Answer Writing Practice for UPSC IAS Mains Exam: Paper - III (General Studies – II) - 16 August 2018

Answer Writing Practice for UPSC IAS Mains Exam

UPSC Syllabus:

  • Paper-III: General Studies -II (Governance, Constitution, Polity, Social Justice and International relations)

Q. Recently, Pakistan was formally added to the 'grey list' of countries by Financial Action Task Force (FATF). Discuss the reason for such inclusion and its significance for India. (250 words)

Model Answer:


  • Why in news?
  • Financial Action Task Force (FATF)
  • Reason for such inclusion
  • Significance for India
  • Conclusion

Why in news?

Pakistan was formally added to the 'grey list' of countries involved in providing monetary assistance to terrorism and related causes after a FATF (Financial Action Task Force) meeting in Paris in June.

A team FATF arrived lately in Islamabad to review the progress made by Pakistan on the action plan it issued earlier this year to counter money laundering and terror financing.

Financial Action Task Force (FATF)

FATF is an inter-governmental body set up in 1989, with an aim to “set standards and promote effective implementation of legal, regulatory and operational measures for combating money laundering, terrorist financing and other related threats to the integrity of the international financial system.” It has 37 members.

The FATF has been at the forefront of international efforts to fight money laundering and CFT (combating the financing of terrorism). It tries to take an indirect route to measure the vulnerability of a country to these crimes by evaluating laws and their implementation.

The FATF has increased awareness regarding the challenges being faced by the global financial system and also human security issues like terrorism. It has gained considerable influence over the regulatory framework that deals with financial transactions, in an attempt to make it less liable to exploitation by both profiteers and terrorists.

Reason for such inclusion

There are ‘strategic deficiencies’ in Pakistan’s anti-money laundering and terrorism financing regime. This leads to cash couriers and illicit movement of currency for terrorism financing. For this reason, Pakistan has been placed in the 'grey list' of countries by FATF.

The placement on to grey list could hurt Pakistan’s economy as well as its international standing.

Significance for India

  • This is likely to keep a tab on the prosecution of UNSC declared terrorists like Hafiz Saeed and his organisation, an action that Pakistan continues to shy away from. (Curative measure)
  • Despite being on the UNSC list of terrorist organisations, Pakistan uses bodies like Jamaat-ud-Dawa (JuD) and Falah-e-Insaniyat Foundation (FIF) etc. to not only collect, move and distribute funds but also undertake terrorist. So inclusion of Pakistan in the FATF’s grey-list may act as a preventive measure towards terrorist financing.
  • Being placed on the list at the FATF Plenary could make it “harder for foreign investors and companies to do business in the country.” Pakistan’s sovereign credit ratings are likely to be downgraded to sub-investment or 'junk' status which would have a negative effect on public borrowing costs.” This would certainly exert pressure on Pakistan to abstain from terror activities.
  • China’s backing of Pakistan to be included in the Nuclear Supplier Group (NSG) is likely to take a back seat. This is in India’s interest.
  • Pakistani sanctuaries sheltering insurgents are the biggest challenge to stabilizing Afghanistan. India has been an active and significant player with aims to stabilize and promote peace in Afghanistan. Pakistan’s inclusion in the FATF’s grey-list will India in its constructive efforts in Afghanistan.
  • The inclusion of Pakistan in the FATF’s grey list reinforces the US and India’s claim that Pakistan is a state sponsor of terrorism.
  • International community is likely to distance away from Pakistan putting more pressure on the latter.
  • It is obvious that all the above points are likely to benefit India which has been reeling under the proxy war waged, through terrorists, by Pakistan against India.


Pakistan is likely to remain under pressure to undertake urgent measures for improving the effectiveness of its CFT record. Further, its ability to merely employ symbolic measures as a substitute for combating terrorism is increasingly going to become a challenge in future.  All of this would benefit India.

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