FATF condemns terror attack, to release report on “state sponsored terrorism” for first time

Context

• The Financial Action Task Force (FATF), the apex inter-governmental anti-terror financing watchdog, has issued a statement condemning the Pahalgam terror attack, noting that it “could not occur without money and the means to move funds between terrorist supporters”.

• According to sources, this is a significant condemnation as it is only the third time in the last decade that a terror attack has been condemned by the FATF. Further, it is learnt that the FATF will release a report next month which, for the first time, will include state sponsorship as a separate source of funding of terror. • According to sources aware of these developments, the FATF “rarely” issues a condemnation of terrorist acts.

Financial Action Task Force (FATF)

• Formation: Established in 1989 by the G7 for anti-money laundering (AML) and later expanded (2001) to counter terrorist financing (CTF).

• The FATF’s framework is designed to help countries tackle illicit financial flows, with recommendations covering policies, money laundering, terrorist financing, preventive measures, transparency, and international cooperation.

• Includes 40 members, comprising 38 jurisdictions and two regional organisations (Gulf Cooperation Council, European Commission). India became a member of FATF in 2010.

• Headquarters located at the OECD in Paris.

Black List

• Jurisdictions with serious strategic deficiencies, where countries are urged to apply counter-measures.

• Countries known as Non-Cooperative Countries or Territories are put on the blacklist.

• These countries support terror funding and money laundering activities.

• As of 2025, North Korea, Iran, and Myanmar are on the black list. Consequences of being on the FATF blacklist

• No financial aid is given to them by the IMF, World Bank, Asian Development Bank (ADB) etc.

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

Grey List

• Countries under increased monitoring due to strategic deficiencies in combating money laundering and terrorist financing.

• These countries work with FATF to resolve deficiencies.

• This inclusion serves as a warning to the country that it may enter the blacklist.

Impact of FATF’s Grey List

• Financial Consequences: Countries on the grey list face heightened scrutiny, leading to increased due diligence by international businesses and financial institutions. This impedes foreign investments and restricts financial flows into such countries.

• Enhanced Monitoring: Countries on the grey list are subject to rigorous monitoring by FATF to ensure compliance with the 40 Recommendations