India has intensified its diplomatic and financial campaign to re-list Pakistan on the Financial Action Task Force (FATF) ‘grey’ list in the wake of the recent terror attack in Pahalgam, Jammu & Kashmir. 

This comes ahead of a crucial International Monetary Fund (IMF) board meeting, where Pakistan’s eligibility for a $7 billion aid package is set to be reviewed. India’s actions are strategically aimed at curtailing Pakistan’s access to international financial support and increasing pressure on Islamabad to take verifiable action against terror financing and money laundering networks.

At the core of India’s strategy is the preparation of a fresh dossier containing “actionable” evidence of Pakistan’s alleged backsliding on commitments made to the FATF. This evidence is expected to highlight regression in enforcement of sanctions and weak prosecution of terror financiers, particularly those linked to groups like Lashkar-e-Taiba and Jaish-e-Mohammed. India is leveraging the FATF’s International Cooperation Review Group mechanism to underscore how Pakistan’s performance has deteriorated since its removal from the grey list in October 2022, thereby justifying an urgent re-evaluation of its status.

India’s diplomatic offensive includes lobbying FATF’s 40 member countries, especially key European nations, to build consensus for Pakistan’s re-listing. The government is also coordinating with domestic agencies such as the National Security Council Secretariat and the Enforcement Directorate to consolidate its case. The aim is to secure maximum support ahead of the FATF plenary session, where decisions on grey listing are finalised.

The FATF grey list, officially termed “Jurisdictions Under Increased Monitoring,” includes countries with significant deficiencies in their anti-money laundering (AML) and counter-financing of terrorism (CFT) regimes. Grey listing is not arbitrary; it is based on mutual evaluation reports that assess compliance with FATF’s technical recommendations.

A country can be nominated for the grey list if it has 15 or more non-compliant or partially compliant technical ratings, poor performance in key recommendations (such as money laundering, terrorist financing, targeted sanctions, customer due diligence, record keeping, and suspicious transaction reporting), and low effectiveness in implementing these measures.

Pakistan’s previous stint on the grey list, from June 2018 to October 2022, subjected it to heightened scrutiny and economic fallout, including an estimated $38 billion loss to its economy. During this period, global pressure forced Islamabad to take action against terror groups and implement reforms in its AML/CFT framework. However, sources indicate that several of these commitments have since lapsed, with enforcement and prosecution efforts weakening post-delisting.

India’s renewed push is also linked to concerns about the misuse of international aid, particularly the IMF’s $7 billion package approved in July 2024. India argues that without stricter oversight, these funds could be diverted to support terror-related activities, posing a direct threat to regional security. As part of its broader response, India has downgraded diplomatic relations, suspended key bilateral agreements, closed border posts, and imposed digital bans on Pakistani content.

If Pakistan is reinstated on the FATF grey list, it would face increased monitoring, reduced access to foreign investments, potential credit downgrades, and diminished economic credibility. This would further strain Pakistan’s fragile economy, which is already grappling with low foreign-exchange reserves and fiscal challenges, as highlighted by global rating agency Moody’s.

India’s concerted efforts to re-list Pakistan on the FATF grey list represent a calculated strategy to leverage international financial mechanisms in the fight against cross-border terrorism. By presenting actionable evidence and mobilising global support, India aims to restrict Pakistan’s financial manoeuvrability and compel it to fulfil its commitments to combat terror financing and money laundering.

Agencies