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FATF is an inter-government body that sets the standards for measures to counter terror financing, money laundering and other threats to international financial system.
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India is FATF compliant.
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Money cannot be sent to “non-cooperative” countries.
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Recommendations: Criminalise Money Laundering with Vienna and Palermo Convention of UN.
What are the steps taken by India?
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The Reserve Bank of India (RBI) has prohibited Indian entities from making direct investments in any entity located in Non-Cooperative Countries and Territories (NCCT) as identified by Financial Action Task Force (FATF).
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The prohibition is for aligning instructions under FEMA (Foreign Exchange Management Act) with the objectives of the FATF.
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The NCCT initiatives principal objective is to reduce the vulnerability of the financial system to money laundering by ensuring that all financial centres adopt and implement measures for the detection, prevention and punishment of money laundering according to internationally recognised standards.
What is the impact of Grey-listing by FATF?
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FATF has grey listed Pakistan.
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It will endanger Pakistan’s handful of remaining banking links to outside world, causing real financial pain to its fragile economy.
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It will squeeze Pakistan’s economy and make it harder to meet its mounting foreign financing needs, including potential future borrowings from International Monetary Fund (IMF).
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It will lead to downgrading of Pakistan’s debt ratings by international banking and credit rating agencies, making it more difficult to tap funds from international bond markets.
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It will also suspend international funds and aid to Pakistan such as Coalition Support Funds (CSF), money which US owes to Pakistan for military operations.
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It will lessen investors’ confidence in Pakistan and also impacts its imports and exports, widening its existing huge current account deficit (CAD).