In June 2018, at a critical time when Pakistan was in the midst of an economic crisis, the country was placed on the Financial Action Task Force (FATF) grey list and was given a 27-point plan of action pertaining to anti-money laundering and combating financing of terrorism. This was to be implemented by October 2019.
With the possibility of being placed on the blacklist (Iran and North Korea are currently on the blacklist), Pakistan’s efforts remained unsatisfactory when reviewed in October 2019. While Sri Lanka, Tunisia and Ethiopia– due to compliance of FATF recommendations – were removed from the grey list, Pakistan had “only largely addressed five of 27 action items, with varying levels of progress made on the rest of the action plan.” Pakistan was, therefore, given till February 2020 to make “significant and sustainable” progress“across the full range of action plan.”
The threat of Pakistan being placed on the blacklist has been neutralised, at the moment, primarily due to the support of Malaysia, Turkey and China (a country placed in the grey list needs 3 votes to stay out of the blacklist). Furthermore, a report on progress made since the October 2019 FATF plenary has been reviewed and presented in the FATF February 2020 plenary. According to the report, significant progress has been made. The country is “compliant” in 14 (as opposed to only 5 in October 2019) of the 27 items of the action plan.
According to a FATF summary/statement: “All deadlines in the action plan have expired. While noting recent and notable improvements, the FATF again expresses concerns given Pakistan’s failure to complete its action plan in line with the agreed timelines and in light of the TF risks emanating from the jurisdiction. To date, Pakistan has largely addressed 14 of 27 action items, with varying levels of progress made on the rest of the action plan.” FATF has, therefore, given Pakistan till June 2020 to fully comply with the remaining points in the action plan otherwise necessary action may be taken, which may include: “FATF calling on its members and urging all jurisdiction to advise their FIs to give special attention to business relations and transactions with Pakistan.” Emphasis was placed on Pakistan to make “significant and sustainable progress especially in prosecuting and penalising TF.”
Last year multiple crackdowns were made by the authorities on banned outfits. In February 2020,an anti-terrorism court in Lahore also sentenced the leader of Jamatud Dawa, Hafiz Saeed, to five and a half years in jail for each of the two terrorist-financing cases. Some consider these actions as favourable while others doubt the motives –considering them (in particular the Hafiz Saeed sentence) as strategic moves to impress FATF rather than a genuine attempt to counter terrorism. These skeptics have also predicted that if Pakistan is removed from the grey list then such sentences will be reversed.
FATF motivated or not –the sentencing of Hafiz Saeed is a step in the right direction. Arrests and sentencing of personalities like Hafiz Saeed must remain a priority in the counter terrorism strategy of the country. Furthermore, it is essential thatthese convictions remain irreversible so that the trust deficit that other countries may have pertaining to Pakistan’s intent is eliminated. These actions, once implemented on a larger scale, will be the substance needed to spearhead an effective diplomatic initiative.
Pakistan not being placed on the FATF blacklist may be a relief, however, remaining on the FATF grey list has its own repercussions – especially for a country with a fragile economy seeking foreign investment and finance. Although FATF does not have “enforcement powers”, yet its decision to place a country in its grey list impacts the country’s reputation. As a result, capital inflow is affected as the international community is reserved and precautious while assessing the risk involved in investing in that country. A wait and see policy is implemented. Capital inflow decreases; capital outflow increases. Furthermore, foreign banks have more stringent guidelines while scrutinising transactions involving a grey listed country, thereby affecting legitimate transactions. The ‘cost of doing business’ goes up. Stock markets are adversely affected. The local currency depreciates. International loans have far more stringent conditions attached to them… and the list goes on.
Acertain concerted effort is being made by Pakistan to get a favourable FATF verdict. The recommendations from FATF must not be considered as an obstacle but, more so, as a necessary path towards progress. As Khaleeq Kiani, in his article ‘Pakistan set to get four-month FATF breather’ stated: “These laws would provide enabling legal framework to bring all unregulated sectors of the economy under a proper regulatory framework to in line with the FATF standards.”
In actuality, as was the case before the FATF February 2020 plenary, the compliance report has to be submitted earlier – by 30 April 2020. This is just over two months away. The task is doable as long as the political will – from the government and opposition – is there. The time for political point scoring is over. A unified stance/effort is required otherwise the citizens of Pakistan -already economically stressed to the hilt due to a virtually stagnant economy, and high rates of unemployment andinflation –cannot bear the brunt of another economic crisis.
(Note: A detailed article on FATF and Pakistan will be published in the next issue of Criterion Quarterly)
