Explained | Pakistan dropped off FATF grey list: What does it mean?

With the latest development in the Financial Action Task Force list wherein Pakistan got dropped from the 'Grey list', let us understand in depth the different aspects of this development and what it means for Pakistan to be out of the list.

What is FATF?

An inter-governmental body, The Financial Action Task Force is the global money laundering and terrorist financing watchdog that folmulates international standards aiming to prevent illegal activities around the world. In order to strengthen its risk redressal standards, the FATF constantly reviews money laundering and terrorist financing techniques and monitors whether all the countries are adhering to its standards.

What are the two lists under FATF?

Grey List: Countries that fall under the grey list are those that require “increased monitoring,” as they actively work with the body to ensure that they counter money laundering and address the other deficiencies in their regimes.

Black List: The countries that FATF deems as non-cooperative in the fight against money laundering and terrorist funding fall under this list.

Read | Engagement with FATF led to improvements in laws and procedures, says Pakistan after removal from grey list

Why did Pakistan enter the grey list?

In 2018, Pakistan was declared as an addition to the FATF ‘grey list’ which meant increased monitoring for the country. According to a Pakistan daily, Dawn, the country was put in the list due to its “structural deficiencies” in what FATF calls AML/CFT(anti money laundering and combating financing of terrorism). Apart from 2018, Pakistan was on the grey list in the year 2008 as well as between 2012-2015.

What is the process to leave the grey list?

On June 17, FATF declared that they would conduct an on site visit to Pakistan considering the country had met all the requirements of the action plan.

In order to be released from the increased monitoring list, the review process of FATF requires the country to address “all or nearly all” components of the action plan. Once the monitoring body has confirmed that the country has done so, it will conduct an on-site visit in order to confirm that an implementation of the necessary “legal, regulatory, and/or operational reforms is under way and there is the necessary political commitment and institutional capacity to sustain implementation.”

If the FATF has a positive take away from the on site visit, it will remove the jurisdiction from the list.

What is Pakistan’s current position in FATF?

On Friday, October 21, FATF issued that Pakistan “has been removed from the FATF’s Jurisdictions under Increased Monitoring list, often referred to as the grey list.”

What were FATF’s observations about Pakistan?

Welcoming Pakistan’s progress in improving its regime that combats financial terrorism and money laundering (AML/CFT), on October 21, FATF noted that Pakistan has “addressed technical deficiencies to meet the commitments of its action plans regarding strategic deficiencies that the FATF identified in June 2018 and June 2021,” and declared that Pakistan is no longer in need of advanced monitoring.

What does this development mean for Pakistan?

“While it would not have an impact on the country’s struggling economy as a whole, it would help reduce scrutiny of global transactions involving Pakistan,” said economist Yousuf Nazar in a conversation with Dawn.

With Pakistan's exit from the grey list, Islamabad can now also try to get financial aid from the International Monetary Fund (IMF), the World Bank, the Asian Development Bank (ADB) and the European Union (EU), to boost its cash-strapped economy.

What does India have to say about Pak’s new position?

Considering the latest development in India’s neigbhour’s position in FATF, Arindam Bagchi, the official spokesperson of Ministry of External Affairs released a statement on his Twitter.

“We understand that Pakistan will continue to work with the Asia Pacific Group on Money laundering to further improve its Anti Money Laundering (AML/Counter terror financing(CFT) system.”

Acknowledging the steps taken by Pak to curb financial terrorism, Bagchi said, ”As a result of FATF scrutiny, Pakistan has been forced to take some action against well known terrorists including those involved in attacks against the entire international community in Mumbai on 26/11.”

(With agency inputs)