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Preliminary reports – that have not been officially confirmed yet – suggest that Pakistan has been ‘blacklisted’ by the 22nd Asia-Pacific Group on Money Laundering (APG), an affiliate of the Financial Action Task Force (FATF), that concluded in Canberra on 23 August. This should send alarm bells ringing in Islamabad.
On the eve of the meeting held in Canberra, the Pakistani authorities were allowing it to be known that they would sail through, based on the mutual evaluation report (MER), related to the work they had done in ‘strengthening’ anti-money laundering (AML) exercises, and ‘countering’ financing terror (CFT).
Now, however, they are saying that the MER may not reflect the ‘real’ progress that they had made since October 2018.
As per the reports which have mainly played out in the Indian media without any official confirmation yet, Pakistan seems to have flunked the test royally: the APG reportedly found that Islamabad failed to meet its rules on 32 out of 40 special standards and benchmarks, relating to its legal and financial system, and 10 of 11 ‘effectiveness’ parameters relating to the enforcement of safeguards against terror financing (TF), money laundering, and have effectively ‘blacklisted’ Pakistan by awarding it its lowest “enhanced expedited follow-up” ranking.
The APG and FATF processes are separate, but they have an important bearing on each other. It is clear now that Islamabad will not only find it difficult to extract itself from the FATF’s grey list – also known as “jurisdictions with strategic deficiencies” – but actually have to confront being blacklisted.
Pakistan was placed on the FATF grey list in June 2018. A press release of the FATF at that time, noted that Pakistan had made a “high level political commitment” to work with the FATF and APG to strengthen its AML/CFT regime, and “address its strategic counter-terrorist financing related deficiencies”.
The FATF had given Pakistan a long list of things to do:
In turn, Pakistan had given the FATF a 27-point Action Plan through which, it hoped, it could exit the grey list. A year later, in June 2019, the FATF said that Pakistan had failed to complete its action plan, and warned that Islamabad could face blacklisting if it did not meet its commitments by October.
Earlier this month, Islamabad had given the FATF a 450-page compliance document outlining its actions against terror groups in the past 18 months, the changes it had made in laws dealing with terrorism, and so on. Pakistan claimed it had charged Lashkar-e-Taiba chief Hafiz Saeed with terror financing, and froze all the assets of the Jamaat-ud-dawa and other UN proscribed groups.
Clearly, the APG did not buy this and if its action is any guide, Islamabad is going to find it tough to get going in the FATF meetings – first, a review meeting in Thailand in September, and then the crucial plenary on 18-23 October.
India is a member of both the APG and the FATF, and though Imran Khan has accused New Delhi of lobbying the FATF against Pakistan, the real push is coming from its members like UK, Germany, France and the US, countries which play a key role in the global financial system and can impose restrictions and penalties on Pakistan.
In view of the APG ruling, Pakistan’s chances of exiting the grey list look bleak. Indeed, Pakistan’s struggle now will be to stay out of the black list.
This would lead to a financial downgrade and restrictions on its markets. It would find it difficult to get more money from the IMF and other western countries or, for that matter, service its debts which take up a quarter of the government’s revenues currently. It is more than likely that western countries are squeezing Pakistan where it hurts its pockets.
The FATF is really about naming and shaming, rather than actually directly fighting terrorism. After all, people like Hafiz Saeed, the Haqqani network, and Masood Azhar are known and already proscribed.
But the importance of the action lies in the fact that like all political parties, insurgencies and terrorist groups require money to function. Squeezing their money supply is sometimes a more efficacious way of dealing with them, than sending in the police or the army. This is the logic that has confronted Pakistan since the Financial Action Task Force got underway.
(The writer is a Distinguished Fellow, Observer Research Foundation, New Delhi. This is an opinion piece and the views expressed above are the author’s own. The Quint neither endorses nor is responsible for them.)
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Published: 23 Aug 2019,10:01 PM IST