Financial Action Task Force (FATF) and Mutual Evaluation Report

Syllabus: Important International Institutions, agencies and fora – their Structure, Mandate

Source: Th

Context: The Mutual Evaluation Report of India, adopted at the FATF plenary in Singapore from June 26 to 28, places India in the “regular follow-up” category, a status shared by only four other G-20 countries. This distinction highlights India’s significant progress in combating money laundering (ML) and terrorist financing (TF).

About Financial Action Task Force (FATF):

• FATF is an inter-governmental policy-making and standard-setting body dedicated to combatingmoney laundering and terrorist financing.

• Objective: To establish international standards, and to develop and promote policies, both at national and international levels, to combat money laundering and the financing of terrorism.

• Origin: It was established in 1989 during the G7 Summit in Paris to develop policies against money laundering. In 2001 its mandate expanded to include terrorism financing.

• Headquarters: Paris,France.

• FATF members include 39 countries, including the United States, India, China, Saudi Arabia, Britain, Germany, France, and the EU as such. India became a member of FATF in 2010.

Mutual Evaluation Report of FATF:

• The mutual evaluation report is an assessment of a country’s measures to combat money laundering, financing of terrorism and proliferation of weapons of mass destruction

• The reports are peer reviews, where members from different countries assess another country.

• During a mutual evaluation, the assessed country must demonstrate that it has an effective framework to protect the financial system from abuse.

• The FATF conducts peer reviews of each member on an ongoing basis to assess levels of implementation of the FATF Recommendations, providing an in-depth description and analysis of each country’s system for preventing criminal abuse of the financial system.

Mutual Evaluations have two main components:

• Effectiveness: The most important part of a mutual evaluation is a country’s effectiveness ratings. During this visit, the assessment team will require evidence that demonstrates that the assessed country’s measures are working and delivering the right results.

• Compliance:. The assessed country must provide information on the laws, regulations and any other legal instruments it has in place to combat money laundering and the financing of terrorism and proliferation.

FATF has 2 types of lists:

• Black List: Countries known as Non-Cooperative Countries or Territories (NCCTs) are put on the blacklist. These countries support terror funding and money laundering activities. The FATF revises the blacklist regularly, adding or deleting entries. Three countries North Korea, Iran, and Myanmar are currently in FATF’s blacklist.

• Grey List: Countries that are considered a safe haven for supporting terror funding and money laundering are put on the FATF grey list. This inclusion serves as a warning to the country that it may enter the blacklist.

Consequences of being on the FATF blacklist:

• No financial aid is given to them by the International Monetary Fund (IMF), the World Bank, the Asian Development Bank (ADB) and the European Union (EU).

• They also face a number of international economic and financial restrictions and sanctions..

• In addition to economic consequences, Black- and Grey-Listing damages a country’s reputation and reduces its international standing.