Following the Pahalgam terror attack on April 22, 2025, India is pushing to place Pakistan back on the FATF Grey List, aiming to tighten global scrutiny on terror financing and destabilize Pakistan’s economy. The move to re-list Pakistan on the FATF Grey List underscores India’s strategic response to cross-border terrorism and sends a strong signal to international financial institutions. With global support mounting, this could mark a significant turning point in the fight against state-sponsored terror funding from Pakistani soil.
Understanding the FATF and Its Grey List
The Financial Action Task Force (FATF) is an intergovernmental body established in 1989 to develop policies combating money laundering and terrorist financing. The FATF Grey List comprises countries under increased monitoring due to strategic deficiencies in their anti-money laundering and counter-terrorist financing regimes. Inclusion in this list signals to the global financial system that a country poses a risk, potentially leading to economic sanctions and reduced investment.
Pakistan’s History with the FATF Grey List
Pakistan has a history of being on the FATF Grey List, with its most recent inclusion spanning from 2018 to 2022. During this period, Pakistan faced significant economic challenges, including decreased foreign investment and increased scrutiny from international financial institutions. Despite efforts to address FATF’s concerns, persistent issues related to terror financing led to prolonged grey-listing.
The Pahalgam Attack: Catalyst for Renewed Scrutiny
The Pahalgam terror attack has reignited concerns over Pakistan’s role in supporting terrorist activities. Indian authorities have presented evidence suggesting involvement of Pakistan-based groups in orchestrating the attack. This incident has galvanized India’s diplomatic efforts to hold Pakistan accountable on international platforms, including the FATF.
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India’s Strategic Objectives
- Re-listing Pakistan on the FATF Grey List: By pushing for Pakistan’s re-entry into the Grey List, India aims to subject Pakistan to increased financial scrutiny, thereby hindering its ability to fund terrorist operations.
- Objection to IMF Aid: India is also considering raising objections to the International Monetary Fund’s (IMF) proposed $7 billion aid package to Pakistan, arguing that such funds could potentially be diverted to support terrorist activities.
Potential Economic Impacts on Pakistan
Being placed back on the FATF Grey List could have severe economic repercussions for Pakistan:
- Reduced Foreign Investment: Investors may perceive Pakistan as a high-risk destination, leading to capital flight and reduced foreign direct investment.
- Challenges in Securing International Aid: Institutions like the IMF and World Bank may impose stricter conditions or withhold aid, exacerbating Pakistan’s financial woes.
- Currency Devaluation: Increased economic instability could lead to a devaluation of the Pakistani rupee, driving up inflation and affecting the cost of living.
International Support for India’s Stance
India’s call for action has garnered support from several countries, with 23 FATF member nations expressing condolences over the Pahalgam attack. This international backing strengthens India’s position in advocating for Pakistan’s grey-listing, highlighting a collective concern over global terrorism financing.
Pakistan’s Response
Pakistan has denied any involvement in the Pahalgam attack and has called for an impartial investigation. Pakistani officials argue that re-listing the country on the FATF Grey List would be unjust and politically motivated. However, the international community remains skeptical, urging Pakistan to take concrete steps in dismantling terror networks.
Conclusion
The push to re-list Pakistan on the FATF Grey List underscores India’s commitment to combating terrorism and ensuring regional stability. While the move could strain diplomatic relations, it serves as a strategic measure to pressure Pakistan into taking definitive action against terror financing. The international community’s response in the coming months will be crucial in determining the effectiveness of this approach.
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