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Explainer: What is FATF? What are its lists?

Financial Action Task Force (FATF) is the global money laundering and terrorist financing watchdog
Last Updated : 26 February 2021, 10:32 IST

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The Financial Action Task Force (FATF) on Thursday decided to keep Pakistan on its 'grey list' as the South Asian nation has not yet been able to completely plug the loopholes in its legal mechanism to detect and stop the flow of funds to terrorist organisations.

Financial Action Task Force (FATF) is the global money laundering and terrorist financing watchdog. The inter-governmental body sets international standards that aim to prevent these illegal 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.

When was it founded?

In response to mounting concern over money laundering, the Financial Action Task Force on Money Laundering (FATF) was established by the G7 Summit that was held in Paris in 1989. Recognising the threat posed to the banking system and to financial institutions, the G7 Heads of State or Government and President of the European Commission convened the Task Force from the G7 member States, the European Commission and eight other countries.

How many members are there in FATF?

During 1991 and 1992, the FATF expanded its membership from the original 16 to 28 members. In 2000, the FATF expanded to 31 members, and has since expanded to its current 39 members.

What does FATF do?

The objectives of the FATF are to set standards and promote effective implementation of legal, regulatory and operational measures for combating money laundering, terrorist financing and other related threats to the integrity of the international financial system.

Starting with its own members, the FATF monitors countries' progress in implementing the FATF Recommendations; reviews money laundering and terrorist financing techniques and counter-measures; and, promotes the adoption and implementation of the FATF Recommendations globally.

What are the two lists of FATF?

FATF has two lists: Blacklist and Grey list.

Blacklist: The FATF blacklist has been issued by the organisation since 2000, listing countries that it thinks to be to be non-cooperative in the global fight against money laundering and terrorist financing, calling them "Non-Cooperative Countries or Territories" (NCCTs). Although non-appearance on the blacklist was perceived to be a mark of approbation for offshore financial centres (or "tax havens") who are sufficiently well regulated to meet all of the FATF's criteria, in practice, the list included countries that did not operate as offshore financial centres. The FATF updates the blacklist regularly, adding or deleting entries.

Grey list: The FATF also issues a grey list, which is also known as 'jurisdictions under Increased Monitoring'. The jurisdictions are actively working with the FATF to address strategic deficiencies in their regimes to counter money laundering, terrorist financing, and proliferation financing. When the FATF places a jurisdiction under increased monitoring, it means the country has committed to resolve swiftly the identified strategic deficiencies within agreed timeframes and is subject to increased monitoring.

The FATF and FATF-style regional bodies (FSRBs) continue to work with the jurisdictions noted below and to report on the progress made in addressing the identified strategic deficiencies. It calls on these jurisdictions to complete their agreed action plans expeditiously and within the proposed timeframes.

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Published 26 February 2021, 09:16 IST

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