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FATF’s Latest Report on Terrorist Financing Risks

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July 12, 2025

Prelims: Current Events of National and International Importance

Why in the news?

The Financial Action Task Force (FATF) has undertaken a project to compile the “Comprehensive Update on Terrorist Financing Risks” report, which was recently released.

Financial Action Task Force (FATF)
  • FATF – It is an intergovernmental body established in 1989 by the G7 nations to develop policies to combat money laundering.
  • Its core mandate is to issue and update international standards that countries should adopt to prevent and address financial crimes.
  • One of FATF’s most impactful tools is its listing system, the grey list and blacklist.
    • Grey list is those with strategic deficiencies in anti-money laundering (AML) and counter-terror financing (CTF) frameworks, but which have committed to resolving them within agreed timelines.
    • Blacklist includes nations that show no meaningful commitment to improvement.
  • Being listed can lead to reduced foreign investment, tougher borrowing conditions, and increased scrutiny from global financial institutions.
  • India and FATF - India is an active member.
  • Global Collaboration - The report was co-led by the UN Security Council Counter-Terrorism Committee and France, with India making a significant contribution.
  • Spotlight - For the first time, state sponsorship of terrorism was officially acknowledged in an FATF report.
  • Highlights - India’s 2022 National Risk Assessment (NRA) flagged Pakistan as a primary source of state-sponsored terrorism.
  • Based on NRA findings, Indian financial institutions are required to conduct enhanced due diligence on transactions involving Pakistan.
  • It is also expected that the report may also reflect the findings of the NRA’s of all other countries.
  • It is indicated that certain terror outfits had been and continued to receive financial and other forms of support from several national governments.
  • Wider Evidence - The FATF report used data from delegations and open sources, showing ongoing support for terror outfits by some governments.
  • Legal Framework - FATF explicitly stated that state funding of terrorism contradicts its standards, international conventions, UNSC Resolution 1373 (2001).
  • Security Threat - State-sponsored terrorism is described as a long-standing threat to international peace and regional financial stability.
  • Some Illicit Channels - One tactic includes oil smuggling from Iran to Pakistan, suspected of funding terrorism.
  • NGO Misuse - Terror outfits like Jaish-e-Mohammed and Lashkar-e-Taiba use fake charities to raise and move funds.
    • These organizations are disrupting aid operations and causing Humanitarian Abuse.
  • Global Impact - The FATF report, having higher precedence than national assessments, will pressure countries to recognize and respond to state-linked threats.
  • Financial Isolation - Due to international scrutiny, Pakistan’s transactions face increased costs, making it less attractive for global banking.

Reference

The Hindu| FATF’s Latest Report on Terrorist Financing Risks
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