Financial Action Task Force (FATF)

The Financial Action Task Force sets global standards to combat money laundering and terror financing, guiding over 180 countries worldwide.

Financial Action Task Force (FATF): An Overview

Syllabus: Internal Security – Terror Financing, Money Laundering

What is the FATF?

The Financial Action Task Force (FATF) is an international organization that develops standards and policies to fight money laundering, terrorist financing, and the financing of weapons of mass destruction (WMDs).

It ensures that countries have strong legal and institutional frameworks to detect and prevent financial crimes.

Objective

To set global standards and promote effective implementation of:
- Anti-Money Laundering (AML)
- Counter-Terrorist Financing (CFT)
- Combatting the financing of proliferation of WMDs

Origin and Headquarters

Established: 1989 during the G7 Summit in Paris, in response to growing concerns over money laundering
Expanded Mandate (2001): Included terrorism financing after the 9/11 attacks
Headquarters: Paris, France

FATF Membership

FATF currently has 39 members, including major economies such as:
- India, United States, United Kingdom, France, Germany, China, Saudi Arabia, and the European Commission
Criteria for membership:
- Significant economic size and financial sector
- Compliance with international financial norms
- Active participation in global institutions
Over 180 countries are connected to FATF through FATF-Style Regional Bodies (FSRBs)

India and FATF

Observer status: 2006
Full membership: 2010
India is also a member of two regional FATF bodies:
- Asia Pacific Group (APG)
- Eurasian Group (EAG)

Key Functions of FATF

Identifies methods used in money laundering and terrorist financing
Issues the FATF Recommendations – globally accepted standards for AML and CFT
Assesses country performance through peer reviews and mutual evaluations
Publishes reports and updates on evolving financial threats
Helps both governments and private sectors take preventive action

FATF Monitoring and Compliance

All members must adopt and implement the FATF Recommendations
Members are regularly reviewed to assess compliance
Countries that do not comply may be placed under increased monitoring

FATF Grey List and Blacklist

Grey List

Countries that have deficiencies in AML/CFT systems but are working with FATF to address them
They are under increased monitoring

Blacklist

Countries with serious strategic deficiencies that have not taken meaningful steps to address concerns
These are considered high-risk jurisdictions for money laundering and terror financing

Currently blacklisted countries:

North Korea
Iran
Myanmar

Consequences of Being Blacklisted

Ineligibility for financial aid from global institutions like the IMF, World Bank, ADB, and the European Union
International financial and economic sanctions
Decreased foreign investment
Negative impact on reputation and trade

Conclusion

FATF plays a critical role in maintaining the integrity of the global financial system. For India, FATF membership supports national security and aligns its financial systems with global standards. Strong implementation of FATF norms is essential to combat terrorism financing and illegal money flows.