What is FATF’s’ grey list’?
The Financial Action Task Force (FATF) is a global money laundering and terrorist financing and other related threats watchdog to the integrity of the international financial system. The FATF updates its standards to combat modern world issues and holds countries that do not comply accountably.
The ‘grey list’ means that a country gets limited access to international loans. Specifically, “it means the country has committed to resolving swiftly the identified strategic deficiencies within agreed timeframes and is subject to extra checks”. Inclusion in the ‘Grey List’ implies “strategic deficiencies” detected in a jurisdiction’s policies to prevent money laundering and terror financing, according to an IMF working paper.
Turkey, Jordan, and Mali have been added to the ‘Grey List’ while Mauritius and Botswana have been taken off the list, Financial Action Task Force (FATF) president Marcus Pleyer said while addressing a virtual press conference from Paris. The FATF also quoted that ‘Afghanistan is a concern’.
What happens if a country is put on ‘grey list’?
Even though the list does not lead to any legal consequences, it means that the countries have failed to prevent international money laundering and terrorist financing, and are, hence, on a global watchlist.
A recent study by the International Monetary Fund reported that grey-listing cuts capital inflow by an estimated 7.6% of gross domestic product (GDP), while foreign direct investment (FDI) and portfolio flows are also hit, Reuters reported.
Pakistan was put on the grey list earlier in 2018 after the FATF found many strategic anti-money laundering (AML)/combating the financing of terrorism (CFT) deficiencies in the country’s system.
- The FATF then gave Pakistan an action plan for achieving 10 objectives. And the global watchdog identified that 26 out of 27 action items in the 2018 plan were done by Pakistan. However, the one left agenda was about continuing to demonstrate that terror financing investigations and prosecutions targeted senior leaders and commanders of U.N. designated terrorist groups.
- Despite not being put on the ‘blacklist’ of high risk, FATF president Marcus Pleyer said, “Pakistan has taken a number of important steps but needs to further demonstrate that investigations and prosecutions are being pursued against the senior leadership of UN-designated terror groups.”
- The UN-designated terrorists based in Pakistan include Jaish-e-Mohammed (JeM) chief Azhar, Lashker-e-Taiba (LeT) founder Saeed, and its ‘operational commander’ Zakiur Rehman Lakhvi needs more focus, said Pleyer.
Why Turkey – a European country?
- “Turkey needs to address serious issues of supervision,” said Pleyer, quoting the country’s real estate sectors, and with gold and precious stones dealers.
- Turkey needs to focus on tackling UN-designated terrorist organizations such as ISIL and al Qaeda, Pleyer said further.
- Money laundering cases, pursuing terrorist financing prosecutions should be Turkey’s main focus, the FATF said.
Further, the FATF has given eight-plan actions to Turkey to get out of the ‘grey list’. Turkey replied by saying, “despite our work on compatibility, placing our country on the grey list is an undeserved outcome”. However, Reuters reported that the country has pledged to take necessary actions to be removed from the list.
What can these countries do now?
Pakistan should, according to FATF, continue to work to address its other strategically important AML/CFT deficiencies by these two points:
- Providing evidence that it actively seeks to enhance the impact of sanctions beyond its jurisdiction by nominating additional individuals and entities for designation at the U.N
- Demonstrating an increase in money laundering investigations and prosecutions and that proceeds of crime continue to be restrained and confiscated in line with Pakistan’s risk profile, including working with foreign counterparts to trace, freeze and confiscate assets.
As for Turkey, the action points should be addressed. The FATF noted that it will review the countries’ performances again, and take necessary actions during the next plenary and working group meetings between February 27 and March 4, 2022.