Note4Students

From UPSC perspective, the following things are important :

Prelims level: FATF

Mains level: Terror financing and Money Laundering

fatf

Central Idea

Pakistan’s Senate has approved a bill to establish a central authority to combat money laundering and terror financing by bringing all institutions related to the Financial Action Task Force (FATF) under one command.

What is FATF?

The FATF is an intergovernmental organization established in 1989 to combat money laundering and financial crimes.
Pakistan’s efforts to address money laundering and terror financing led to its inclusion in the FATF grey list in 2018.
However, through comprehensive reforms and strategic measures, Pakistan successfully managed to exit the grey list.
The country’s progress in enhancing laws related to money laundering and terrorism financing played a crucial role in achieving this milestone.

Global Financial Crimes Combat: FATF develops policies to combat money laundering and terrorist financing in response to the rise of the global economy and international trade.
Regulatory Recommendations: The organization makes recommendations to combat financial crime, reviews members’ policies and procedures, and promotes the acceptance of anti-money laundering regulations worldwide.
Continuous Updates: To stay ahead of evolving financial crime techniques, FATF updates its recommendations regularly.

Grey List: Countries considered safe havens for supporting terror funding and money laundering are placed in the FATF grey list. Inclusion in this list serves as a warning for potential entry into the more severe blacklist.
Black List (Call for Action): The “Non-Cooperative Countries or Territories” (NCCTs) list, commonly known as the black list, identifies countries that are non-compliant with FATF’s recommendations.

Economic Sanctions and Reduced Trade: Countries on the grey list may face economic sanctions and reduced international trade opportunities.
Difficulty in Obtaining Loans: Access to loans from international financial institutions like IMF, World Bank, and ADB may be limited.
International Boycott: The country may face international boycotts affecting its global reputation.

Establishing the Authority: The bill seeks to create a National Anti-Money Laundering and Counter Financing of Terrorism Authority, which will be led by a chairman appointed by the Prime Minister.
Coordination and Cooperation: The authority will act as a focal point for the FATF and related organizations.
Unified Response: The proposed authority will function as a focal institution, enabling Pakistan to provide a unified response to money laundering and terror financing.
Institutionalization of Entities: The bill seeks to institutionalize different entities, leading to improved efficiency and coordination in dealing with financial threats.

3 Arenas of Difficulty: The bill addresses difficulties related to anti-money laundering, countering the financing of terrorism, and targeted financial sanctions faced by Pakistan when on the FATF grey list.
Global Financial System Threats: Money laundering and terror financing were identified as severe threats to the global financial system when Pakistan was placed on the FATF grey list in 2018.

Multifaceted Review: The FATF review assesses 40 parameters related to law, justice, revenue, banking, and insurance, along with nine parameters related to terror financing.
Review Timeframe: The review began early this year and is expected to conclude by the end of 2024, with India being a rare country to have postponed its review due to COVID-19.

The FATF plays a crucial role in combating financial crimes, including money laundering and terror financing.
By taking significant steps to address deficiencies, Pakistan can manage to sustain its goal of exiting the grey list.