FATF | On the warpath against terror financing

INTERNATIONAL/SECURITY/ GOVERNANCE

Topic: General Studies 2,3:

• Important International institutions, agencies and fora- their structure, mandate. 
• Security and its challenges

FATF | On the warpath against terror financing

About Financial Action Task Force(FATF)

• In response to mounting concern over money laundering, the FATF was established by the G-7 Summit that was held in Paris in 1989.
• In 2001, the development of standards in the fight against terrorist financing was added to the mission of the FATF.
• Therefore, FATF is the global money laundering and terrorist financing watchdog. 
• 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
• The FATF is not a part of the UN system, but it functions out of the Organisation for Economic Cooperation and Development headquarters in Paris

Working of FATF

• 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.
• 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
• The FATF runs differently from other multilateral agencies, as its primary focus is on reviewing all actions through a “technical” not a political prism, and frowns upon countries bringing bilateral issues to the forum.

• FATF depends on voluntary implementation of its reports by member countries. 

• Also, meetings of the group are carried out behind closed doors, and deliberations are not publicised. In the past, the FATF has penalised countries that have disclosed the contents of its meetings.

Decision Making of FATF

• Decisions are taken by consensus in the 39-member group, where any three members can exercise a “veto” on an action,
• FATF conducts reviews of countries on Anti-Money Laundering/Combating the Financing of Terrorism (AML/CFT) parameters -called “Mutual evaluations” 
• FATF then either clears these evaluation, or use a “colour coded” reference for placing countries in the one of the following lists
  • “increased monitoring” category or the “grey list”, or 
  • the “high risk jurisdictions” or “call for action” category, as the “blacklist” is formally known.
• At present, only Iran and North Korea are on the blacklist, while 18 countries, including Pakistan, Syria, Yemen, Iceland, Jamaica and Mauritius, are on the grey list.
• Pakistan has been kept on the group’s radar since 2008, with one stint on the grey list from 2012-2015, and another beginning June 2018. 

What happens when a country (Ex: Pakistan) is blacklisted?

• Unlike others, the FATF follows a principle of ostracism against members who don’t comply with its strictures.
• Countries will face severe financial restrictions which means tightening all banking mechanisms in this inter-connected globalised world
• A downgrading by credit agencies meaning high interest rate while borrowing 
• Most significantly, possible loan cuts by the World Bank and the International Monetary Fund.

India and FATF

• India became an observer in the grouping in 2006, and was inducted as a full member in 2010. 
• India has faced three rounds of mutual evaluations and cleared them, and faces the fourth round next year. 
• India has been persistent with its efforts in bringing evidence it has on Pakistan’s terror links to the world body.
• India is using FATF as a platform to pressurise Pakistan to curb its terror related activities

Future Challenges w.r.t FATF

• Politicisation of body: 

• • Even though decisions are taken by consensus, the organisation is affected by geopolitical trends
  • The U.S. and other countries have been able to ensure that Iran and North Korea remain on the FATF blacklist.
  • while others are able to avoid the blacklist tag as they are able to enlist the political support of enough other countries like China, Russia and Turkey.

• US-Taliban Deal

• • With the U.S. striking a deal with the Taliban in 2020, and efforts to take Taliban off the UN listing, FATF may change the focus of its reviews in jurisdictions that have engaged with the Taliban in the past.

• New-Age Challenges which includes

• • Bitcoins and cyber currencies, 
  • Illegal trafficking of wildlife as a source of funding, 
  • Use of artificial intelligence in terror attacks and 
  • Biowarfare as part of the wider challenge of the coronavirus pandemic.

Connecting the dots:

• US-Taliban deal – Critical analysis
• G7, G20 and WTO