GP Insights # 265, 22 February 2020
The plenary meet of global money laundering and terror financing watchdog Financial Action Task Force (FATF), took place during February 16-21 in Paris. As per FATF's website, over 800 representatives from 205 countries and jurisdictions, the UN, IMF, World Bank and other organizations attended the working group meetings and plenary. Improvements made by Pakistan, Iran and other countries which FATF claim "present a risk to the financial system" were discussed.
On 21 February, the plenary finalized that Pakistan will continue in the "grey-list" (or "Other Monitored Jurisdictions" list) for another four months with a harsh admonition to complete the 27 recommended points by June 2020 or face being blacklisted. North Korea and Iran were "blacklisted" (or listed as "High-Risk Jurisdictions Subject to a Call for Action" or "Non-Cooperative Countries or Territories") as they failed to comply with global norms regarding anti-terrorism-financing and money-laundering.
Meanwhile, Abdolnasser Hemmati, Governor of the Central Bank of Iran, dismissed the FATF verdict claiming it would not hinder "Iran's foreign trade or stability in currency rates".
What is the background?
FATF, an inter-governmental body, was established in 1989 to maintain the integrity of international financial systems by combating terror-funding, money laundering and related threats. It presently has 39 members, including two regional organizations – the Gulf Cooperation Council and the European Commission.
FATF had given Pakistan a September 2019 deadline to end terror funding to UNSC designated terrorist organizations and sue their leadership. In November 2019, the deadline was extended to February 2020; the FATF review then concluded that Pakistan had complied with just four points. Based on FATF's guidelines, Islamabad had submitted a report on actions taken by Pakistan to check terror financing at the International Co-operation Review Group's (ICRG) Paris meeting. ICRG, an extension of the watchdog, had cautioned that Pakistan would be blacklisted in the absence of compliance with the remaining 22 out of 27 points to curb terror-sponsoring.
Since 2016, Iran had enacted amendments to countering the financing of terrorism regime (CFT)/anti-money laundering (AML) acts, adopted AML by law and commenced a cash-declaration regime. FATF welcomed Tehran's commitment to addressing AML/CFT deficiencies and the decision to implement the Action Plan. However, in February 2020, FATF judged non-compliance with certain items. North Korea has time and again ignored the warnings.
As on 24 October 2019, "grey list" included 12 countries – Bahamas, Botswana, Cambodia, Ghana, Iceland, Mongolia, Panama, Pakistan, Trinidad and Tobago, Yemen and Zimbabwe; and the "blacklist" included only North Korea.
What does it mean?
FATF norms require Pakistan, Iran and North Korea to completely revamp their financial networks in order to crack down on terror factions, curb terror funding and strengthen countering terror funding and anti-money laundering. Islamabad had garnered support from China, Turkey and Malaysia but despite the lobbying failed to secure the 12 out of 39 votes required to be dropped from the grey list.
FATF said that it had recognized Tehran's efforts and progress in the area. Hence, if Iran ratifies the Palermo and Terrorist Financing Conventions, congruent to FATF standards, the body may suspend countermeasures.
The verdict is significant as it will bring a further strain on these countries politically and economically. Often, countries that face strict banking and international finance sanctions politicize the issue. The watchdog also allows member states to independently appropriate countermeasures to heighten efficiency and reduce such risks. Nevertheless, Iran's verdict could be a pawn in the US-Iran standoff.