Pakistan remains on the grey list of the Financial Action Task Force (FATF). What is the “grey list” and why does it matter?
The FATF was established in 1989 at a Paris G7 Summit meeting. FATF is concerned with money laundering and the social, financial, and criminal ills that precipitate from secret money washing though the global economy that finances terrorism, corruption, and global crime. FATF is an intergovernmental agency representing 37 jurisdictions. The organization is currently headquartered in Paris.
FATF is not an enforcement agency, but rather sets regulatory and compliance standards as well as acting as a watchdog for jurisdictions that either misuse the global financial system, or that remain out-of-step with objectives for bettering financial transparency in the international market. The so-called FATF “black” and “grey” lists stem from this mandate.
Officially, there are no technical black and grey lists. Each year, three meetings are held to review the “Strategic Initiatives and Country Specific Process.” Part of the review of the Country Specific Process involves determining the status of jurisdictions either out of compliance, or close to it. Compare:
- The unofficial black list: As noted by FATF, the black list is focused on “High-risk jurisdictions [that] have significant strategic deficiencies in their regimes to counter money laundering, terrorist financing, and financing of proliferation.” At present, the two countries on the list include Iran and the Democratic People’s Republic of Korea. Enhanced scrutiny and caution are urged at all levels for countries with business or other transactional interests in these regions.
- The unofficial grey list: The grey list is populated with 19 jurisdictions which are subject to increased monitoring. FATF works with these countries to address compliance deficiencies. The organization provides timelines and action plans to allow countries to exit the list.
In December 2020, the Bahamas moved off the grey list. Pakistan was hoping to do the same, but the body elected to leave Pakistan on the grey list until the next meeting in June 2021. Pakistan has moved onto and off the list three times in the last 12 years.
Through FATF initiatives, awareness of global money laundering, opaque foreign bank accounts, and global tax crimes has increased. A position on the Initiative lists of FATF makes global commerce more difficult for countries jockeying for space in the worldwide market.
No one knows how much money flows away from tax jurisdictions each year. Rough estimates run between USD 590 billion and USD 1.5 trillion. That is a lot of good money going to bad use.
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