Financial Action Task Force (FATF), Full Form, Origin, Headquarter, Members, UPSC Notes

What is the Financial Action Task Force (FATF)?

The FATF full form is Financial Action Task Force. Financial Action Task Force (FATF) is an international body formed in 1989 by the Group of Seven (G7) member states with the aim of preventing cases of anti-money laundering and financing terrorist activities. Its headquarters is located in Paris, France. It aims to generate the necessary political will to bring about reforms in the national legislative and regulatory reforms to prevent money laundering and financing of terrorist activities.

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Origin of FATF

The Financial Action Task Force (FATF) was formed at the 1989 G7 Summit in Paris to combat the growing problem of money laundering. The task force was charged with studying money laundering trends, monitoring legislative, financial, and law enforcement activities taken at the national and international level, reporting on compliance, and issuing recommendations and standards to combat money laundering. 

• The FATF established year is 1989.
• The threat that was posed by cases of money laundering led world leaders to establish an organization to look into the concerns of the same. This organization was named Financial Action Task Force (FATF).
• A task force was established by the Heads of the Group of Seven countries and the President of the European Commission on the sidelines of the meeting, which was held in Paris, France, in 1989. The Task Force consisted of members from the G7 countries, the European Commission, and eight other countries.
• The responsibilities of the Task Force were analyzing the trends of money laundering and its set patterns, reviewing the action taken at the global level to prevent cases of money laundering, and the steps that are to be taken in order to avoid its cases in the future.
• The task force submitted its report in 1990. It contained a set of Forty Recommendations that spelled out steps to be taken to prevent cases of money laundering.
• Later, in 2001, the task force was given the additional duty of developing standards to prevent the financing of terrorist activities. For this, it issued Eight Special Recommendations in October 2001.
• In 2004, the body published the Ninth Special Recommendations, which contained measures to deal holistically with cases of money laundering and terrorist activities.
• The Financial Action Task Force (FATF) recommendation was finally published in 2012, which provided the national governments with stringent measures to protect the integrity of financial systems.

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Objectives of FATF

The objectives of the Financial Action Task Force (FATF) are 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. Financial Action Task Force (FATF) is a "policy-making body" that works to generate the necessary political will to bring about national legislative and regulatory reforms in these areas. The objectives of Financial Action Task Force (FATF) are:

• 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 also monitors countries' progress in implementing the FATF Recommendations.
• It reviews money laundering and terrorist financing techniques and countermeasures.
• It promotes the adoption and implementation of the FATF Recommendations globally.

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Member Countries & Observers of FATF

As of 2025, the Financial Action Task Force (FATF) currently comprises 38 member jurisdictions and two regional organisations, this totals to 40 members. It represents most major financial centres in all parts of the globe. There are 38 nation-states and two regional organizations that are part of the Financial Action Task Force (FATF). They are:

Jurisdictions

• Argentina
• Australia
• Austria
• Belgium
• Brazil
• Canada
• China
• Denmark
• Finland
• France
• Germany
• Greece
• Hong kong
• Iceland
• India
• Indonesia
• Ireland
• Israel
• Italy
• Japan
• Republic of Korea
• Luxembourg
• Malaysia
• Mexico
• Netherlands
• New Zealand
• Norway
• Portugal
• Russian Federation (Suspended)
• Saudi Arabia
• Singapore
• South Africa
• Spain
• Sweden
• Switzerland
• Türkey
• United Kingdom
• United States

Regional Organizations

• Gulf Cooperation Council
• European Commission

International organizations

• African Development Bank
• Asian Development Bank
• Basel Committee on Banking Supervision
• Camden Asset Recovery Interagency Network
• Egmont Group of Financial Intelligence Units
• European Bank for Reconstruction and Development
• European Central Bank
• Europol
• Group of International Finance Centre Supervisors
• Inter American Development Bank
• International Association of Insurance Supervisors
• International Monetary Fund
• International Organisation of Securities Commission
• Interpol
• Organization of American States / Inter-American Committee Against Terrorism
• Organization of American States / Inter-American Drug Abuse Control Commission
• Organization for Economic Cooperation and Development
• Organisation for Security and Cooperation in Europe
• World Bank
• World Customs Organisation

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FATF Grey List and Black List

The body, on assessment of the country's progress in implementing the Financial Action Task Force (FATF) Recommendations, identifies a list of nation-states that fail to take steps to prevent money laundering and terror financing. These publications are referred to as Blocklist and Grey list countries.

Black List Countries

These countries are termed high-risk jurisdictions subject to a call for action. The list contains a list of all those countries that fail to take active steps to counter cases of money laundering, terrorist financing, and financing the proliferation of weapons of mass destruction. The countries on the list are called upon to apply enhanced due diligence and, if required, to use countermeasures to protect the global financial system from money laundering, terrorist financing, and proliferation financing risks.

The countries on the Blocklist are the Democratic People's Republic of Korea, Iran, and Myanmar.

