address the ways in which these activities are carried out and to prevent them from happening.

To do this, the FATF develops and promotes international standards for combating money laundering and terrorist financing, and it monitors the progress of countries in implementing these standards. The FATF also maintains a list of countries that are considered to have deficiencies in their efforts to combat money laundering and terrorist financing and may be subject to increased monitoring. This list is known as the “grey list.” The FATF periodically reviews the status of countries on this list and may decide to remove them if they have made sufficient progress in addressing the identified deficiencies.

FATF has created two lists the Grey list and the Black list, among which it places a country based on their Policy framework to counter money laundering activities.

Grey ListCountries which are acknowledged as safe haven for supporting terror funding and money laundering are put in the FATF grey list (or ‘Jurisdictions under increased monitoring’). It serves as a warning to the country that it may enter the blacklist.
Black ListCountries known as Non-Cooperative Countries or Territories (NCCTs) are entered into the blacklist. These countries support terror funding and money laundering activities.
FATF UPSC

What is FATF

  • Financial Action Task Force, is a Policy framing intergovernmental body established in 1989 on the initiative of G7 group. It focuses on framing policies to counter money laundering globally.
  • FATF keep track of the policy framework of its member states and make recommendations to them, to stop the menace of money laundering.
  • Headquarters– Paris, france at OECD headquarters.
  • Members= 39 members which includes 37 countries and 2 regional organisations.( As of 2021)
  • As of JULY 2021 there are two countries on FATF Blacklist: North Korea and Iran.

FATF members in 2021

S.NoMembers
1Argentina
2Australia
3Austria
4Belgium
5Brazil
6Canada
7China
8Denmark
9European Commission
10Finland
11France
12Germany
13Greece
14Gulf Cooperation Council
15Hong Kong
16Iceland
17India
18Ireland
19Israel
20Italy
21Japan
22Republic of Korea
23Luxembourg
24Malaysia
25Mexico
26Netherlands
27New Zealand
28Norway
29Portugal
30Russian Federation
31Saudi Arabia
32Singapore
33South Africa
34Spain
35Sweden
36Switzerland
37Turkey
38United Kingdom
39United States
FATF members in 2021

Source https://www.fatf-gafi.org/about/membersandobservers/

Download FATF Members list and Map | FATF UPSC

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Presidency

  • The Financial Action Task Force (FATF) was founded in 1989 by the G7 to develop and promote policies to combat money laundering. In 2001, its mandate was expanded to include terrorist financing. The FATF Secretariat is housed at the OECD headquarters in Paris.
  • The presidency keeps on rotating among member states at an interval of one year
  • The objectives of the FATF are to set standards and policies for combating money laundering and terrorist financing, to promote cooperation between financial intelligence units (FIUs), and to provide technical assistance to its members.

FATF Greylist:

  • Officially known as Jurisdiction under Increased monitoring. Countries in this list formally commits to work with FATF to stop money laundering activities, but their policies reflect much higher risk of being involved in terror financing and money laundering activities.
  • Those countries whose policies make them safe heaven for money laundering activities and terror financing activities, are put in grey list. It act as a warning signal to them to align their policies with FATF guidelines otherwise they will be put into Blacklist.

FATF Blacklist:

  • Officially FATF calls it High Risk Jurisdiction subject to Call For Action.
  • Countries which are considered as lacking in their regulatory regimes to counter money laundering and terror financing activities are put into Black list.

Purpose of listing countries into Grey list or Blacklist.

The purpose of the FATF is to develop and promote policies which will prevent money laundering and terrorist financing. The FATF creates a list of countries which it believes are not doing enough to combat money laundering and terrorist financing. This list is known as the Grey List. Countries which are on the Grey List are given time to improve their policies. If a country does not improve its policies, then it is placed on the Blacklist.

Various sanction and boycott are imposed on countries as per their status of either in Grey list or Blacklist.

Consequences of being in Grey list

One of the most important functions of the FATF is to create a blacklist of countries that do not meet its anti-money laundering standards. Countries that are blacklisted can face serious consequences, such as being shut out of the global financial system. In February 2018, Pakistan was added to the FATF’s grey list after failing to take adequate steps to combat money laundering and terrorist financing. Being on the grey list means that Pakistan could be blacklisted if it does not make significant progress in reforming its financial institutions.

  • Increased monitoring by the FATF.
  • Economic sanction from institutions as World Bank, IMF etc.

Consequences of being in Black list

The consequences of being listed on the FATF Black List are significant. Countries that are listed are subjected to increased scrutiny from financial institutions and other member countries. The FATF also publishes a public list of all the countries that are non-cooperative with its efforts to combat money laundering and terrorist financing.

