What It Means for Pakistan to Stay on FATF Grey List?

#1 · 7th March 2021, 12:44 am

Quote from Ameena Tanvir on 7th March 2021, 12:44 am
Last week, the Financial Action Task Force (FATF) decided to keep Pakistan on its 'grey list', with the country's status set to be reviewed next at an extraordinary plenary session in June 2021. The FATF President Dr. Marcus Pleyer while reiterating that Pakistan has made progress noted that it “is not the time to put the country on the blacklist”, but urged the country “completion of the plan”. Pakistan on its part has complied with 24 out of the 27 actions suggested by the FATF.
Although despite the country making significant progress on the recommended actions, remaining on the grey list has disappointed many. The decision is all the more surprising because the watchdog has been all praise for Pakistan’s efforts to comply with the demands of the anti-money laundering and combating financing terrorism (AML/CFT) action plan throughout the process. It not only has earned bad name for the country but the financial price is even higher. Pakistan has suffered a massive loss of $38 billion over the years due to its grey-listing, unveiled in a research paper of Islamabad based think tank. The research paper titled 'Bearing the cost of global politics - the impact of FATF grey-listing on Pakistan's economy' states that that grey-listing events spanning from 2008 to 2019, may have resulted in cumulative GDP losses worth $38 billion. This is a travesty particularly seeing that the country is suffering from a persistent Balance of Payments (BoP) problem and needs all the money it can save. This much loss is momentous for cash strapped Pakistan which is reeling with financial crunch and unbridled inflation at home. To stay in the list for another three months means Pakistan will have to bear more loses.
Another aspect that Pakistan should keep in mind is that despite Islamabad’s efforts to comply FATF’s 27 points, there remains a trust deficit. The global financial watchdog is not ready to let loose on Pakistan until the latter gives complete assurance and performance on all the 27 points. The trust issues was pretty evident when Dr. Pleyer said Pakistan is making progress but there remained some “serious deficiencies” in mechanisms to plug terrorism financing. The statement makes it clear that unlike previously, the world wants complete compliance with the FATF’s exacting standards this time around. And so, there is apparently no choice for Islamabad but to work swiftly and show progress on the rest of the FATF action plan.
Even if Pakistan gets off the grey listing, it doesn’t ensure that the country would not get back to grey or blacklisting. The past proves this point. Pakistan was put in the grey list but was white-listed in 2015 when the then government curbed money laundering and worked effectively on the action plan provided by the FATF. There were even fears at that point which were highlighted by the then Minister for Finance Ishaq Dar that had Pakistan remained in the grey list for another few months, it would have been demoted to the black list. Now in 2021, if Pakistan is taken off from grey list and is white-listed, any negligence by the state or departments concerned with financial matters may end up putting Pakistan in the grey list, again.
The three remaining points on which Pakistan still needs some progress are related to TF (terror financing), investigation and prosecution, demonstrating that the prosecution is effective and targeted financial sanctions against designated terrorists. Islamabad has already worked on these points to some extent; security agencies have upped the ante and conducted operations against designated outfits such as Jaish-e-Mohammad (JEM) and Jamaat-ud-Dawa (JUD). A prominent JUD leader Hafiz Saeed was convicted in two TF cases which carry 15 years sentence in total. However, there has been a grim history when it comes to prosecution of these outfits and their leaders. The top leaders were convicted in the past but they come clean after some time. This arrangement was taken as a stick and carrot policy by the international community so it has always been asking Pakistan to do more. Now when security agencies have become vigilant and prosecution is making headways, Pakistan hopes that by the next meeting of the FATF, it will have solid case to present.
Last year, the FATF softened its stance towards Pakistan when the latter’s readiness and action on 21 out of 27 point action plan made headways. And the financial watchdog’s recognition of another 3 points gives more hope to Islamabad that it is nearing the finish line. The Opposition, despite its severe differences and reservations, cooperated in passing out three bills, inevitable legislation, at a joint sitting of the parliament in September last year.
Avoiding blacklisting is a big feat of the incumbent Pakistan Tehreek-e-Insaf (PTI) government but staying in grey-list doesn’t bring respite. The core objective should be to get white-listed before more miseries pile up on the economic front. To this end, PTI not only needs to cooperate well with the opposition, such as avoiding initiating cases for political point scoring, but the onus task to get off the grey-list needs greater diplomatic efforts, too. The government must not leave out the possibility of lobbying on the part of other states, particularly India, to influence the final result. The government’s seriousness in the coming days will set the course whether Pakistan is about to get off grey list or not.

