FATF condemns Pahalgam Terror Attack; Steps Up Scrutiny

In response to the Pahalgam attack, Operation Sindoor was initiated targeting terror camps in Pakistan and Pakistan-occupied Kashmir. This resulted in significant casualties among terrorists and there was a short escalation of military hostilities. The National Investigation Agency (NIA) is still actively investigating the Pahalgam terror attack, pursuing leads on the perpetrators and interrogating various individuals in the region.

The Financial Action Task Force (FATF), the global watchdog for anti-money laundering and counter-terrorist financing, has issued a rare and strongly worded condemnation of the April 22, 2025, terror attack in Pahalgam, Jammu & Kashmir, which resulted in the deaths of 26 tourists.

FATF’s statement emphasised that such attacks are not possible without financial resources and the ability to transfer funds among terrorist supporters, underlining the critical role of terror financing in enabling such acts.

This statement marks only the third time in the past decade that FATF has directly condemned a terrorist attack, reflecting the severity of the incident and the international community’s concern. FATF’s focus has increasingly shifted to evaluating the effectiveness of countries’ Counter-Terrorist Financing (CFT) measures and identifying gaps that allow such attacks to occur.

Indian officials have described FATF’s statement as a significant step in their ongoing efforts to highlight Pakistan’s alleged support for terrorism and push for its return to the FATF grey list. The grey list, officially termed “Jurisdictions Under Increased Monitoring,” includes countries with strategic deficiencies in their anti-money laundering and CFT regimes but which are working with FATF to address them through action plans. Countries on this list are subject to increased scrutiny, and their progress is monitored every four months. Failure to comply can result in being moved to the blacklist, which carries severe financial and reputational consequences.

Pakistan was removed from the grey list in October 2022 but remains under international scrutiny due to persistent allegations of providing safe havens to UN-designated terrorists and failing to implement adequate reforms. Indian authorities, during the recent FATF plenary in Strasbourg, presented evidence of Pakistan’s continued support for terrorism, including the Pahalgam attack, and are advocating for its re-inclusion in the grey list.

FATF announced that it will soon release a comprehensive analysis of terrorist financing, including the first acknowledgment of “state-sponsored terrorism” as a funding source—a concept previously recognised only in India’s National Risk Assessment. This move signals growing international recognition of the risks posed by state-backed terror financing, particularly in the context of Pakistan.

FATF President Elisa de Anda Madrazo stressed the need for unified global action, stating that no single entity can combat the challenge of terrorist financing alone. FATF is also enhancing its guidance and support to help over 200 jurisdictions strengthen their CFT frameworks, including addressing new risks from social media, crowdfunding, and virtual assets.

FATF’s condemnation and its focus on the financial trail behind terrorism underscore the importance of robust CFT measures. Countries on the grey list face increased monitoring, reputational damage, reduced foreign investment, and higher costs of international borrowing, compelling them to implement reforms or risk further isolation.

FATF’s direct condemnation of the Pahalgam attack and its emphasis on the financial trail mark a significant escalation in global efforts to combat terror financing, with potential consequences for countries like Pakistan accused of supporting such activities.