Turkey placed on FATF grey list, Pakistan retained- How does ‘Grey Listing’ impact countries?

Pakistan was in June 2021 given three months to fulfill the remaining conditions by October. However, it has failed to address all the conditions within the given timeline. 

Created On: Oct 22, 2021 12:08 IST
Turkey placed on FATF grey list, Pakistan retained
Turkey placed on FATF grey list, Pakistan retained

In a major blow to the two nations, the Financial Action Task Force (FATF) on October 21, 2021 placed Turkey on its grey list for failing to check terror financing and retained Pakistan as well.

Overall, three countries were added to the grey list this time- Jordan, Mali and Turkey. The decision was announced at the conclusion of the FATF's three-day plenary session that was held to discuss key issues in the fight against terror financing and money laundering.

FATF President Dr. Marcus Pleyer said, "Pakistan remains under increased monitoring (grey list). The Pakistan government has two concurrent action plans, with a total of 34 action plan items. It has now addressed or largely addressed 30 of the items."

Why has Pakistan been retained on the FATF grey list?

Pakistan has been in the FATF grey list since June 2018 for deficiencies in its counter-terror financing and anti-money laundering regimes. Pakistan was retained on the grey list repeatedly for failing to effectively implement the global FATF standards. The nation has so far failed to meet the deadlines given to it to fulfill the conditions to get off the list.

Pakistan was in June 2021 given three months to fulfill the remaining conditions by October. However, it has failed to address all the conditions within the given timeline. 

How long will Pakistan remain on the FATF grey list?

As per FATF President, Pakistan will remain on the grey list till it addresses all items on the original action plan agreed to in June 2018 along with all items on a parallel action plan handed out by the watchdog's regional partner - the Asia Pacific Group (APG) - in 2019.

However, the FATF President noted that Pakistan has made significant progress this time as it has largely addressed 26 out of 27 items on the action plan it first committed to in June 2018. However, the remaining item on financial terrorism still needs to be addressed, which concerns the "investigation and prosecution of senior leaders and commanders of UN-designated terror groups".

Why has Turkey been placed on the FATF grey list?

As per FATF President, Turkey had a mutual evaluation, assessment in late 2019 and the report highlighted several serious issues regarding the nation's effort to prevent and combat money laundering and terrorist financing. 

While Turkey has made some progress across all areas of concern, some serious issues remain such as supervision in particular high-risk sectors such as banks, precious stone dealers and real estate agents.

Turkey's placement in the FATF grey list is a heavy blow to Turkish President Recep Tayyip Erdogan as the nation's economy is already fragile and it will curtail its power to raise international investment.

Turkey needs to undertake the following actions to get off the FATF grey list:

-Implement a truly risk-based approach to NPOs and ensure authorities don't disrupt or discourage legitimate activity.

-Commit to take concrete action and effectively tackle complex money laundering, terrorist financing cases and serious organised crimes and corruption.

Countries removed from FATF Grey list

Two countries- Botswana and Mauritius were removed from the grey list after both the nations showed high-level commitment to implement reforms to improve their anti-money laundering and counter-terrorism finances. 

How does ‘Grey Listing’ impact countries?

FATF grey list puts countries under the scanner for not implementing the objectives of the task force. With the entry of a country into the grey list, it can face intense scrutiny from FATF and its members.

Besides denting the country's image, the greylisting can impact a nation's economy as it would make it harder for foreign investors to do business in a country that is blamed for funding terror activities. Grey listing of a nation lessens the investor's confidence in the country. 

Being placed on the FATF grey list also makes borrowing from international debt markets harder and costlier, as it reduces the nation's credibility.

What is Financial Action Task Force?

•The Financial Action Task Force was set up in 1989, during the G7 Summit in Paris, as an inter-governmental body. 

•The task force aims to set international standards for combating money laundering and terror financing. 

•The FATF Plenary is the main decision-making body of the Financial Action Task Force. 

•The Financial Action Task Force comprises over 39 member countries including India. 

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