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CWA # 235, 29 February 2020

The FATF Meeting, February 2020
Pakistan to remain “Grey”; North Korea and Iran in “Black”

  Lakshmi V Menon

Consequences of being grey-listed are significant for the reprimanded countries. First, economic sanctions and difficulties in availing loans from World Bank, ADB, IMF and other countries.

The Financial Action Task Force Plenary meet was held in Paris to discuss global terror funding and money laundering issues from February 16-21 2020. As reported by the FATF website, about 800 representatives from 205 countries, the World Bank, IMF, UN and other organizations took part in the plenary meeting. Progresses by nations that FATF claim “present a risk to the financial system” such as Pakistan, Iran and others were debated and deliberated.

On the final day, 21 February, the Plenary concluded that Pakistan will continue for another four months in the “grey-list” (or “Other Monitored Jurisdictions” list) with a severe reprimand of being “black-listed” on failure of completion of the FATF recommended 27-points by June 2020; while North Korea and Iran would continue in the “black-list” (or listed as "Non-Cooperative Countries or Territories" or “High Risk Jurisdictions Subject to a Call for Action”). Countermeasures against Tehran and North Korea were reinstated after they were noted to have failed the Action Plan. 

The Plenary commended South Korea on a sound institutional and legal framework. After a consistency and quality review, Korea and UAE mutual evaluation reports would be published in April 2020, it added. FATF commented that UAE had strengthened countering financing of terrorism (CFT) and anti-money laundering (AML) measures, but needed to improve international cooperation, prosecutions and investigations; Korea had to enhance supervision by focusing on misuse of legal structures; and agreed upon Re-rating of US (based on degree of technical compliance) after a discussion on the US’ 2016 mutual evaluation’s follow-up report. 

FATF, a global money-laundering and terror funding watchdog, is an inter-governmental decision-making body that was established in 1989, during the G7 Paris summit, to develop policies for combating terror-financing, money laundering and associated threats. The policy-making body strives to generate political will for national regulatory and legislative reforms. First, FATF provides benchmarks and endorses effective realization of regulatory, legal and operational processes for AML/CFT. Second, the body identifies national and regional level vulnerabilities, aiming to preserve the veracity of international financial systems. While “black-listed” states support money laundering and terror funding activities, those states that are considered safe-havens for such perpetrators face being “grey-listed”, as a warning. The listings are subject to regular revision through addition or deletion of entries by the FATF; in 2019, Sri Lanka, Ethiopia and Tunisia were dropped from monitoring. In February 2020, Albania, Barbados, Jamaica, Mauritius, Myanmar, Nicaragua and Uganda were added to the “grey-list”.

Post 9/11 attacks, the watchdog’s prominence in combatting terror-funding amplified. As of 2019, “grey list” included 12 countries – Bahamas, Botswana, Cambodia, Ghana, Iceland, Mongolia, Panama, Pakistan, Trinidad and Tobago, Yemen and Zimbabwe; and the “blacklist” included North Korea and Iran. Presently, it has 39 members including regional blocs such as the Gulf Cooperation Council (GCC) and the European Commission.

Previously, the watchdog had given Islamabad a September 2019 deadline for curbing terror funding to terrorist organizations and leadership designated by UN Security Council. In November 2019, noting Pakistan’s compliance with merely four points, the deadline was postponed to February 2020. At the International Co-operation Review Group’s (ICRG) Paris meeting, Pakistan presented a report on actions appropriated by the state to check terror-sponsoring. The watchdog’s extension, ICRG, warned that Pakistan would face being “black-listed” in case of non-compliance with the outstanding 22 out of 27 FATF requirements. Pakistan was also grey-listed from 2012-2015. The incongruence of Islamabad’s national anti-terror laws with UNSC resolution 2464 (criminalizing terror financing) and FATF standards have led to the country repeatedly finding itself in the grey-list. While FATF seeks a complete denial of weapons access, travel ban and freezing of funds, Pakistan simply detained Masood Azhar and Hafiz Saeed. The LeT, JeM, JuD cadres’ arrests were also under the Maintenance of Public Order Act and not under the 1997 Anti-Terrorism Act. In the February 2020 meeting, despite heavy lobbying, Pakistan could only garner support from China, Turkey and Malaysia and thus failed to secure the 12 out of 39 votes required to exit the grey-list (only three votes were required to avoid the black-list). India has persistently provided evidence on Pakistan’s inaction.

In 2016, FATF welcomed Iran’s commitment to tackle terror-financing and money-laundering after Tehran’s decision to outsource technical assistance to implement the FATF directive, the establishment of a cash-declaration regime, and amendments enacted for CFT regime and AML acts. However, in February 2020, although FATF recognized Tehran’s labours for progress, it judged non-compliance with various requirements. However, Abdolnasser Hemmati, Governor of the Central Bank of Iran, dismissed the listing claiming it inept of hindering “Iran’s foreign trade or stability in currency rates”.

According to the FATF directive, Pakistan, Iran and North Korea need to totally revamp their financial networks for enhancing monitoring of transaction patterns and business relationships, cracking down on terror outfits, curbing terror-sponsoring and fortifying CFT and AML. For Tehran, countermeasures may be suspended provided Iran ratifies the Palermo and Terrorist Financing Conventions. North Korea has time and again ignored the warnings.

Consequences of being grey-listed are significant for the reprimanded countries. First, economic sanctions and difficulties in availing loans from World Bank, ADB, IMF and other countries. Second, a reduction in international trade. Lastly, a global boycott that may brew politico-socio-economic issues posing administrative challenges. The latest verdicts will further strain the struggling economies and polities of Pakistan, Iran and North Korea. States often paint a political conundrum on verdicts leading to stringent sanctions. To reduce such risks and enhance efficiency, FATF urges member states to independently appropriate countermeasures. Nevertheless, Iran’s blacklisting could be a pawn in the ongoing US-Iran conflict. FATF’s decision will enable the US to further arm-twist Iran and justify the crippling sanctions.

Additionally, FATF highlighted vital initiatives like those using novel standards for virtual currencies, digital identity systems, and provided methods to tackle illegal wildlife trade. The body also offered a set of possible countermeasures in the form of an ‘Interpretative Note to Recommendation 19’.

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