Financial Action Task Force (FATF)

• Russia's membership in the Financial Action Task Force (FATF) has recently been suspended as a result of its illegitimate invasion of Ukraine.

Highlight:

• The FATF has extended its sympathies to the Ukrainian people who have "faced a tremendous weight" as a result of Russia's "aggression war".
• In this context, the suspension of Russian membership appears to be due to its flagrant disregard for the FATF members' commitment to international collaboration and respect.
• The FATF has urged all governments to be on the lookout for dangers to the integrity, safety, and security of the global financial system brought on by Russia's conflict with Ukraine.
• Pakistan was previously placed on its Grey-list in 2018 for failing to resolve the shortcomings in its counter-terrorist financing-related efforts.
• However, the FATF said in 2022 that Pakistan had fulfilled its obligations and was no longer the subject of heightened oversight.

About the FATF:

• An intergovernmental group called the Financial Action Task Force (FATF) keeps an eye on global financial crimes that support terrorism.
• It is the global agency responsible for monitoring money laundering and terrorism financing.
• The intergovernmental organisation creates global norms with the intention of stopping these unlawful actions and the damage they do to society.
• The FATF seeks to create the required political will to bring about these types of national legislative and regulatory reforms in its capacity as a policy-making body.
• The FATF has created the FATF Guidelines, often known as FATF Standards, which guarantee a coordinated international response to stop terrorism, organised crime, and corruption.
• They aid law enforcement in pursuing the cash used by offenders engaged in human trafficking, the sale of illegal substances, and other crimes.

Historical perspective:

• The G-7 Summit, which took place in Paris in 1989, established the Financial Action Task Force on Money Laundering in response to growing concerns about the practice.
• The G-7 Heads of State or Government and the President of the European Commission met to form the Task Force, which included representatives from the G-7 member states, the European Commission, and eight additional nations, after realising the threat to the banking system and financial institutions.

Functions of the FATF:

• The FATF examines methods used to finance terrorism and money laundering and continually tightens its rules to handle emerging concerns, such as the need to regulate virtual assets, which has grown as cryptocurrencies become more prominent.
• The FATF keeps non-compliant nations accountable by monitoring their implementation of the FATF Standards to ensure that it is complete and effective.
• its Secretariat is located at the Organisation for Economic Cooperation and Development (OECD) headquarters in Paris.

Objectives:

• The FATF's goals are to establish norms and encourage the successful implementation of legal, regulatory, and operational measures to combat money laundering, terrorism financing, and other associated risks to the integrity of the global financial system.
• The FATF first keeps an eye on its own members' advancements in:
• Putting the FATF Guidelines into practice; Examining money laundering and countermeasures against it; and promoting their adoption and application globally.
• The FATF Plenary which is the decision-making body of the FATF, convenes three times a year.
• The FATF now has 37 member countries and 2 regional bodies (the GCC and the European Commission), which represent the majority of the world's main financial centers.
• Since 2010, India has also been part to the FATF

Members:

• Throughout 1991 and 1992, the FATF's membership rose from its initial 16 to 28. The FATF had 31 members when it was first established in the year 2000, and it now has 39.
• Following the 9/11 attacks in October 2001, the FATF broadened its scope to include initiatives to fight both money laundering and terrorism financing.
• It increased its efforts to stop the financing of the spread of weapons of mass destruction in April 2012.

FATF List;

GREY:

• The FATF maintains a "grey list" of nations that are thought to assist money laundering and terrorism financing.
• This listing aims to alert the nation that it may be added to the blacklist.
• Greylisting signifies that FATF has intensified surveillance of a nation to assess how well it is implementing measures to combat money laundering and terrorism funding.
• The "enhanced monitoring list" and the "grey list" are both terms for the same thing.

Black List:

• The blacklist is used to designate nations that are Non-Cooperative Countries or Territories (NCCTs).
• These nations aid in the financing of terrorism and the laundering of money.
• Every so often, the Financial Action Task Force updates the blacklist, adding or removing entries.

Impact of the list on the country:

• When the Financial Action Task Force (FATF) places a jurisdiction under increased monitoring, it indicates the nation has undertaken to address any identified strategic shortcomings quickly and within predetermined deadlines. This country is also subject to increased surveillance.
• Grey listing has a negative impact on the nation's imports, exports, and remittances and restricts its ability to obtain foreign funding.
• FATF is linked with important financial organisations like the IMF and World Bank as observers, and countries that are on the grey list have trouble accessing international credit instruments.