  • Country is negatively highlighted on the World stage.
  • Prohibitive measures by FATF members .
  • Economic sanction are imposed on the country by international organisations as World Bank, IMF, ADB etc.
  • International trade to the country reduces.

FATF India

In October 2001, following the September 11 terrorist attacks on the United States, FATF expanded its mandate to include combating terrorist financing. India was a observer State in FATF since 2006, and became a member state in 2010 .
As a part of its efforts to combat money laundering and terrorist financing, FATF sets global standards for combating those crimes. Member states are required to implement these standards within their own jurisdictions. FATF also conducts peer reviews of member states to assess their compliance with these standards. India has made significant progress in implementing FATF’s recommendations, and has been assessed as being largely compliant with them.

India was a observer State in FATF since 2006, and became a member state in 2010.

FATF Pakistan

Pakistan was first added to the Greylist in February 2008 and removed in 2015. However, it was placed on the greylist again in 2018, and the FATF has given it until October 2019 to address its deficiencies. In June 2019, the FATF issued a public statement saying that Pakistan had made “limited progress” and that it “remains concerned about the lack of effective implementation of UNSCRs 1267 and 1373 (1999) by Pakistan.” 

UN Security Council resolutions 1267 and 1373 require all UN member states to freeze the assets of individuals and organisations associated with Al Qaeda and the Taliban.

  • Pakistan was put on Grey list in 2018, and since then it has been on Grey list as of 2021 now.
  • Asia Pacific group and FATF have been monitoring Pakistan on the standards of Anti Money Laundering (AML) regime and Combating the Financing of Terrorism (CFT) regime since 2018.
2008Pakistan classified as high risk and non-cooperative in adopting AML/CFT legislation. Placed on grey list
2009Pakistan taken off grey list
2012Pakistan classified as high risk and non-cooperative in adopting AML/CFT legislation. Placed on grey list
2013Pakistan remains on the grey list until next evaluation
2014Pakistan remains on the grey list until next evaluation
2015Pakistan taken off grey list after FATF identified progress in improving its AML/CFT regime
2018Pakistan was grey-listed for failure to address significant deficiencies in its AML/CFT regime
2019Pakistan remains on the grey list until next evaluation
2022October 2022, Pakistan removed from Grey-List.
FATF and Pakistan- FATF UPSC

Reasons for Pak’s removal from the Grey List?

  • The FATF praised “Pakistan’s remarkable progress,” noting that the government has completed two action plans and a 34-point work list since 2018.
  • After four years, Pakistan has been removed from the list. It was added to the list for the first time in 2008, withdrawn in 2009, and remained under greater surveillance from 2012 to 2015 before being added to the list again in 2018.

Recent News about FATF UPSC

FEB 2023

EventDateReasonConsequence
FATF suspends Russia’s membershipFebruary 24, 2023Russia’s invasion of Ukraine violates FATF’s principlesRussia can no longer attend FATF meetings or access FATF documents; Russia still has to implement FATF’s standards
FATF UPSC

FATF Suspends Russia

On February 24, 2023, the Financial Action Task Force (FATF), a global watchdog that sets standards for combating money laundering, terrorist financing and other illicit financial flows, suspended Russia’s membership over its invasion of Ukraine, which violated FATF’s principles of promoting security, safety and integrity of the international financial system. This is the first time that FATF has suspended a country from its membership. Despite the suspension, Russia is still required to implement FATF’s anti-money laundering standards, but it can no longer attend FATF meetings or access FATF documents.

EventDateReasonConsequence
FATF suspends Russia’s membershipFebruary 24, 2023Russia’s invasion of Ukraine violates FATF’s principlesRussia can no longer attend FATF meetings or access FATF documents; Russia still has to implement FATF’s standards
FATF UPSC

The impact of this suspension could be significant for Russia and the global financial system. Some possible effects are:

  1. Russia could face increased scrutiny and pressure from other countries and financial institutions that follow FATF’s recommendations.
  2. Russia could lose its influence and voice in shaping FATF’s standards and policies, as well as its access to FATF’s resources and expertise.
  3. Russia’s suspension could undermine FATF’s credibility and effectiveness in combating money laundering, terrorist financing, and other illicit financial flows.

The Financial Action Task Force (FATF) is an intergovernmental organisation founded in 1989 that sets global standards for combating money laundering and terrorist financing. The FATF is an independent body comprising representatives from 37 member countries, including the United States. The FATF’s objectives are to develop and promote policies and measures that will protect the global financial system from money laundering and terrorist financing.

The FATF is made up of 37 member countries and two regional organisations, the European Union and the Gulf Cooperation Council. The FATF’s primary goal is to develop and promote policies to prevent money laundering and terrorist financing.

This is gist for FATF UPSC article. HOPE it justified your search for FATF UPSC, want to learn more about FATF, have a look at Official FATF page.

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