Financial Action Task Force (FATF) excluded Pakistan from the grey list of the global watchdog on terror financing and money laundering after four years.



  • FATF has removed Pakistan from a list of countries under ‘increased monitoring‘ for terror financing.
  • Pakistan’s exit from FATF’s ‘grey list’ would allow the country to try to get foreign funds for tiding over its precarious financial situation.
      • It would provide Pakistan a boost after the country’s sovereign credit rating was downgraded by Moody’s.
      • It would also improve sentiment, important from a foreign direct investment perspective.


Why FATF changed its position on Pakistan?

  • In October 2021, FATF had said that Pakistan had addressed 30 of the 34 areas where it had raised concerns and recommended further compliance.
  • Till June 2022, Pakistan had completed most of the action items and only a few items that were left unfulfilled.
  • This included its failure to take action against UN-designated terrorists
    • Jaish-e-Mohammed (JeM) chief Masood Azhar,
    • Lashker-e-Taiba (LeT) founder Hafiz Saeed and his trusted aide and the group’s “operational commander”, Zakiur Rehman Lakhvi.
  • When Pakistan, in recent months, announced new sentences for Hafiz Saeed and Sajid Mir – two top terrorists of Lashkar-e-Taiba, FATF expressed its satisfaction.


Impact of Grey-listing

  • FATF stresses the need to consider associated risks when dealing with countries on grey-list.
  • Once grey-listed, it becomes increasingly difficult for a country to get financial aid from multilateral institutions such as: IMF, World Bank, ADB and EU.
    • Example — according to a research paper, Pakistan’s frequent grey-listing by FATF from 2008 to 2019 may have resulted in a cumulative GDP loss of $38 billion.
  • Grey-listing could further lead to a downgrade in countrys ability to float international bonds, receive or send remittances or conduct international trade.
  • The status does little more than raising the compliance burden on counterparts, such as correspondent banks, dealing with entities within the financial system of a grey-listed country.
    • Thereby, it attaches an additional cost to many external sector transactions.


Financial Action Task Force –

  • The Financial Action Task Force (FATF) is an inter-governmental body established in 1989 during the G7 Summit in Paris.
  • It currently comprises 37 member jurisdictions and 2 regional organisations.
      • India became an Observer at FATF in 2006.
      • In June, 2010 India was taken in as the 34th country member of FATF.
  • The objectives of the 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.
  • Its Secretariat is located at the Organisation for Economic Cooperation and Development (OECD) headquarters in Paris.
  • As of 2020, FATF membership consists of thirty-seven member jurisdictions. India is one of the members.
  • The FATF Plenary is the decision making body of the FATF. It meets three times per year.


Other information –

FATF has two lists –

  • Grey List: Countries that are considered safe haven for supporting terror funding and money laundering are put in the FATF grey list. This inclusion serves as a warning to the country that it may enter the blacklist.
  • Black List: Countries known as Non-Cooperative Countries or Territories (NCCTs) are put in the blacklist. These countries support terror funding and money laundering activities. The FATF revises the blacklist regularly, adding or deleting entries.