InternationalVOLUME 15 ISSUE # 15

FATF: Getting out of the ‘grey list’

Contrary to the expectations of India and other hostile forces, the Financial Action Task Force (FATF) has decided not to blacklist Pakistan and give it more time to complete the 27-point action plan it has committed to as the “vast majority of FATF members recognised Islamabad’s enormous efforts to improve its counter-terror financing regime”.

The global financial watchdog has announced that its plenary has decided not to blacklist Pakistan because the country showed progress on a majority of actionable points and demonstrated its serious political commitment to curb terror financing and money laundering. Pakistan’s status would be retained on FATF’s Compliance Document, normally referred to as the “grey list”, for four more months, setting June 2020 as the new deadline for delivering on the remaining points related to terror financing risk management.

The FATF is an intergovernmental organisation founded in 1989 at the initiative of the G-7 nations to develop policies to combat money laundering. In February last year, the FATF had decided to place Pakistan on the “grey list” with effect from June 2018. Pakistan had been given a 27-point ambitious action plan that required it to completely choke terror financing and monetary laundering, dismantle terrorist sanctuaries, and make the banking and non-banking financial regulations more stringent. This is the second four-month lifeline that the FATF has given to Pakistan, that would also help keep open the financing pipelines from international creditors. Avoiding the FATF blacklist would also guarantee the continuation of the IMF programme, subject to the fulfillment of its other conditions.

As a Chinese Foreign Ministry spokesperson has explained, the purpose and aim of the FATF is to support countries’ efforts to strengthen institutions against money laundering and terror financing and safeguard the international financing system. He said:“We stand ready to work with relevant parties to offer more assistance to Pakistan in this area.” It is notable that China and other brotherly countries have supported Pakistan throughout the FATF process in terms of guiding the country to improve its frameworks, while India has made an utmost effort to put Pakistan on the black list

It may be added here that the FATF has appreciated the progress made by Pakistan but expressed its concern about the failure to complete its action plan to reduce money laundering and terrorist financing risks. In this connection, it urged Pakistan to swiftly complete its full action plan by June 2020. Otherwise, if significant and sustainable progress in prosecuting and penalizing terror financing is not made by the next plenary, the FATF will take action.

The FATF statement noted that since June 2018, Pakistan made a high-level political commitment to work with it and the Asia-Pacific Group (APG) to strengthen its AML/CFT regime and to address its strategic counter-terrorist financing-related deficiencies. Pakistan’s political commitment has led to progress in a number of areas in its action plan, the statement said. The progress has been made on risk-based supervision and pursuing domestic and international cooperation to identify cash couriers.

Now the FATF wants Pakistan to implement its action plan to address some specific deficiencies. For instance, it wants remedial actions in cases of AML/CFT violations, relating to TF risk management and TFS obligations. Pakistan is also required to identify and take enforcement action against illegal money or value transfer services (MVTS), and tighten cross-border currency and BNI controls at all ports of entry, including applying “effective, proportionate and dissuasive sanctions”.

To this end, law-enforcement agencies (LEAs) are required to identify and investigate the widest range of TF activity zeroing in on target-designated persons and entities. Above all, Pakistan will need to effectively implement targeted financial sanctions against all terrorists and those acting for or on their behalf with a view to preventing the raising and moving of funds, identifying and freezing assets (movable and immovable), and prohibiting access to funds and financial services. In this behalf, TFS violations will need to be countered with administrative and criminal penalties in cooperation with provincial and federal authorities.

All told, although Pakistan was unable to comply with some of the points in the FATF action plan, yet it is recognized on all hands that it has made sincere and serious efforts to improve the situation. No doubt, the FATF has decided to retain Pakistan on the “grey list”, but there was little chance of Pakistan being blacklisted at the FATF’s plenary meeting due to the Pakistani civilian and military leadership’s firm commitments to plug the loopholes in combating terror financing and money laundering. It is hoped that the authorities concerned in Pakistan will move with speed to implement the FATF action plan to plug all loopholes with a view to completely eliminate all avenues of terror financing. Given the firm commitment by the government on the subject, this should not be difficult to achieve.