Jul 1, 20187 min read

Pakistan again on Grey List of FATF

INTRODUCTION

The Paris based watchdog on terror funding, called the Financial Action Task Force (FATF) on 26 June 2018 placed Pakistan once again on its “Grey List” for continuing to support terror activities from its soil.

Pakistan was earlier on also was on this list for three years, until 2015 and was placed back on the list during the previous plenary meet of FATF in February 2018.

During the current FATF meet, Pakistan was able to save itself from graver consequences of being Black-listed by agreeing to comply with a 26-point action plan formulated by the International Cooperation Review Group (ICRG) of the Asia Pacific Group over the next 15 months.

The 26-point plan to which Pakistan has agreed to includes, erasing of all sources of financing to terror groups operating within its borders, including the India-focused Lashkar-e-Toiba (LeT) and the Jaish-e-Mohammed (JeM).

The ICRG has also included all other entities associated with these two parent groups, like the Jamaat-ud-Dawa (JuD), which is led by Hafiz Saeed who masterminded the 26/11 terror attacks in Mumbai in 2008.

Besides, the funding of organizations like, the Daesh, the Haqqani Network, the Pakistani Taliban and al Qaida will also be targeted by the watchdog.

Pakistan is the ninth country to be placed on the notorious FATF’s grey list, the other eight being Ethiopia, Serbia, Sri Lanka, Syria, Trinidad and Tobago, Tunisia and Yemen.

Details about the Organisation – FATF

The Financial Action Task Force (FATF) is an inter-governmental body that was established in 1989 by a Group of Seven (G-7) Summit in Paris, initially to examine and develop measures to combat money laundering.

In October 2001, the FATF expanded its mandate to incorporate efforts to combat terrorist financing, in addition to money laundering.

The FATF currently comprises 35 member jurisdictions and 2 regional organisations, representing most major financial centres in all parts of the globe. Israel and Saudi Arabia are observer countries.

Mr Santiago Otamendi, who is the Secretary of Justice at the National Ministry of Justice and Human Rights of the Republic of Argentina, assumed the position of President of the FATF on 01 July 2017. Ms Jennifer Fowler of the United States assumed the position of Vice-President of the FATF.

The decision making body of FATF is the ‘Plenary’, which holds meetings three times in a year to monitor progress on implementation of its recommendations and also to issue new recommendations, if and when required.

Objectives of FATF

The Financial Action Task Force (FATF) is in effect a “policy-making body” which works to generate the necessary political will to bring about national legislative and regulatory reforms in combating terror financing. The key objectives of the organisation are:

Set standards and promote effective implementation of legal, regulatory and operational measures for combating money laundering, terrorist financing, proliferation of weapons of mass destruction and other related threats to the integrity of the international financial system.

Issue internationally accepted recommendations from time to time which form the basis for a co-ordinated response to these threats to the integrity of the financial system. FATF Recommendations were first issued in 1990 and revised in 1996, 2001, 2003 and most recently in 2012 to ensure that they remain up to date and relevant for universal application.

In collaboration with other international stakeholders, the FATF works to identify national-level vulnerabilities with the aim of protecting the international financial system from misuse.

Review new techniques of money laundering and terrorist financing being adopted by rouge nations/ organisations and put into place appropriate counter-measures.

The FATF monitors the progress of its members in implementing necessary measures, reviews money laundering and terrorist financing techniques and counter-measures, and promotes the adoption and implementation of appropriate measures globally.

The Decision of Putting Pakistan on “Grey List” of FATF

The move to put Pakistan on the “Grey List” was pushed by four member countries, the U.S., the U.K., Germany and France, who, in mid-January 2018 had written to the FATF stating that even though Pakistan had an anti-money laundering/anti-terror funding regime in place, effectiveness of the implementation was inadequate.

Though, initially China, Turkey, Saudi Arabia and Gulf Cooperation Council (GCC) countries objected to Pakistan’s nomination, the decision to place Pakistan on the grey list was endorsed on the insistence of the United States in the previous plenary meet of FATF held in February 2018.

However, this time around other than Turkey no other member country, including Pakistan’s closest ally, China had any serious reservations on putting Pakistan back on the grey list owing to its dubious track record on the subject.

Ramifications of Pakistan’s Name being Put on Grey List of FATF

Stress of being placed on “Black-List”:

Pakistan, under this 26-point “Compliance Document,” will now be required to furnish a fresh report to the International Co-operation Review Group (ICRG).

Accordingly, the country will undergo a review at the next Plenary in end 2018, when it would be presented a full action plan on how it is expected to crack down on terror groups banned by the UN Security Council.

In case Islamabad’s compliance report is unsatisfactory, the FATF can put it on a “black list”.

Adverse Economic Implications:

Pakistan will be put on regular monitoring; all banking transactions in the country will come under closer global watch, thus pulling down Pakistan’s credibility in global financial transactions.