Last week, the Financial Action Task Force (FATF) decided to keep Pakistan on its 'grey list', with the country's status set to be reviewed next at an extraordinary plenary session in June 2021. The FATF President Dr. Marcus Pleyer while reiterating that Pakistan has made progress noted that it “is not the time to put the country on the blacklist”, but urged the country “completion of the plan”. Pakistan on its part has complied with 24 out of the 27 actions suggested by the FATF.

Although despite the country making significant progress on the recommended actions, remaining on the grey list has disappointed many. The decision is all the more surprising because the watchdog has been all praise for Pakistan’s efforts to comply with the demands of the anti-money laundering and combating financing terrorism (AML/CFT) action plan throughout the process. It not only has earned bad name for the country but the financial price is even higher. Pakistan has suffered a massive loss of $38 billion over the years due to its grey-listing, unveiled in a research paper of Islamabad based think tank. The research paper titled 'Bearing the cost of global politics - the impact of FATF grey-listing on Pakistan's economy' states that that grey-listing events spanning from 2008 to 2019, may have resulted in cumulative GDP losses worth $38 billion. This is a travesty particularly seeing that the country is suffering from a persistent Balance of Payments (BoP) problem and needs all the money it can save. This much loss is momentous for cash strapped Pakistan which is reeling with financial crunch and unbridled inflation at home. To stay in the list for another three months means Pakistan will have to bear more loses.

Another aspect that Pakistan should keep in mind is that despite Islamabad’s efforts to comply FATF’s 27 points, there remains a trust deficit. The global financial watchdog is not ready to let loose on Pakistan until the latter gives complete assurance and performance on all the 27 points. The trust issues was pretty evident when Dr. Pleyer said Pakistan is making progress but there remained some “serious deficiencies” in mechanisms to plug terrorism financing. The statement makes it clear that unlike previously, the world wants complete compliance with the FATF’s exacting standards this time around. And so, there is apparently no choice for Islamabad but to work swiftly and show progress on the rest of the FATF action plan.

Even if Pakistan gets off the grey listing, it doesn’t ensure that the country would not get back to grey or blacklisting. The past proves this point. Pakistan was put in the grey list but was white-listed in 2015 when the then government curbed money laundering and worked effectively on the action plan provided by the FATF. There were even fears at that point which were highlighted by the then Minister for Finance Ishaq Dar that had Pakistan remained in the grey list for another few months, it would have been demoted to the black list. Now in 2021, if Pakistan is taken off from grey list and is white-listed, any negligence by the state or departments concerned with financial matters may end up putting Pakistan in the grey list, again.

The three remaining points on which Pakistan still needs some progress are related to TF (terror financing), investigation and prosecution, demonstrating that the prosecution is effective and targeted financial sanctions against designated terrorists. Islamabad has already worked on these points to some extent; security agencies have upped the ante and conducted operations against designated outfits such as Jaish-e-Mohammad (JEM) and Jamaat-ud-Dawa (JUD). A prominent JUD leader Hafiz Saeed was convicted in two TF cases which carry 15 years sentence in total. However, there has been a grim history when it comes to prosecution of these outfits and their leaders. The top leaders were convicted in the past but they come clean after some time. This arrangement was taken as a stick and carrot policy by the international community so it has always been asking Pakistan to do more. Now when security agencies have become vigilant and prosecution is making headways, Pakistan hopes that by the next meeting of the FATF, it will have solid case to present.

Last year, the FATF softened its stance towards Pakistan when the latter’s readiness and action on 21 out of 27 point action plan made headways. And the financial watchdog’s recognition of another 3 points gives more hope to Islamabad that it is nearing the finish line. The Opposition, despite its severe differences and reservations, cooperated in passing out three bills, inevitable legislation, at a joint sitting of the parliament in September last year.

Avoiding blacklisting is a big feat of the incumbent Pakistan Tehreek-e-Insaf (PTI) government but staying in grey-list doesn’t bring respite. The core objective should be to get white-listed before more miseries pile up on the economic front. To this end, PTI not only needs to cooperate well with the opposition, such as avoiding initiating cases for political point scoring, but the onus task to get off the grey-list needs greater diplomatic efforts, too. The government must not leave out the possibility of lobbying on the part of other states, particularly India, to influence the final result. The government’s seriousness in the coming days will set the course whether Pakistan is about to get off grey list or not.