September 26, 2020

FATF and Pakistan

Pakistan has been on the watch-list of the FATF, a global inter-governmental organization made by the efforts of the G7 in 1989 to combat money laundering. In 2001, its mandate expanded to terrorism financing as well.

According to experts, there is no direct way to examine the money laundering that occurs inside a country. The FATF uses the BASEL-AML index to gauge the risk of money laundering inside the country. According to the Index Pakistan’s currently stands at 46th rank.

Pakistan has previously been on the grey list of the FATF from the year 2012-2015. The grey listing had little effect on the economy at that time. Pakistan even successfully obtained a $6.6 billion loan from the IMF in 2013.

On June 29th 2018, FATF meeting which was held in Paris it was decided to put Pakistan again on the FATF grey list. The FATF put the country on the grey list due to “strategic deficiencies” in its anti money laundering and anti terrorism financing structures.

The FATF demanded the following steps to be taken by the country, to deal with terrorist financing and money laundering;

  1. Identification, assessment and supervision of risk of terrorist financing.
    2. Demonstrating the remedial actions taken in the cases of Anti Money Laundering and Countering Financial Terrorism violations.
    3. Enforcement actions taken against illegal money or value transfer services.
    4. Controls on movement of cash carriers being used for terrorist financing.
    5. Improving inter agency coordination between provincial and federal authorities on combating terrorism financing.
    6. Enhancing the capacity and support for prosecutors and the judiciary.
    7. Implementation of financial sanctions against designated terrorists and prohibiting their access to funds and financial services.

Provided the current situation of the economy, where the current account deficit is already $12.68 billion, the blacklisting would further make investments in Pakistan scarcer.

The direct effects of the black listing would be on the private banks, as their international transfer of money would be affected. The documentation required for the LC’s would be more sophisticated, hence driving up the costs for local businesses engaged in trade and that would have a negative effect on economy as a whole.

The borrowing of money for countries on the Grey/Black list of the FATF also becomes difficult. As the banks lending money demand more transparency and control over the use of the funds they provide.

Pakistan was given time till January 2019 at first, to meet the FATF requirements, than there was a relaxation in the time limit and the date was extended till May 2019. On 16th of June 2019, in a meeting In Orlando, FATF urged “Pakistan to complete its action plan by October 2019 when the last set of ‘action plan’ items is set to expire.” In condition of non-compliance, officials said that, “FATF will decide the next step at that time for insufficient progress”. The FATF said that it was unlikely that Islamabad would be placed on the blacklist.

Further more, Pakistan has managed to gain the support of China, Turkey and Malaysia to strengthen it’s position in the FATF meet on October, 2019. According to the FATF charter, the support of at-least 3 countries is mandatory to avoid blacklisting.

Indian delegation, headed by Indian Financial Intelligence Unit (FIU) Chief PK Mishra, urged the FATF to put Pakistan on blacklist, making the FIF the Falah E-Insaniyat Foundation, headed by Hafiz Saeed, the basis for its argument. Delhi argued that Pakistan’s military is reluctant to act against certain terror outfits and is financing terror activities in parts of India, including Jummu and Kashmir as well.

Provided the whole situation, where Pakistan is gaining support from friendly countries, for not being included in the blacklist and the FATF itself claiming that it would be unlikely that Pakistan may be placed on the blacklist in the upcoming FATF meeting in October, 2019.

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