The global terror financing watchdog, Financial Action Task Force (FATF), has added Turkey, along with Jordan and Mali, in its revised list of “jurisdictions under increased monitoring”.
What does ‘jurisdictions under increased monitoring’ mean?
- According to the FATF, when a jurisdiction is placed under increased monitoring,
- “it means the country has committed to resolve swiftly the identified strategic deficiencies within agreed timeframes and is subject to extra checks”.
- Specifically, these jurisdictions are now “actively working with the FATF to address strategic deficiencies in their regimes to counter money laundering, terrorist financing, and proliferation financing”.
- This list of jurisdictions are commonly referred to as the “grey list”.
Which are the world’s grey list jurisdictions?
- There are now 23 countries in the FATF grey list, officially referred to as “jurisdictions with strategic deficiencies”.
- From India’s, and most of the rest of the world’s perspective, the most important country on the list is Pakistan.
- Myanmar is also on the list — and now, Turkey.
- In essence, in the assessment of the FATF, all these countries have failed to prevent international money laundering and terrorist financing, and are, therefore, on a global watchlist.
- Some of the other countries on the updated grey list are Philippines, Syria, Yemen, Zimbabwe, Uganda, Morocco, Jamaica, Cambodia, Burkina Faso, and South Sudan, and the tax havens of Barbados, Cayman Islands, and Panama.
- The FATF also took two countries — Botswana and Mauritius — out of the grey list. These “jurisdictions no longer subject to increased monitoring” have made “significant progress [in…] addressing the strategic AML/CFT deficiencies identified earlier by the FATF and included in their respective action plans”.
- AML/CFT refers to “Anti-Money Laundering/Combating the Financing of Terrorism”. “Both countries will no longer be subject to the FATF’s increased monitoring process.
So why is Turkey on the list?
- Turkey needs to address “serious issues of supervision” in its banking and real estate sectors, and with gold and precious stones dealers.
- Turkey needs to show it is effectively tackling complex money laundering cases and show it is pursuing terrorist financing prosecutions…and prioritising cases of UN- designated terrorist organisations such as ISIL and al Qaeda.
- The FATF statement said Turkey has made a “high-level political commitment to work with the FATF to strengthen the effectiveness of its AML/CFT regime”. The FATF has given eight specific tasks to Turkey, including, in broad terms:(i) dedicating more resources to the supervision of AML/CFT compliance by high-risk sectors and increasing on-site inspections;
(ii) applying “dissuasive sanctions” for breaches of AML/CFT, including unregistered money transfers;
(iii) enhancing use of financial intelligence to support money laundering investigations;
(iv) undertaking more complex money laundering investigations and prosecutions;
(v) fixing responsibilities and measurable performance objectives for anti-terror finance authorities;
(vi) conducting more financial investigations in terrorism cases;
(vii) concerning targeted financial sanctions under the UN’s anti-terror resolutions, and pursuing actions against UN-designated groups; and,
(viii) implementing a risk-based approach to supervision of non-profit organisations to prevent their abuse for terrorist financing.
What can happen as a result of grey-listing?
- There is research that suggests grey-listing negatively impacts the relationship of the concerned countries with international funders including banks and financial institutions that take note of FATF rankings, as well as existing and potential overseas investors in those countries.
- A recent study by the International Monetary Fund reported that grey-listing cuts capital inflow by an estimated 7.6% of gross domestic product (GDP), while foreign direct investment (FDI) and portfolio flows are also hit
What did the FATF say about Pakistan?
- In June 2018, after being grey-listed by the FATF, Pakistan made an international commitment at the highest political level that it would work with the FATF to strengthen its AML/CFT regime, and to address deficiencies in its counter-terrorist financing-related actions.
- Pakistan has completed 26 of the 27 action items in its 2018 action plan.
- While Pakistan has reported some steps, the FATF encourages Pakistan to continue to make progress to address as soon as possible, the one remaining CFT-related item by continuing to demonstrate that TF investigations and prosecutions target senior leaders and commanders of UN designated terrorist groups.
- The FATF said, “Pakistan should continue to work to address its other strategically important AML/CFT deficiencies, namely by:
- (1) providing evidence that it actively seeks to enhance the impact of sanctions beyond its jurisdiction by nominating additional individuals and entities for designation at the UN; and,
- (2) demonstrating an increase in ML investigations and prosecutions and that proceeds of crime continue to be restrained and confiscated in line with Pakistan’s risk profile, including working with foreign counterparts to trace, freeze, and confiscate assets.”
Back to Basics
What is the FATF?
- FATF is an intergovernmental organization founded in 1989 on the initiative of the G7 to develop policies to combat money laundering.
- The FATF Secretariat is housed at the OECD headquarters in Paris.
- It holds three Plenary meetings in the course of each of its 12-month rotating presidencies.
- As of 2019, FATF consisted of 37 member jurisdictions.
- The FATF is an inter-governmental body that works 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”.
What is the Black List and the Grey List?
- Black List now called the “Call for action” was the common shorthand description for the FATF list of “Non-Cooperative Countries or Territories” (NCCTs).
- 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.
India and FATF
- India became an Observer at FATF in 2006. Since then, it had been working towards full-fledged membership.
- On June 25, 2010, India was taken in as the 34th country member of FATF.
- The EAG (Eurasian Group) is a regional body comprising nine countries: India, Russia, China, Kazakhstan, Kyrgyzstan, Tajikistan, Turkmenistan, Uzbekistan and Belarus.
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