FATF Grey List

May 3, 2025

India is taking financial measures against Pakistan following the Pahalgam terror attack. This attack resulted in the deaths of 26 people, primarily tourists. In response, India is advocating for Pakistan’s re-entry onto the Financial Action Task Force (FATF) grey list. This move aims to increase scrutiny on Pakistan’s financial transactions and limit its access to foreign investments.

About the FATF

The Financial Action Task Force (FATF) is an international body established in 1989 during a G-7 summit in Paris. It acts as the global watchdog for combating money laundering and terrorist financing. India became an observer in the FATF in 2006 and attained full membership in 2010.

Objective:

The FATF was initially created to analyze and develop strategies to fight money laundering.
Following the 9/11 terrorist attacks in the United States, its scope was broadened in 2001 to include preventing terrorist financing.
In April 2012, its mandate further expanded to address the financing of the proliferation of Weapons of Mass Destruction (WMD).

Impact of Grey Listing

FATF maintains a grey list of countries under increased monitoring. Pakistan was removed from this list in October 2022 after it made commitments to strengthen its anti-money laundering and counter-terrorist financing (AML/CFT) measures. Being placed on the FATF grey list can severely affect a country’s economy. It leads to increased scrutiny from international financial institutions. Countries on this list often face difficulties in securing foreign investments and loans. This economic pressure can impact Pakistan’s financial stability, particularly in light of its recent aid package from the International Monetary Fund (IMF).

FATF’s Role in International Relations

The FATF plays important role in shaping international relations. Countries often rely on FATF ratings to gauge each other’s commitment to combating terrorism financing. India plans to engage with key FATF member states to gather support for its initiative against Pakistan. This marks the interconnectedness of financial practices and diplomatic relations.

Geopolitical Implications

The developments following the Pahalgam terror attack tell broader geopolitical dynamics. India’s actions reflect its strategy to leverage financial tools to address security threats. The upcoming FATF plenary will be very important in determining Pakistan’s financial practices and their implications for regional stability.

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