FINANCIAL ACTION TASK FORCE: INTERNATIONAL RELATION

FINANCIAL ACTION TASK FORCE: INTERNATIONAL RELATION

NEWS: Post Pahalgam terror attack: India works to throttle Pakistan terror funding, get it back in watchdog FATF ‘grey list’

WHAT’S IN THE NEWS?

Following the Pahalgam terror attack, India is pushing to relist Pakistan in the FATF grey list, citing renewed terror financing and seeking international support. It also aims to strengthen FATF enforcement and transparency while showcasing its own robust legal framework for combating financial crimes.

Context: India’s FATF Strategy Post-Pahalgam Terror Attack

  • Following the April 2025 terrorist attack in Pahalgam, India is taking diplomatic and legal steps to bring Pakistan back onto the FATF grey list, citing renewed terror financing.
  • The move is part of India’s broader strategy to expose cross-border terrorism and tighten global financial scrutiny of Pakistan’s actions.

India’s Current FATF Strategy

1. Initiating Grey List Nomination

  • India plans to present detailed evidence of Pakistan’s ongoing support for terror financing and illicit fund flows, including activities linked to Kashmir-based groups.
  • The evidence will be formally submitted during FATF plenary meetings, where member states can initiate relisting processes.

2. Building International Consensus

  • India has received condolence and support messages from 23 FATF member countries, including key powers like the US, UK, France, Germany, and Gulf nations.
  • These nations’ backing is crucial as FATF decisions require consensus, and any three-member veto can block listing.

3. Raising Objections at IMF

  • India intends to question Pakistan’s ongoing $7 billion IMF bailout package, alleging misuse of international financial aid to fund or tolerate terror infrastructure.
  • This could impact Pakistan’s economic credibility and access to future aid.

 

 

India’s Legal and Institutional Framework Supporting FATF Compliance

1. Unlawful Activities (Prevention) Act, 1967 (UAPA)

  • Criminalizes terrorist financing and membership in banned organizations.
  • Allows for freezing of assets and bank accounts linked to terror entities.

2. Foreign Contribution (Regulation) Act, 1976 (FCRA)

  • Regulates foreign donations to NGOs and individuals, preventing misuse for anti-national or unlawful activities.
  • Frequently invoked to cancel or suspend registrations of suspicious entities.

3. Prevention of Money Laundering Act, 2002 (PMLA)

  • Provides a framework to detect, prevent, and punish money laundering activities.
  • Empowers Enforcement Directorate (ED) to attach and confiscate proceeds of crime.

4. Financial Intelligence Unit–India (FIU-IND)

  • Under Ministry of Finance, it receives and analyses financial transactions suspected to be linked with terror or crime.
  • Shares intelligence with law enforcement and international bodies like FATF and Egmont Group.

About the Financial Action Task Force (FATF)

1. Establishment and Mandate

  • Formed in 1989 during the G7 Summit in Paris, FATF is an inter-governmental policy-making body.
  • It aims to combat money laundering, terrorist financing, and emerging threats to global financial systems.

2. Secretariat and Membership

  • Headquartered in Paris, France, hosted by the OECD.
  • Has 39 members, including powerful economies and two regional organizations:
  • European Commission (EC)
  • Gulf Cooperation Council (GCC)

 

3. India’s Membership Journey

  • Observer status in 2006
  • Full member since June 25, 2010
  • Also part of FATF’s regional bodies:
  • Asia Pacific Group (APG)
  • Eurasian Group (EAG)

4. Governance and Decision-Making

  • FATF Plenary is the primary decision-making body, meeting three times a year — February, June, and October.
  • Decisions require consensus, and any three-member bloc can exercise veto powers.

FATF Standards and Working Mechanism

  • FATF has issued 40 recommendations, covering areas such as:
  • Money laundering and terror financing
  • Customer due diligence and KYC
  • Transparency of ownership and beneficial interests
  • Cross-border cooperation and mutual legal assistance
  • Countries are subject to periodic peer-reviewed evaluations for compliance and effectiveness, known as Mutual Evaluation Reports (MERs).

FATF Grey List and Black List

Grey List

  • Countries that are under “increased monitoring” due to strategic deficiencies in AML/CFT frameworks.
  • These countries commit to time-bound reforms under FATF supervision.
  • Current examples: Nepal, Syria, Yemen, Mali, etc.

Black List

  • Includes high-risk jurisdictions that pose significant threats to the international financial system.
  • Countries face a call for counter-measures, including global economic isolation.
  • Current blacklisted nations: North Korea (DPRK), Iran, Myanmar.

Implications of FATF Listing

  • Economic Sanctions: Grey- or blacklisted countries face funding restrictions from IMF, World Bank, ADB, and others.
  • Reduced Foreign Investment: Investors avoid high-risk jurisdictions, affecting FDI inflows and stock markets.
  • Financial Isolation: Banking and financial transactions face increased scrutiny, making international transfers and trade more difficult.
  • Reputation Damage: Negative FATF status undermines global trust, even if the country claims policy reforms.

Pakistan’s Grey List History and India’s Concerns

  • Tenure on Grey List: From June 2018 to October 2022, Pakistan was under FATF scrutiny.
  • During this period, it faced pressure to act against Lashkar-e-Taiba, Jaish-e-Mohammed, and other terror outfits.
  • FATF action led to partial compliance and arrests, but India argues these were cosmetic or temporary measures.
  • India’s stand: Delisting should be conditional on verifiable, irreversible action against all terror groups operating from Pakistani soil.

Challenges with FATF Implementation

1. Voluntary Nature

  • FATF relies on self-implementation by sovereign nations, with no formal enforcement or punitive authority.
  • Compliance depends on political will.

2. Transparency Deficit

  • Evaluation reports are often confidential, with limited public access to evidence or assessment criteria.
  • Makes accountability and public trust weaker.

3. Political Influence

  • Countries like China have used their position to block moves against Pakistan, citing geopolitical interests.
  • Undermines FATF’s credibility as a neutral watchdog.

4. Emerging Financial Crimes

  • Increasing use of cryptocurrencies, hawala, AI, and illegal wildlife trade for laundering and terror financing.
  • FATF must update its toolkit and include cyber and fintech experts.

Way Forward: Reforming FATF and Strengthening Global Action

1. Periodic Review and Update of Standards

  • FATF must continuously revise its 40 recommendations to address modern digital crimes and virtual assets.

2. Capacity Building for Developing Nations

  • Provide technical assistance, training, and infrastructure support to help countries build AML/CFT systems.
  • Encourages broad-based compliance, especially in Africa and South Asia.

3. Technology Integration

  • Employ data analytics, AI, and blockchain surveillance tools to detect financial anomalies.
  • Collaborate with fintech regulators, crypto exchanges, and cybersecurity experts.

4. Strengthen Global Partnerships

  • Work more closely with:
  • Interpol (for criminal data sharing)
  • UN Counter-Terrorism Committee (CTC)
  • Egmont Group (FIUs from around the world)

5. Improve Transparency and Accountability

  • Make evaluation reports more accessible and evidence-based.
  • Publish clear criteria for grey/blacklisting and delisting to enhance FATF’s legitimacy.

Source: https://indianexpress.com/article/india/post-pahalgam-terror-attack-india-works-to-throttle-pakistan-terror-funding-get-it-back-in-watchdog-fatf-grey-list-9977828/