India pushes for Pakistan’s return to FATF grey list post Pahalgam terror attack

In the aftermath of the deadly April 22 terror attack in Pahalgam that claimed 26 lives, India is ramping up diplomatic efforts to target Pakistan’s alleged support for terrorism by striking at its financial lifelines.

At the forefront of this strategic response are two key moves: pushing for Pakistan’s re-inclusion in the Financial Action Task Force (FATF) grey list and challenging its ongoing $7 billion aid program with the International Monetary Fund (IMF).

According to sources, India is actively considering formally initiating the process to get Pakistan grey-listed again by FATF — the global watchdog that monitors money laundering and terror financing. Pakistan had been placed on the grey list in June 2018, a designation that restricted foreign investments and compelled Islamabad to undertake corrective measures. It was removed from the list in October 2022 after purported compliance.

Government officials argue that grey-listing had previously played a significant role in stemming the flow of illicit funds from Pakistan to terror networks, especially in Jammu and Kashmir. Reinstating the label, they believe, could once again disrupt these financial channels.

The FATF comprises 40 members and meets three times a year. India would need backing from member countries to formally nominate Pakistan for re-evaluation. The recent terror attack may help India rally support — already, 23 member countries, including the US, UK, France, Germany, and Gulf powers like Saudi Arabia and the UAE, have issued condolence messages, indicating shared concern.

Simultaneously, India is preparing to challenge the IMF’s Extended Fund Facility to Pakistan, citing concerns that portions of the $7 billion package — which began in July 2024 and runs for 37 months — may be diverted to fund destabilizing activities. The IMF board meets in May to assess Pakistan’s progress under the bailout terms, and India may raise its objections then, a senior official confirmed.

The move follows a precedent set when Pakistan was delisted by FATF in 2022. At that time, New Delhi stressed that Islamabad had been compelled to act against well-known terrorists, including those responsible for the 2008 Mumbai attacks. India had then warned the international community that vigilance must be sustained, insisting Pakistan take "credible, verifiable, irreversible and sustained action" against terrorism emanating from its soil.

In September 2024, FATF’s mutual evaluation of India noted that the country faced “significant” threats from Islamic State and al-Qaeda-linked groups, particularly in Jammu and Kashmir — a region often cited by New Delhi as a flashpoint for cross-border terrorism.

India’s push comes as part of a broader strategy to escalate pressure on Islamabad in global fora, linking diplomatic, financial, and security dimensions. Officials emphasize that the latest moves aim to sever the financial arteries of terror — not just to punish, but to preempt future bloodshed.

The FATF, through its 40 recommendations, requires member nations to enforce strong anti-money laundering and counter-terrorist financing regimes. Countries are assessed via in-depth peer-reviewed evaluations, which lead to corrective recommendations. A return to the grey list could mean tighter scrutiny and further isolation for Pakistan.

As India mobilizes support in both FATF and IMF corridors, the message is clear: those funding terror — directly or indirectly — will face consequences not only on the battle field, but also in the boardrooms of the world's most powerful financial institutions.