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Friday 17 January 2020

FATF to Pakistan: Do not force us to blacklist you

Pakistan met with no good luck even on the third day of the plenary of the Financial Action Task Force; the country received a warning for its terror financing today

Pakistan is not getting any relief from the Paris-based Financial Action Task Force (FATF). The FATF has insisted on making quick progress in the case. It says that Pakistan has failed on 22 of the 27 conditions related to terror-financing and money laundering it had to fulfil to be spared the impending sanctions on it. The FATF today asked Pakistan to hurry or it will be forced to blacklist the Islamic country.

For the time being, however, Pakistan has been placed in the grey list. It has time till February 2020 to satisfy the FATF on all the 27 actionable points. If Pakistan does not take concrete action against terrorist funding and money laundering, action will be taken against it.

However, the time given to Pakistan to come clean is a cause for concern for countries like India and the US that wanted to blacklist Pakistan as soon as possible.

“It was again decided by consensus that FATF would retain Pakistan on the Grey List and warn Pakistan that if it did not complete its full action plan and show significant and sustainable progress action will be taken,” said an FATF official.

Pakistan avoided being blacklisted during the deliberations of 16 October (in the five-day plenary of the FATF) due to the support extended to it by China, Malaysia and Turkey that said they were ‘satisfied’ by the action taken against terrorists by Pakistan. According to the FATF charter of a total of 36 countries, the support of at least three countries is necessary for any country not to be blacklisted.

Pakistan’s delegation claimed during the meeting that Pakistan had made positive progress on many of the 27 points. If Pakistan is blacklisted, it will have a cascading impact on its already debilitated economy.

About India, the FATF said it had “substantially addressed‘ deficiencies in its anti-money laundering, countering the financing of terrorism regulatory framework”.

FATF blacklist

The FATF blacklist is the common shorthand description for the list of “Non-Cooperative Countries or Territories” (NCCTs). The FATF blacklist or OECD blacklist has been issued since 2000 and lists countries which it judges to be non-cooperative in the global fight against money laundering and terrorist financing, calling them “NCCTs”.

Non-appearance on the blacklist is perceived to be a mark of approbation for offshore financial centres (or tax havens) that are sufficiently well regulated to meet all of the FATF’s criteria. The FATF updates the blacklist regularly, adding or deleting entries.

The FATF has no investigative authority. It works with nation-states to bring legislative changes and regulatory reforms in various sectors. In addition, the FATF provides policy recommendations that meet international standards to countries for combating “money laundering and the financing of terrorism and proliferation of weapons of mass destruction.

FATF has been providing policy recommendations since 1990 and their recommendations have revised four times since then. The body also monitors the situations of its members in establishing adequate measures and institutions to fight against money laundering and terrorist financing. Furthermore, it makes sure that it is aware of national-level vulnerabilities of its member states “with the aim of protecting the international financial system from misuse.”

FATF blacklist consequences for Pakistan

If Pakistan is put on the blacklist, it may adversely impact its imports, exports, remittances and limit its access to international lending. The IMF and ADB will be reluctant to deal with the Imran Khan government. Seeking loans and grants from international finance institutions will turn protracted processes for Pakistan, as a new round of inspections will precede every transaction.

Rating agencies like Moody’s, S&P and Fitch will downgrade Pakistan as an investment destination.

Pakistan will be unable to finance its committed investment in China’s Belt and Road Initiative as the amount will be a few billion dollars.

Pakistan grey-listed twice earlier

Pakistan has been on the list twice. On the latest occasion, it has been on the grey list since June 2018 and it just failed to meet the deadline for implementing the 27 conditions until September 2019. On 22 August, the FAFT’s Asia-Pacific Group on Money Laundering placed the Imran Khan-led government under the Enhanced Expedited Follow up List (Blacklist) for its failure to meet standards.

Islamabad is in the soup because of terror financing involving groups like the Lashkar-e-Taiba, Jaish-e-Mohammed and other terrorist groups.

In early October, a report of the task force’s Asia Pacific Group said that Pakistan had fully implemented only one of the 40 measures while implementing the other 39 measures partially or not at all.

The government of Pakistan failed to make even institutional changes to tackle terrorism financing and terror organisations have reshaped themselves to escape international laws under different names.

Khan cries

To begin with, India will be relieved by the reduction in terror activities attempted and executed on its soil, as Pakistan will find it difficult to fund these militants. But no matter how much Indian diplomacy has achieved, the Pakistan Prime Minister has alleged that New Delhi was actively trying to push Islamabad on the blacklist.

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