Pakistan’s FATF dilemma

Since the last few years news related to Pakistan being placed in the FATF’s Grey list has become a point of concern for many. There are numerous reasons for that but the most important is concerning the people of Pakistan who will have to bear the brunt if Pakistan is placed in the Black list declaring countries on high risk. Created in 1989 by the G-7 countries it became a world financial regulatory body meant to combat Money Laundering alone but then its role was extended to counter and stop Terror Financing after the infamous event of 9/11.
Financial Action Task Force (FATF) comprises 39 countries and two regional partners one being the Asia Pacific Group (APG) whose Pakistan is also a member. Since the Soviet-Afghan war Pakistan experienced worst form of religious extremism, terrorism and various kind of corruption leading to money laundering. Therefore, at different times it was placed under heavy international economic sanctions that negatively affected its economic growth. In this way Pakistan being the member had to follow the recommendations given by the FATF to bring changes through making laws to counter ML and root out TF in order to reduce damage done to society at large.
In its recently held plenary session taking place virtually from June 21-25 FATF placed Pakistan again in its increased monitoring list till it addressed the single remaining item on the original Action Plan agreed in June 2018 when it was Grey listed. Though the FATF president Dr Marcus Pleyer praised Pakistan’s role in making a significant progress by achieving 26 out of 27 items on plan of action yet he maintained that item on financial terrorism still needed to be addressed that concerned the, “investigation and persecution of senior leaders and commanders of UN designated terror groups”.
Back in 2018 Pakistan was given 27 recommendations to chart out a plan to bring policy reforms and develop mechanism to counter ML and TF as per the given guidelines. Coming into the power PTI government faced serious problems related to economy i.e. low foreign exchange reserves and decreased foreign direct investment FDI. In order to reset the economy and bring it back on tract it went for 12th IMF package. Similarly, it also took vigorous steps to get the work done given in the FATF’s Action Plan in order to lessen the pressure on economy.
Till October 2020 Pakistan could achieve only 24 out of total 27 items through taking strong legislative efforts and amending at least 14 existing laws to comply with FATF’s recommendations. Out of these, three bills that were passed are worth mentioning. Firstly, The Islamabad Capital Territory Waqf Properties Bill was passed to control terrorism and religious extremism by ensuring proper management and supervision of Waqf properties in territorial limits of Islamabad Capital Territory.
Secondly, the Anti-Money Laundering Amendment Bill was passed that focused on streamlining existing anti-money laundering law in line with the international standards prescribed by FATF. Through this all the financial institutions across the country were required to investigate thoroughly their account holder’s data to ensure transparency and avoid illegal and anonymous transactions. The third important bill was to address the issue of terror financing. It enabled LAEs to take actions with the ultimate support of courts to curb terror financing. Pakistan in this way persecuted around 30 UN designated terrorists and their associates. Lashkar-e-Tayeba (LeT) chief Hafiz Saeed and its operations commander Zakir-ur Rehman Lakhvi along with Jaish-e-Muhammad (JeM) chief Masood Azhar and others have received convictions or charges for terror financing. It can be recalled that assets of Hafiz Saeed were frozen and Madrasahs run by them were also regulated.
Thus, after all this, FATF in its meeting held in February this year after its peer review report stressed that Pakistan should address three strategically important deficiencies. It urged to demonstrate that terror financing investigations be done properly, persons and entities acting on behalf of or on the direction of the designated persons must be targeted and ultimately prosecuted.
Secondly to demonstrate that terror financing persecutions reach effective, proportionate and dissuasive sanctions. Lastly, to demonstrate that effective implementation and targeted financial sanctions against all and 1373 designated be brought to justice.
Pakistan in this way took very effective measures and just in four months till the month of July achieved 2 goals. Despite substantial progress on the original action plan Pakistan was still put on the Grey List when the outcome of FATF plenary was published in previous month. To some it was expected as the work on remaining item was not done and to other it came to be a bolt from the blue. The former sees it as an opportunity to intensify the implementation of action plan to prove to the international community that Pakistan is a responsible country and will not hesitate to bring reforms. They support their argument by quoting the figures given by State Bank of Pakistan that after the implementation of FATF plan of action remittance rose to all high of 2.8 billion, 26% higher than a year ago. The latter, however, see it as a political maneuvering done by rival countries especially India and America to malign Pakistan in the comity of nations. Therefore, it is not an entirely misplaced that FATF is used as a tool to put pressure on countries like Pakistan as there are examples where countries have been delisted even though they did less than the Pakistan did.
Even European countries are notoriously famous for being the major hubs of illicit money. Statement by the foreign minister of Pakistan’s do carry some weight when he said, “it needed to be looked into whether FATF was being used for political purposes, some powers desire to keep the sword of FATF hanging over Pakistan”. He further said that it is yet to be determined whether FATF is either a technical or a political forum. Some political commentators also refer to the situation in Afghanistan as the determining factor in deciding about Pakistan’s fate in FATF.
Furthermore, the most devastating outcome of the July session for Pakistan was that it received another six-point new plan of action that mainly deals with money laundering. The new plan of action that is given by the Asia Pacific Group states that Pakistan has to enhance international cooperation and demonstrate that assistance is being sought from foreign countries in implementing United Nations Security Council (UNSC) resolutions on money Laundering and terror financing. Delisting will only occur after Pakistan completes both plan of action i.e. addressing the single remaining item on the original action plan and six point additional items added by APG.
Commenting on what will happen next and how the remaining goals will be achieved, Hamad Azhar, federal minister, industries and production said that in the original action plan Pakistan was declared high risk country in terror financing where Pakistan has done a lot and in next few months one remaining item will also be completed. On the other hand new plan of action according to him is less challenging and Pakistan was declared as a low risk country and it too will be completed within a year.
It is clear from the given facts that Pakistan in next few years will manage to get out of the Grey List and when it does then the following positive implications are expected. Firstly, if Pakistan makes strong anti-money laundering and terror finance laws and implement them on given time and prosecute those responsible then Pakistan’s banking system along with its financial markets will get improved. It will boost investor’s confidence to invest in Pakistan and ultimately beef up the government’s narrative of fighting corruption. Pakistan’s overall economy will get better as the people will start trusting the institutions. Thus, Pakistan can make better use of its diplomatic channels as well by getting support from like-mindedcountries in order to face the belligerent powers intent on to destabilize Pakistan.

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