The Financial Action Task Force: A Key Player in Global Financial Scrutiny

What is FATF?

The Financial Action Task Force (FATF) is a global inter-governmental body established in 1989 with the mission to combat:

• Money laundering
• Terrorist financing
• Proliferation financing (weapons of mass destruction)

FATF sets international standards and regularly reviews countries to evaluate how effectively they implement laws aimed at preventing the misuse of the financial system.

How FATF Exposed Pakistan

1. Greylisting

• Pakistan has been placed on the FATF grey list multiple times (2008, 2012, 2018).
• Being greylisted means:
  • Closer financial scrutiny.
  • Loss of investor confidence.
  • Difficulty in securing international loans and aid.

2. Blacklisting Threat

If improvements are not made, Pakistan risks being blacklisted—a status that could isolate it from the global financial system.

3. Specific Actions Taken

• FATF highlighted the misuse of non-profit organizations and charities for financing terrorism.
• It pressured Pakistan to:
  • Arrest prominent terrorists like Zaki-ur-Rehman Lakhvi (associated with Lashkar-e-Taiba).
  • Convict Hafiz Saeed (sentenced to 33 years in jail).
  • Introduce anti-terror laws such as the Anti-Terrorism Act Amendment 2020.

How Terror Financing Works: The Mechanism

Cycle of Terror Financing

1. Fund Generation
   • Drugs (Narco-terrorism)
   • Charities and NGOs (Fake humanitarian fronts)
   • Smuggling (gold, fuel, arms)
   • Hawala networks (informal money transfers)
2. Layering and Routing

   Utilization of front companies, numerous bank transfers, and shell firms to obscure the sources of funds.

3. Integration

   Funds are finally channeled into planning, recruitment, weapons acquisition, and training for terrorist activities.

How Narco-Terrorism Sustains Terror Groups

• The meth and opium trade from Afghanistan serves as a significant revenue source for terror organizations.
• This is evidenced by incidents such as the 3000-kg heroin seizure in Gujarat (2022).
• These funds help terror groups:
  • Purchase weapons.
  • Compensate operatives.
  • Expand their networks.

India’s Strategic Concerns

• The Pulwama attack (2019), which resulted in the death of 40 soldiers, prompted India to demand stricter FATF actions against Pakistan.
• India seeks enhanced scrutiny of Pakistan’s financial ecosystem, emphasizing:
  • Tracing communication routes of terrorist groups.
  • Implementing Aadhar-like ID verification for banking and SIM cards.
  • Improving cyber intelligence and financial surveillance.