The international watchdog against money laundering and financing of terrorism, the Financial Action Task Force (FATF), has put Pakistan on a list of “jurisdictions with strategic deficiencies”, also known as the grey list.
FATF’s reasoning is Pakistan’s “structural deficiencies” in anti-money laundering (AML) and combating financing of terrorism (CFT). This is not the first time Pakistan has found itself on one of FATF’s list of not-so-good guys; the country was there in 2008 and from 2012 to 2015. At the June FATF meet, Pakistan was given time till October and in the October meeting, it was given time till February to improve its counterterrorist financing operations in accordance with the agreed plan. However, the Asia Pacific Group on Money Laundering (APG) that monitors compliance found that the country has yet again failed to deliver on most components of a 27-point action plan and hence, continues to be in the Greylist. Of all the countries in the grey list, Pakistan stands out as the most significant name on the list with the largest population and the largest economy, not to forget the largest military.
Some of the actions that Pakistan has to do to exit the list are as follows:
- Terrorism financing risks are properly identified, assessed, and supervised;
- Remedial actions and sanctions are applied in cases of money laundering and financing of terrorism violations;
- Competent authorities are coordinating to identify and take enforcement action against illegal money or value transfer services;
- Authorities are identifying cash couriers and enforcing controls on illicit movement of currency and understanding the risk of cash couriers being used for financing of terrorism;
- Improving inter-agency coordination including between provincial and federal authorities on combating financing of terrorism risks;
- Law enforcement agencies are identifying and investigating financing of terrorism and prosecuting related designated persons and entities;
- Financing of terrorism prosecutions result in applicable sanctions and enhancing the capacity and support for prosecutors and the judiciary;
- Effective implementation of targeted financial sanction against all designated terrorists;
- Enforcement against financing of terrorism violations including administrative and criminal penalties and authorities cooperating on enforcement cases; and
- Facilities and services owned or controlled by designated persons are deprived of their resources.
FATF and others try to take an indirect route to measure the vulnerability of a country to the crimes by evaluating laws and their implementation.
Take for instance the ranking of Pakistan by the Basel Anti-Money Laundering Index. This index seeks to measure the risk of money laundering and terrorist financing.
It uses 14 indicators dealing with regulations, corruption, financial standards, political disclosure and the rule of law, which are aggregated into one overall risk score.
This index currently ranks Pakistan 46 out of 146 countries in 2017, better than Tajikistan (4), Mali (7), Kenya (11), Sierra Leone (26), and Panama (30) — all of which are currently not on FATF’s monitoring list.
This index is developed by the Basel Institute on Governance that describes itself as “an independent not-for-profit competence centre” that is associated with Basel University.
Now that FATF has placed Pakistan on the grey list, it would affect Pakistan’s ranking on this index as well.
What are the implications for Pakistan?
FATF uses peer pressure through the age-old technique of name-and-shame. There are many factors at play that determine how negative Pakistan’s placement on the grey list will eventually turn out to be. Here are some of the ways in which greylisting could affect Pakistan.
Pakistan’s banking channel could be adversely affected as it is inevitably linked with the international financial system. The impact on Pakistan’s economy could be relatively wide, touching imports, exports, remittances and access to international lending. Foreign financial institutions may carry out enhanced checking of transactions with Pakistan to avoid risk of violations pertaining to money laundering and financing of terrorism. They may ask more questions and apply more checks. Some such institutions may also avoid dealing with Pakistan’s financial system altogether.
Another factor is the sentiment of foreign investors. That Pakistan has been placed on the grey list has been covered in international news media and the fact will not go unnoticed by potential investors. Stock prices at Pakistan Stock Exchange appear to have already felt this impact.
Pakistan’s actions so far
Finance Ministry and counter-terrorism officials say Pakistan has done much under pressure to comply with FATF’s 27-point agenda, which included an unprecedented conviction for terrorism financing of Hafiz Saeed, chief of the Pakistani Lashkar-e-Taiba (LeT) Islamist militant group.
But let us see what Pakistan has done till date in order to contribute in its fight against terrorism. Last year we heard Khan saying that “Until we came into power, the governments did not have the political will (to act against Pakistan based terrorist groups)” and admitting “we still have about 30,000-40,000 armed people who have been trained and fought in some part of Afghanistan or Kashmir.”
Today, when PM Khan says that there are no more safe havens for terrorists in Pakistan; one is tempted to ask him as to where have these “30 to 40 thousand-armed people” gone? Is it that just like the Jaish-e-Mohammad chief and former TTP and JuA spokesperson Ehsanullah Ehsan, these veterans of irregular warfare in Afghanistan and Kashmir too have fled Pakistan out of fear and simply disappeared without any trace? Or is it just that they have been instructed by Rawalpindi to lie low and cool their heels till the FATF meet concludes?
A supposedly ailing Pakistan based terrorist leader (Maulana Masood Azhar) who could be a source of embarrassment to the government at FATF meeting suddenly goes ‘missing’. Another terrorist (Ehsanullah Ehsan) who had a hand in the murder of 132 innocent students negotiated his ‘surrender’ with the army and then managed to escape from custody, while a terrorist (Hafiz Saeed) with $10 million bounty for master minding the Mumbai attacks that left 166 dead and 293 injured is instead tried only for money laundering and terror financing, and given such a lenient sentence that makes mockery of the law. This surely sounds like Mr. Khan’s ‘Naya Pakistan’!
Perhaps the biggest threat from being placed on the grey list is Pakistan could be pushed further down to the blacklist. The official said Pakistan was likely to secure another four-month grace period to fulfill the FATF agenda. Pakistan has until June to improve its counter-terror financing operations in line with an internationally agreed action plan or face actions against it, a global watchdog said on Friday.
But Pakistan, which has avoided punishment so far thanks to support from major ally China, now seems more confident it will keep clear of the blacklist after securing backing from other friendly countries including Malaysia and Turkey. A minimum of three votes by FATF member states are required for a country to escape FATF blacklisting. Surprisingly, this year its close friend China also decided to withdraw its support and left Pakistan high and dry. The US tabled a motion to reintroduce Pakistan to the FATF watch-list as ties fray over US accusations that Islamabad is providing safe haven to militants. By placing Pakistan on FATF’s grey list, the US has indeed demonstrated its intent to turn up the pressure on Pakistan.
The Financial Action Task Force (FATF) has to date kept Pakistan off its blacklist but warned late last year that Islamabad could face international action if it failed to do more to combat terrorism financing. For the time being, the country is content with being in the grey list and does not even aim to come out of it by improving. Instead, they are happy to be in the grey list and count it’s as their success.
If blacklisted alongside Iran and North Korea, Pakistan would face a serious financial hit at a time when its economy is confronting a balance of payment crisis.
Pakistan has long been accused of nurturing and supporting militant groups like the LeT, Islamic State, al Qaeda, Jamat-ud-Dawa and Jaish-e-Mohammad (JeM) for use as proxies to project power in the South Asian region particularly in Afghanistan and India. The most crucial aspect of compliance with FATF in Pakistan’s case would be steps to effectively prevent militant groups from openly operating and raising funds, as the LeT has done from Islamic charities. If the country has not gotten close to fulfilling the FATF requirements in two years, one can only imagine how much progress it can show in the next four months
26 Feb 20/Wednesday Written By: Saima Ibrahim