Terror financing: Pakistan out of FATF’s inglorious ‘grey list’
The Paris-based global watchdog said, “Pakistan is no longer subject to FATF’s increased monitoring process; to continue to work with APG (Asia/Pacific Group on Money Laundering) to further improve its AML/CFT (anti-money laundering & counter-terrorist financing) system.”
Pakistan’s exit from FATF’s ‘grey list’ would allow the country to try to get foreign funds for tiding over its precarious financial situation.
FATF in its latest report on Pakistan observed: “Overall, Pakistan has made good progress in addressing the technical compliance deficiencies identified in its MER (mutual evaluation report).”
Pakistan has been on FATF ‘s grey list since 2018.
After a lot of work by Pakistani authorities, FATF welcomed Pakistan’s significant progress in improving anti-money laundering, combating financial terror. “Pakistan can now more effectively tackle money laundering and terror financing. An FATF team has verified that reforms are in place and there is high level commitment and capacity to sustain those reforms. These reforms are good for the stability and security of the country and indeed the region.”
This does not mean that there is not more work to do. Going forward, Pakistan will need to work with FATF’s regional partner to continue to strengthen its system.
This comes more than four years after the FATF put Pakistan on its ‘grey list’ for its failure to check the risk of money laundering, leading to corruption and terror financing.
More than once, Pakistan avoided slipping into the ‘black list’ with help from friendly countries- China, Turkey and Malaysia.
Why the shift in FATF’s position
Last October, the agency had said that Pakistan had addressed 30 of the 34 areas where it had raised concerns and recommended further compliance.
It found Pakistan’s deficiencies in its legal, financial, regulatory, investigation, prosecution, judicial and non-government sectors to fight money laundering and combat terror financing.
Till June, Pakistan had completed most of the action items and only a few items that were left unfulfilled included its failure to take action against UN-designated terrorists, including Jaish-e-Mohammed (JeM) chief Masood Azhar, Lashker-e-Taiba (LeT) founder Hafiz Saeed and his trusted aide and the group’s “operational commander”, Zakiur Rehman Lakhvi.
In its July 2022 report, FATF has rated the country on the remaining four parameters as “Largely Compliant,” “Compliant,” “Largely Compliant and “Partially Compliant,” respectively.
Will ‘action’ on LeT be the clincher?
“When Pakistan, in recent months, announced new sentences for Hafiz Saeed and Sajid Mir – two top terrorists of Lashkar-e-Taiba, one of the key terrorist groups under the FATF spotlight – that’s what got things done in the end,” said Michael Kugelman, director of the South Asia Institute at the Washington-based Wilson Center think-tank.
The two were involved in the 2008 Mumbai attacks in neighbouring India that killed over 160 people.
What is grey list
FATF grey lists a country which it considers as a safe haven for terror funding and money laundering. It implies “strategic deficiencies” detected in a jurisdiction’s policies to prevent money laundering and terror financing.
It is a warning to the country to tackle the issues, failing which it could be “blacklisted,” the highest level of indictment. So far, only two countries have been blacklisted- Iran and North Korea.
How grey-listing has impacted Pakistan
FATF stresses the need to consider associated risks when dealing with countries on greylist.
It had increasingly become difficult for Islamabad to get financial aid from the International Monetary Fund (IMF), the World Bank, the Asian Development Bank (ADB) and the European Union (EU), thus further enhancing problems for the cash-strapped country.
According to research paper published by Islamabad-based think-tank Tabadlab, Pakistan’s frequent grey-listing by FATF from 2008 to 2019 may have resulted in a cumulative GDP loss of $38 billion.
How removal from grey list might help
If removed from the list, Pakistan would essentially receive a reputational boost and get a “clean bill of health” from FATF.
While it would not have an impact on the country’s struggling economy as a whole, it would help reduce scrutiny of global transactions involving Pakistan, said economist and former Citigroup banker Yousuf Nazar.
Two large Pakistani banks, HBL and National Bank of Pakistan, paid $225 million in 2017 and $55 million in 2022 respectively in fines imposed by US regulators for compliance failures and anti-money laundering violations.
Removal from the FATF list would provide Pakistan a boost after the country’s sovereign credit rating was downgraded by Moody’s. It would also improve sentiment, important from a foreign direct investment perspective.