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Financial Action Task Force (FATF)

Focus: GS-II: International Relations (International Groupings or Agreements affecting India’s Interests, India’s neighbors), GS-III: Internal Security Challenges (Terrorism in Hinterland & Border Areas)

Why in News?

Recently, Union Minister for Finance & Corporate Affairs attended the FATF Ministerial Meeting in Washington D.C., conducted along-side the 2022 Spring Meetings of the World Bank Group and the International Monetary Fund (IMF).

Highlights of the Meeting:

  • This meeting focussed on Ministers’ providing strategic direction, by endorsing the FATF’s strategic priorities for the years 2022-24 and reinforcing Ministers’ commitment to ensure suitable funding for the delivery of the strategic priorities which are Strengthening the FATF Global Network, FATF systems of Mutual Evaluations, Enhancing International Beneficial Ownership Transparency, Increasing Capabilities to more effectively recover Criminal assets, Leveraging Digital Transformation, Ensuring Sustainable Funding for FATF Strategic priorities.
  • During the Meeting, the Finance Minister reaffirmed India’s commitment to fighting Money Laundering, Terrorist Financing and Proliferation Financing and acknowledged and appreciated FATF on their work on Beneficial Ownership Transparency, Asset Recovery, and the role of FATF Global network in safeguarding the global financial system.
  • Finance Minister extended support to the strategic priorities and said that India is committed to provide the necessary resources and support to FATF in its endeavour as a global alliance against money laundering, terrorist financing and financing of proliferation of weapons of mass destruction.

Financial Action Task Force (FATF)

  • The Financial Action Task Force (on Money Laundering) (FATF) is an intergovernmental organisation founded in 1989 on the initiative of the G7 to develop policies to combat money laundering.
  • In 2001, its mandate was expanded to include terrorism financing.
  • FATF is a “policy-making body” that works to generate the necessary political will to bring about national legislative and regulatory reforms in these areas.
  • FATF monitors progress in implementing its Recommendations through “peer reviews” (“mutual evaluations”) of member countries.
  • Since 2000, FATF has maintained the FATF blacklist (formally called the “Call for action”) and the FATF greylist (formally called the “Other monitored jurisdictions”).
  • The objectives of FATF are to set standards and promote effective implementation of legal, regulatory and operational measures for combating money laundering, terrorist financing and other related threats to the integrity of the international financial system.

FATF Greylists

  • FATF greylist is officially referred to as Jurisdictions Under Increased Monitoring.
  • 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.
  • The countries on the grey list are subject to increased monitoring by the FATF, which either assesses them directly or uses FATF-style regional bodies (FSRBs) to report on the progress they are making towards their AML/CFT goals.
  • 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.
  • Unlike the next level “blacklist”, greylisting carries no legal sanctions, but it attracts economic strictures and restricts a country’s access to international loans

FATF Blacklists

  • FATF Blacklists is Officially known as High-Risk Jurisdictions subject to a Call for Action.
  • FATF blacklist sets out the countries that are considered deficient in their anti-money laundering and counter-financing of terrorism regulatory regimes.
  • The list is intended to serve not only as a way of negatively highlighting these countries on the world stage, but as a warning of the high money laundering and terror financing risk that they present.
  • It is extremely likely that blacklisted countries will be subject to economic sanctions and other prohibitive measures by FATF member states and other international organizations.

Effects of FATF Blacklisting

  • The effect of the FATF Blacklist has been significant, and arguably has proven more important in international efforts against money laundering than has the FATF Recommendations.
  • While, under international law, the FATF Blacklist carried with it no formal sanction, in reality, a jurisdiction placed on the FATF Blacklist often found itself under intense financial pressure.
  • FATF makes sure funds are not easily accessible by terror organisations that are causing crimes against humanity.
  • FATF has helped to fight against corruption by ‘grey-listing’ countries that do not meet Recommended Criteria and this helps to cripple economies and states that are aiding terrorist and corrupted organisations.
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June 2022
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