Pakistan is likely to remain on the Financial Action Task Force's Grey List beyond February 2020 for money laundering and terror financing which has resulted in its risk profiling. Pakistan was first placed in the grey list in 2012 and remained like that till 2015. Later on, it was again placed in the Grey List in June 2018. Pakistan was given an action plan to complete by October 2019, but because of non-fulfillment of the prescribed conditions, FATF retained Pakistan on the Grey List. This decision was taken at the five-day plenary of the FATF held in Paris in October 2019. In the plenary, it was held that Pakistan faces greater challenges than many other countries because of its risk profile, and therefore cannot be moved out of the list.
The plenary noted that Pakistan addressed only 5 out of the 27 tasks given to it as an action plan which included a measure for controlling funding to terror groups like the Lashkar-e-Taiba, Jaish-e-Mohammad. In response to this retention Pakistani representative, Mr. Hamza Ahmad stated that some countries had been removed from the Grey List after just 80 percent compliance but Pakistan is being forced to ensure 100 percent compliance with the action plan. Pakistan required 15-16 votes to move out of the Grey List and a minimum of three votes to avoid falling into the blacklist. It indeed dodged the bullet of getting blacklisted but again got hit by getting greylisted.
Significance of this development
Since Pakistan continues to be in the FATF 'Grey List' there would be serious repercussions on it. Some of the repercussions are as follows,
1. It would now be very difficult for Pakistan to get financial aid from the IMF, the World Bank, and the European Union. Its retention in the grey list would also lead to a reduction of its rating by Moody's, S&P and Fitch, making Pakistan financially more unstable.
2. Considering it to be a country on a threshold, International Institutions like IMF, World Bank and the like could impose Economic sanctions on Pakistan.
3. It would become extremely difficult for Pakistan to seek loans from institutions like IMF, World Bank, ADB and the like because their decision of granting loans mainly depends on the Country’s financial status which as of now is not at all stable.
4. Pakistan would have to face a decline in its international trade with big players like the US and UK.
5. Considering the case of money laundering and uncontrolled terrorist activities Pakistan would have to face a series of embargo from the state as well as non-state actors which would be detrimental for the economy of the country.
What is FATF?
The Financial Action Task Force established in 1989 is an inter-governmental body that deals with matters related to terror funding, money laundering, and related issues. Established at the G-7 Summit, the US under the auspices of the Heads of State or Government, President of the European Commission and eight other countries, it is aimed at the integrity of the international financial system. As of now, FATF comprises 36 members with voting powers and two regional organizations that act as observer states which include Saudi Arabia and Indonesia.
These members are at the core of global efforts to combat money laundering and terrorist financing. With regards to the organization, FATF has a head in the form of the President who is appointed by the board from among themselves for a term of one year. The office of the President starts on 1 July and ends on 30 June of the following year. As of now, Xiangmin Liu from China is the President of the FATF.
Lists of FATF
1. Black List: The FATF has been issuing the blacklist since 2000. The lists comprise the name of countries which do not cooperate in the fight against money laundering and terror funding and are a haven for terrorist organizations. The blacklist is updated regularly, adding or deleting entries.
2. Grey List: Countries that are not considered as the haven for supporting terror funding and money laundering are put in this list. This list acts as a warning to the country that if not worked in accordance with an action plan the country would be shifted in the Blacklist. In cases where a country despite the intimidation does not try to curb terror funding and money laundering; it is shifted from the grey list to blacklist by the FATF.
Its functions and powers
1. The main objective of the FATF is to establish norms and standards to fight against money laundering, terrorist financing and other related threats to the security and integrity of the international financial system.
2. The organization works with various nations by providing policies to bring legislative changes and regulatory reforms in those nations.
3. It 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.
4. FATF monitors the situations of its members in establishing adequate measures and institutions to fight against money laundering and terrorist financing, with the aim of protecting the international financial system from misuse.
5. FATF set standards and promote the implementation of legal measures to combat matters which could be threats to the integrity of the International Financial System.
Significance of being listed by FATF
1. The FATF’s Greylist and Blacklist carries no formal sanction but once a country is placed in such a list countries succumb to intense financial pressure.
2. The FATF makes sure that funds are not easily accessible to terror organizations that are causing crimes against humanity.
3. FATF helps fight against corruption by ‘grey-listing’ countries that do not cooperate with fighting terror, to cripple economies of states who aid terrorists.
4. FATF works with monetary agencies to control terrorist finance activity.
5. FATF makes guidelines which even puts an embargo on NGO established in such countries to keep a check on their transactions and activities.
Conclusion
The next plenary meeting of the FATF will be held in Paris by the end of 2020. Pakistan would need 12 votes out of 39 to move to White List and there is indeed a strong possibility of Pakistan moving to the whitelist. Pakistan has received support from countries like Malaysia, Turkey, and China which maximizes the possibility.
The possibility would increases if Pakistan could convince Western Countries by taking serious actions against terrorist activities in the country thereby assuring a peaceful cohabitation with neighboring countries
For future possibilities, we can hope that the leadership of Pakistan will try to check terror activities and would try to ensure peace and prosperity in the Asian continent. If the world cooperates with the FATF, funding for terror activities can be checked and prevented thereby placating terrorist activities itself.