FATF met on 18th October to decide the fate of Pakistan and Pakistan has escaped being put in the black list by a whisker. They have been given one final chance till February 2020 before they are black listed. Here we explain the entire issue.
1. What is the Financial Action Task Force (FATF)?
It Is an inter-governmental organization based out of the OECD building in Paris. It was established by the G-7 in 1989 to combat the issue of money laundering. In 2001, its functional jurisdiction extended to terror financing. As of 2019, it has 39 members. It has divided itself into smaller groups also called the peer groups. An example of this is the Asia Pacific sub group of which India and Pakistan are a part. It has many observers including the World Bank, IMF and other countries.
It develops certain standards to be followed by all nations as far as crimes pertaining to terror financing and money laundering is concerned.
2. How does the listing process work?
Broadly speaking the FATF lists nations based on the non-implementation of its recommendations onto its Grey and Black lists.
Nations listed on the Grey list face a severe crisis of credibility and boycott. They find it tough to access foreign funds and investments, aid for development projects and access to trade credits. All transactions will be scrutinized. However, this is an opportunity for nations to change and rigorously follow the FATF recommendations. This is akin to a yellow card in a football match.
Black list on the other hand is a more serious issue. Being black listed means an end to a nation’s external dealings. No other nation, business and social entity or International banks will deal with the nation concerned. This can also result in civil wars and political instability. Black listing of Syria in 2011 was one of the reasons that led to the civil war. As of October 2019, North Korea and Iran are the nations on the Black list. It is possible to come out of the Black list.
3. Why is Pakistan in the dock?
In its recent report, the Asia-Pacific group has lambasted Pakistan for its failure to implement 35/40 parameters related to cracking down on terror financing. It has also poorly implemented the 27 points agenda that the group had given to it. It has remained in the Grey List since June 2018. Now it is all set to be black listed.
4. What happens if Pakistan gets Blacklisted this time around?
Here are some of the possible results of being blacklisted:
Various Financial institutions pulling out of Pakistan.
Fall in foreign currency transactions and remittances. It affects the Balance of Payment.
Fall in stock market
High inflation and political unrest (Syria 2011)
Economic sanctions from International institutions such as World Bank, IMF etc. Pakistan is dependent on the bail outs offered by these organizations.
International Boycott and loss of credibility.
Constriction of trade.
Pakistan may resort to nuclear black mailing.