FATF Poised to Consider Reinstating Pakistan on Grey List
In the coming weeks, Pakistan could find itself once again on the Financial Action Task Force’s (FATF) grey list, marking the fourth time due to persistent concerns over its inability to effectively combat terror financing. This development emerges amid ongoing scrutiny of Pakistan’s anti-terrorism financing measures and recent international diplomatic pressure.
Background and Current Status
The FATF, an intergovernmental watchdog that monitors countries’ financial systems to prevent money laundering and terrorism funding, is preparing an evaluation report slated for release in late June or early July. The report is expected to highlight areas where Pakistan has failed to take sufficient action, potentially triggering its reclassification under enhanced monitoring, commonly known as the grey list.
Pakistan has been on this grey list thrice before—in 2008–2009, 2012–2015, and most recently between 2018 and 2022—each time due to strategic deficiencies in its frameworks to stem illicit financial activities linked to terrorism.
India’s Role and Global Pressure
At the recent FATF plenary session in Strasbourg, India reportedly raised potent objections regarding Pakistan’s alleged support for terror networks. These concerns intensified following a deadly April 22 attack in Pahalgam, Jammu and Kashmir, where 26 people, mostly tourists, lost their lives.
Indian authorities identified two attackers as Pakistani nationals, a fact that has compounded diplomatic pressure on Pakistan. This incident has further drawn international attention to Islamabad’s alleged links to terrorism, shaping FATF discussions around Pakistan's compliance.
Understanding the Grey List Implications
Being placed on the grey list means enhanced scrutiny for countries viewed as having shortcomings in fighting money laundering and terror financing. While not a sanction per se, inclusion often results in reduced foreign direct investment and increased compliance burdens on businesses due to tougher financial monitoring.
An official familiar with the matter noted that although Pakistan is already under FATF surveillance, the formal decision to grey list it will be announced soon.
FATF’s Statement on Recent Terror Attacks
On June 16, FATF condemned the brutal terrorist attack in Pahalgam, underscoring the critical link between such violence and the financial channels that facilitate it. The statement highlighted that these acts could not occur without the ability to transfer funds among terrorist supporters.
FATF has also emphasized the need to assess the effectiveness—not just the existence—of countermeasures countries implement. This marks a shift toward evaluating practical outcomes in combating terrorist financing.
The Broader Fight Against Terror Financing
Following recent attacks and operations against terror groups, India has intensified diplomatic efforts, dispatching seven delegations worldwide to spotlight Pakistan's alleged ongoing support for terrorism.
The FATF is simultaneously preparing a comprehensive report addressing the misuse of emerging platforms, such as social media, crowdfunding, and virtual assets, for terrorist financing, drawing insights from its global network.
Global Context and Future Outlook
- Countries like Myanmar, Iran, and North Korea remain blacklisted due to severe compliance failures.
- Placement decisions on grey or black lists require consensus among FATF’s 39 members.
- Pakistan’s prior removal from the grey list followed its compliance with nearly all FATF recommendations.
The upcoming FATF report and the resulting decision on Pakistan’s status will be closely watched, given the significant geopolitical and economic ramifications involved.