Grey List Countries

These are identified as Jurisdictions under increased monitoring. These nations actively work with the Financial Action Task Force (FATF) to curb deficiencies in their regimes to prevent cases of money laundering, terrorist financing, and financing the proliferation of weapons of mass destruction. These countries are subjected to enhanced monitoring of the Financial Action Task Force (FATF) and work to resolve the deficiencies within the agreed time frame. Enhanced due diligence measures are not applied to these countries. Countries under the Grey list are:

• Albania
• Barbados
• Burkina Faso
• Cambodia
• Cayman Islands
• the Democratic Republic of the Congo
• Gibraltar
• Haiti
• Jamaica
• Jordan
• Mali
• Morocco
• Mozambique
• Panama
• Philippines
• Senegal
• South Sudan
• Syria
• Tanzania
• Türkey
• Uganda
• United Arab Emirates
• Yemen

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FATF in India

The Financial Action Task Force (FATF) in India plays a key role in strengthening laws against money laundering and terror funding. India has been a full member of the Financial Action Task Force since 2010.

• India became a member of the Financial Action Task Force (FATF) in 2010.
• Since then, it has been reporting to the country on a regular basis on the progress achieved towards the implementation of its action plan on the prevention of money laundering and financing of terror activities.
• In India, the Ministry of Finance and Reserve Bank of India (RBI) issues circulars and notifications from time to time to identify the risks associated with financial matters relating to money laundering and terrorist financing and suggest appropriate measures to ensure that criminals are not allowed to misuse banking/financial channels.
• Further, a Cyber Security Cell was established in the Internal Security Division of MHA in 2011 to coordinate with Central Intelligence Enforcement Agencies and State Law Enforcement Agencies to tackle the problem of terror funding holistically.
• The Financial Intelligence Unit-India (FIU-IND) was established under the Ministry of Finance in 2004 to analyze and disseminate information pertaining to suspicious financial transactions involving suspected money laundering and terrorist financing to Intelligence / Enforcement Agencies and Regulatory Authorities.
• Further, to enhance the functionality of FATF in India, the government launched the National Risk Assessment exercise in January 2016 to identify sectors at risk of money laundering and terror financing and take steps to prevent them.
• Being a member of the body, the focus of India has been on
  • Plugging the loopholes identified in the criminalization of money laundering and terrorist financing.
  • Addressing the technical deficiencies related to customer due diligence and other preventive measures.
  • Augmenting its outreach program to guide the financial sector on suspicious transaction reporting obligations and engaging in extensive compliance monitoring and
  • Bringing several of the Designated Non-Financial Businesses and Professions within the scope of anti-money laundering and countering terrorist financing measures.
• In the 8th Follow Report (Mutual Evaluation of India) released in June 2013, FATF mentioned that the rate of convictions in cases of money laundering remained low in India. It also said that the number of cases pertaining to money laundering has increased since 2009. This also points out the fact that investigations regarding such cases have gone up.
  • In matters of terror financing, five persons were convicted between 2006 and March 2013.
  • The mutual evaluation stated that India's compliance with global standards in countering money laundering and terror funding is on the right track. However, the loopholes need to be addressed.

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Accomplishments & Progress of FATF

The Financial Action Task Force (FATF) has made global financial systems safer by setting standards against money laundering and terror funding. It has also improved country evaluations and cooperation.

• The Financial Action Task Force (FATF) has gained a worldwide reputation for being a credible professional organization.
• The success of the body can be gauged from its success in preventing cases of money laundering and terror financing across the globe.
• Apart from preventing the economy from the ills of money laundering, it has also ensured the security of human lives by preventing the proliferation of weapons of mass destruction and preventing terror activities.
• The body works closely with the United Nations, World Bank, IMF, and G20 Finance Ministers, and its efforts are in consonance with various resolutions of the UNSC.
• From its listing of countries under the Grey and Blocklist, it has ensured that terror financing activities are investigated, and persons who finance terrorism are prosecuted and subject to effective, proportionate, and dissuasive sanctions. Further, it has also acted as a corrective principle.
• Countries like Pakistan and Iran are pressured to take requisite action against terrorists operating from their soil.

Issues Associated With FATF

• Countries struggle to cooperate and build systems to follow FATF rules. They often lack resources and skilled workers.
• New tools meant to stop illegal money and funding for bad things (like terrorism) are hard to use. People don't fully understand the threats, and the tools can't handle much information.
• International groups don't always work well together, and there are too many laws and rules.
  • Some countries aren't strict enough with their rules.
  • Money can easily move between countries in hidden ways.
  • New ways to handle money can be expensive for businesses to track.

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Facts about FATF

Some important facts on the Financial Action Task Force (FATF) for the UPSC Exam are mentioned in the table below.

Particulars	Details
Full Form	Financial Action Task Force
Established in	1989
Established by	G7 nations
Headquarters	Paris, France
Members	37 member countries and 2 regional organizations, i.e, Gulf Cooperation Council and European Commission.
Decision-making body	FATF plenary It meets thrice a year.
Objective	To prevent Money Laundering, terror financing, and proliferation of weapons of mass destruction.

Concluding Remarks

The Financial Action Task Force (FATF) has done commendable work in preventing cases of money laundering and pushing states to take active steps to avoid financing terror activities. It has also prevented the proliferation of weapons of mass destruction.

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