India is reportedly preparing to push for Pakistan's re-inclusion on the Financial Action Task Force (FATF) grey list, citing concerns over terrorism financing and non-compliance with anti-money laundering (AML) regulations. This move comes amid heightened tensions between the two nations, particularly following the recent terror attack in Pahalgam.
The FATF, a global body that combats money laundering and terrorist financing, had placed Pakistan on its grey list in June 2018. This designation signifies that a country is under increased monitoring due to strategic deficiencies in its AML/CFT (counter-terrorist financing) regime. While on the grey list, Pakistan faced increased scrutiny and had to commit to addressing the identified shortcomings within agreed timeframes. Pakistan was removed from the grey list in October 2022, after the FATF acknowledged that it had largely met its commitments.
However, India intends to argue that Pakistan has not fully complied with the legal provisions it promised to uphold when it was removed from the grey list. India plans to submit a detailed dossier to the FATF, highlighting Pakistan's alleged "omissions and commissions" with respect to AML and terror financing norms. The dossier is expected to focus on instances of Pakistan's support for terrorism, diversion of multilateral funds for arms procurement, and failure to act on terror emanating from its territory. Specifically, India is likely to point to the presence of senior military officials at the funerals of terrorists killed in recent Indian military actions.
For India to succeed in getting Pakistan back on the grey list, it needs the support of other FATF member countries. The FATF has 40 members, and decisions are typically made by consensus. India will be presenting its case at the next meeting of the Asia Pacific Group of FATF, followed by the FATF plenary and working group meeting in October.
Being placed on the FATF grey list can have significant economic consequences for a country. It often leads to increased due diligence requirements for businesses, which can deter foreign direct investment (FDI) and capital inflows. This is because international banks and investors become more cautious when dealing with entities from grey-listed countries, fearing potential risks related to money laundering and terror financing. Pakistan's removal from the grey list in 2022 was seen as a boost to its reputation among lenders and was considered crucial for its crisis-hit economy. Re-inclusion on the list could therefore have adverse effects on Pakistan's already fragile financial situation.
In addition to its efforts at the FATF, India is also planning to oppose upcoming World Bank funding to Pakistan. India had previously raised objections to the release of funds under the International Monetary Fund's (IMF) aid package for Pakistan, citing concerns about the diversion of funds for nefarious activities and terror attacks.
The push to get Pakistan back on the FATF grey list is part of India's broader strategy to financially isolate Pakistan and curb its ability to fund terror activities. Tensions between the two countries have escalated following the recent terror attack in Pahalgam, and India has vowed to take strong action against Pakistan. Prime Minister Modi has asserted that Pakistan uses terrorism as a weapon against India because it cannot win in a straight fight, and he has warned that Pakistan and its economy will pay a heavy price for every terrorist attack.
