India has intensified its diplomatic campaign to increase international pressure on Pakistan over terrorism concerns, focusing on two major fronts: the Financial Action Task Force (FATF) and the World Bank.

At the upcoming FATF plenary in June, New Delhi plans to submit a comprehensive dossier highlighting Pakistan’s alleged non-compliance with anti-money laundering (AML) and counter-terrorism financing (CFT) commitments, specifically those it agreed to when removed from the FATF ‘grey list’ in October 2022.

India’s main contention is that Pakistan has failed to enact and enforce the legal reforms it promised as part of its FATF action plan. Despite assurances, Islamabad is accused of not prosecuting UN-designated terrorists and allowing continued terror financing activities. The dossier India is preparing will outline these deficiencies, aiming to convince FATF members that Pakistan should be returned to the ‘grey list’—a status that subjects countries to increased financial scrutiny and restricts their access to foreign investment and international aid.

The FATF ‘grey list’ is reserved for countries with strategic deficiencies in their AML and CFT regimes. Being on this list hampers a country’s ability to secure external financing and affects its creditworthiness. Pakistan was previously on the grey list from June 2018 to October 2022, during which it faced significant economic challenges and was required to implement a strict action plan under FATF monitoring. India argues that since its removal, Pakistan has not sustained the reforms or enforcement necessary to prevent terror financing.

In parallel, India is also lobbying the World Bank to reconsider a proposed $20 billion financial package for Pakistan, scheduled for review in June. Indian officials claim that previous international aid, including a recent $1 billion IMF bailout, has been diverted for military purposes rather than economic reforms or fiscal health. India has already conveyed its concerns to IMF Managing Director Kristalina Georgieva, highlighting that such support was granted amid heightened hostilities and ongoing terror incidents.

India’s strategy involves mobilizing support among FATF member countries to back its proposal for Pakistan’s re-listing. The FATF, comprising 40 members and over 200 affiliated jurisdictions, makes decisions by consensus at its thrice-yearly plenary meetings. While Pakistan is not a direct FATF member, it is part of the Asia Pacific Group on Money Laundering (APG), as is India.

Should Pakistan be returned to the grey list, it would face enhanced monitoring and pressure to implement corrective measures. This would likely deter private investment and complicate access to international financial institutions, further straining Pakistan’s already fragile economy.

India’s current diplomatic efforts aim to hold Pakistan accountable for its perceived lapses in countering terror financing, leveraging global financial oversight mechanisms to restrict Pakistan’s access to international funds and increase the costs of non-compliance with international norms.

Agencies