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Wednesday July 16, 2025

The Grey and Black lists of Financial Action Task Force

By Sabir Shah
July 30, 2020

LAHORE: The government is striving hard to comply with all the 27 targets assigned to it by Financial Action Task Force (FATF), established in 1989 during the G-7 Summit held in Paris to examine and develop measures that could combat the free flow of dirty money.

Featuring prominently in the FATF Grey List since 2012, Pakistan had only managed to comply with 5 of the 27 targets by October 2019, but China came to its rescue from falling from the Grey List.

Given another four months’ time in October 2019 to fulfill the promise, Pakistan continues to languish in the Grey List of FATF, whose founding stakeholders include the G-7 heads of states or governments, president of the European Commission and eight other countries.

Other countries on the FATF Grey List include Iceland, Panama, Mongolia, Bahamas, Botswana, Cambodia, Ghana, Trinidad and Tobago, Yemen and Zimbabwe.

As far as the FATF Grey List is concerned, countries that are not fully considered as the safe havens for supporting terror-funding and money-laundering are included in this category.

However, the Grey List is a warning given to a particular non-compliant country that it might be placed in the Black List, which is just like a yellow card in a football match, should it fails to curb the mushrooming of terror-funding and money-laundering.

Failing to do so, a Grey-listed nation is thus shifted to the FATF Black List.

When a country comes in the Grey List, it faces many problems like economic sanctions from international institutions (IMF, World Bank, ADB etc) and other countries, and it also confronts hurdles in seeking loans from international creditors.

All these factors then results in the overall reduction in a Grey-listed nations’ international trade, and above all, such countries find themselves on the brink of a nightmarish international boycott!

Although the likes of Qatar, Bahrain, Saudi Arabia and UAE etc have also been also been regularly accused of doing very little to prevent flow of funds for terror financing in other nations, Pakistan has been deemed more guilty in this context.

And once a nation falls in the FATF Black List, as Iran and North Korea have, the emerging scenario is detrimental to its already struggling economy.

In Pakistan’s case, if it plunges into the Black List, it will surely find itself being deprived of new capital and investment at a juncture when it is already suffering through a serious balance of payments crisis and is trying its best to cope with the new IMF-funded austerity measures.

It goes without saying that most global banks don’t want to be tainted by doing business with Pakistan, and it would be a hard toil to win back many potential new investors, should an unfortunate situation such as this arises. Even remittances might dip substantially.

As India is visibly trying very hard to get Pakistan blacklisted, its success would adversely affect Pakistan’s $6-billion loan programme with the International Monetary Fund. The FATF, on the other hand, might then issue a ‘Call of Action’ to international banks and financial institutions to sever ties with Pakistani entities.

The FATF Black List, issued in year 2000, includes nations that are considered uncooperative tax havens for terror-funding.

These countries, Iran and North Korea are known as Non-Cooperative Countries or Territories. In other words countries that are supporting terror-funding and money-laundering activities are placed on the Black List.

Optimists believe that if the US administration thinks Pakistan is being helpful in advancing Washington policy objectives in Afghanistan, the Trump administration might not push for Pakistan’s blacklisting.

And one can already see a lot of movement in this direction as far as the Pakistani government and armed forces are concerned.

So, it will require a herculean effort by India to realise its dream of getting Pakistan isolated on global horizon, but then policy-makers in New Delhi often ignore the geo-political advantages Pakistan enjoys. However, fingers remain crossed and the anxiety and seriousness of the incumbent Pakistani regime bear ample testimony to the fact that despite Opposition’s ego-ridden resistance in the Lower House of Parliament currently, men at the helm of affairs in the federal capital are marching towards their goal of meeting the FATF conditionality in this context.