Pakistan may suffer a risk of downgrade by multilateral lenders like IMF, World Bank, ADB, EU and also a reduction in risk rating by Moodys, S&P and Fitch. Hence, accessing funds from international markets will become difficult for Pakistan.

Therefore, on the whole the economic and commercial consequences of such grey-listing can be quite debilitating. If it remains on the “grey list” for a longer period of time, Pakistan’s already struggling economy will make the country’s survival unsustainable.

Global Isolation Including by Former Allies:

Trump administration has been exerting a lot of diplomatic and economic pressure on Pakistan, like it withheld security aid worth $1.3 billion last year. While the US signaled a change in its Pakistan policy by employing more sticks than carrots, Islamabad found it convenient to stave off US pressure by playing out its growing dependence on China.

However, China’s eventual decision to withdraw its support at FATF may be seen as a clear reflection of its frustration with its long term ally and happens to be the most severe blow to Pakistan in the recent times.

Beijing remains apprehensive of Pakistan’s efforts to establish peace in Balochistan, where $60 billion worth of infrastructure projects it is financing as part of the China-Pakistan Economic Corridor (CPEC).

China is said to be holding direct talks with Baloch militants without officially informing Pakistan authorities, owing to the latter’s inaction against terror groups operating in the country.

Hence, China’s decision at FATF may be seen as a warning given to Pakistan that if Islamabad continued to stick with its policy of inaction, the country will not only face significant isolation internationally but should also expect China’s opposition.

Conflict of Interests in Pakistan to Comply with FATF Recommendations:

The spread of fundamentalism and so called “Talibanisation of Pakistan” is being majorly supported by drug money from Afghanistan and the lawless areas of FATA (Federally Administered Tribal Areas) of Pakistan. The treacherous mountainous regions of Waziristan and Baluchistan have become the hotbed for nurturing terrorism.

Secondly, a lot of funding is being carried out by Saudi Arabia for the spread of Wahhabism, which is the most stringent form of Islam and whose mistaken beliefs are being propagated through the inhumane acts of the al-Qaida, the Talibans and ISIS.

Talibanisation of Pakistan has resulted in an internal strife for dominance. The military and the political rulers who mostly hail from the state of Punjab in Pakistan, controls balance three-fourth of the country and had created the monsters like the Talibans and Haqqani network to run their writ in the FATA region and Afghanistan.

The struggle for dominance between the military and political elites of Punjab, the terrorist infested areas of West Pakistan and the economic hub of the coastal areas of Sind are pushing Pakistan down the dark ally of self-destruction.

The actions expected to be taken by Pakistan on the “Compliance Document,” of the International Co-operation Review Group (ICRG) will put additional pressure on the administration and will result in major conflicts of interests between various stake holders.

Advantage for India:

Pakistan military that has always ruled the roost does not want peace in the region otherwise its own existence will be at stake.

The decision to place Pakistan on the “grey list” will provide India with a major relief, as follows:

Reduced terror funding and funding for purchase of military hardware is likely to abate cross border firing and terrorism related incidents in the state of J&K.

Stable Pakistan, where the spread of fundamentalism and Wahhabism is being checked will provide innate security to India’s interests.

Economic strain and major efforts required from the military and civil administration to carry out decisive actions will take the heat off India and Pakistan will get busy for a while at least to get down to setting their own house in order.

A snub from China to Pakistan will caution Islamabad that there are no permanent friends/ enemies and over reliance on China can be detrimental. On this account it was India’s diplomatic victory.

The Trump administration has now trained its guns on Pakistan and will see it through that it leads to credible actions by Pakistan to rein in terrorism.

It will further isolate Pakistan globally and assist in India’s existing policy to “name and shame” Pakistan. Also, it lends credence to India’s voice on the issue at international forums like the UNO.

Improved security situation in the region will serve Indian economic interests, like ongoing infrastructure development projects in Afghanistan, proposed gas pipeline from Turkmenistan through Afghanistan and Pakistan to India, etc.

CONCLUSION

The timing of the above said decision of FATF, unfortunately for Pakistan coincides with the general elections in that country.

The 26/11 mastermind and designated terrorist on a UN list, Hafeez Saeed made a mockery of the of the amendments to the Anti-Terrorism Act by announcing that he would field at least 256 candidates in the upcoming Pakistan elections and formally opened a party office in Islamabad. Although, his nomination papers were rejected, he has decided to field his candidates as independents.

A “catch 22” situation prevails in Pakistan now, as it is always very difficult to “run with the hare and hunt with the hounds”. The monster that Pakistan created to project its might is now threatening to consume the master.

Meeting the demands of the ICRG Compliance Document and managing the conflicting requirements of various stake holders like, the homegrown fundamentalists/jihadists, military leadership and political elite will be tight-rope walk for Pakistan and only time will tell if it can accomplish this arduous feat.

JAI HIND