The FATF is a global watchdog that was founded to tackle money laundering initially but its role became prominent post the 9/11 terror attacks. Following the attacks, the FATF expanded its operations and included terror financing under its purview.
First, the terms ‘Grey List’ and ‘Black List’ don’t officially exist in FATF parlance. Instead, you have “Jurisdictions Under Increased Monitoring” and “High-Risk Jurisdictions subject to a Call for Action”.
The FATF places a country on the ‘Grey List’ as a final warning to get it to comply with its directives. If a country still refuses to comply, it will be blacklisted by the organisation or be put on the ‘Black List’.
Eighteen countries including Pakistan have been placed on the FATF ‘Grey List’, while only two countries have been placed on the ‘Black List’: Iran and North Korea.
FATF Grey list
Like the blacklist, countries on the FATF grey list represent a much higher risk of money laundering and terrorism financing but have formally committed to working with the FATF to develop action plans that will address their AML/CFT deficiencies.
While grey-list classification is not as negative as the blacklist, countries on the list may still face economic sanctions from institutions like the IMF and the World Bank and experience adverse effects on trade.
The grey list is updated regularly as new countries are added or as countries that complete their action plans are removed. The current FATF grey list includes the following countries:
- Pakistan
- Iceland
- Albania
- The Bahamas
- Barbados
- Botswana
- Cambodia
- Ghana
- Jamaica
- Mauritius
- Mongolia
- Myanmar
- Nicaragua
- Panama
- Syria
- Uganda
- Yemen
- Zimbabwe
Why is Pakistan on the grey list?
Two words: terror financing. This is not the first time that the country has been on this list though. Between 2012 and 2015, too, the country had been subject to ‘grey list’ monitoring before it was taken out after showing “significant progress in improving its (anti-money laundering and combating of terror financing) regime”.
At that time, FATF had said it “notes that Pakistan has established the legal and regulatory framework to meet its commitments in its action plan regarding the strategic deficiencies”.
Later in June 2018, the country was again put on the grey list as FATF flagged its “strategic counter-terrorist financing-related deficiencies”. Pakistan was handed a list of 27 action points with which it had to comply before FATF again took it out of the grey list.
After successfully complying with 26 points out of 27, the FATF president announced a new action plan that largely focuses on money laundering risks. The FATF outlined six areas where Pakistan should continue to work to address its strategically important AML/CFT deficiencies.
