Pakistan is on the Grey List Again - Seeker's Thoughts

Recent Posts

Seeker's Thoughts

A blog for the curious and the creative.

Pakistan is on the Grey List Again

Pakistan will remain on the Financial Action Task Force. (FATF) grey list in 2020. The decision was taken in the FATF’s plenary session after Islamabad failed to comply with all 27 parameters set by the task force.

According to FATF president Marcus Pleyer, Pakistan has completed 21 out of 27. Pakistan has made progress, but it needs to do more.

Turkey proposed during the FATF that members should consider Pakistan’s good work. Turkey went further to suggest that the FATF should dispatch an on-site team to Pakistan to finalize its assessment instead of waiting for the completion of the remaining six out of 27 parameters.

The FATF has decided to retain Pakistan on its grey list at least till the next review, which is due in February 2021.

The disappearance of more than 4,000 names from its original list of 7,600 terrorists from schedule IV of its Anti-terrorism Act contributes to the FATF’s decision on Pakistan. Other reasons included Pakistan’s inaction against UN-Designated terrorists, including Dawood Ibrahim, Maulana Masood Azhar, Hafiz Saeed, and Zakir ur Rehman Lakhvi.

In June 2019, Pakistan was found ‘failed to curb’ funds to terror groups by international watchdog Financial Action Task Force (FATF).

However, Pakistan received temporary relief as it was supported by Turkey, China, and Malaysia.
The FATF decision is an only temporary relief for Pakistan. Still, experts say it will earn Islamabad much needed time to garner support from more friendly nations to eventually wade off the looming threat of sanctions.

What is the Grey List?
FATF’s grey list is also called Jurisdiction with Strategic Deficiencies. 
What does it mean to be in FATF’s Grey List?
The FATF grey list does not put sanctions; however, there would be a low ranking of Pakistan in the International Market, which will impact investments and FDI, etc.

Also, read - Who is Carrie lam?
Is Pakistan alone in Grey List?
No, other countries are on Grey list.

How many times has Pakistan been in Grey List?
This is not the first time Pakistan has been listed on the list. The country remained in greylist in 2008, from 2012 to 2015, and in 2018. 

However, Pakistan remains the most significant name on the list for having the largest population, economy, and largest military among other listed members. 
Pakistan has long been a difficult and disruptive neighbor to Afghanistan, hoping to limit India's influence and cultivate radical groups within Afghanistan as proxies.
As per various reports, it has augmented Afghanistan's instability by providing intelligence, weapons, and protection to the Afghan Taliban and Haqqani network.
In a report brought out in June 2018, the FATF chronicled the use of banking channels to fund the activities of the banned terror group Hizb-ul-Mujahideen.
The group has carried out many attacks and killing worldwide; the global body quoting official submissions made by investigators to it said the Hizb-ul-Mujahideen raise in crores in the last eight years for "furthering terror activities" in India.
Hizb-ul-Mujahideen has been receiving funds originating from Pakistan through different channels supporting its terrorist activities in India.
This group has been designated as a terrorist organization by India, the US, and the European Union.
On June 21st, 2019, Financial Action Task Force stated that Pakistan had failed to meet two deadlines to complete the action plan on terror financing and urged Pakistan to meet the October 2019 deadline.
The FATF expresses concerns that Pakistan fails to complete its action plan item with January deadlines; it also failed to complete its actions in May 2019.
However, this is not the first time since Pakistan has been listed on the Grey List. Earlier in June 2018, Pakistan was listed on the Grey list.
Pakistan included in Grey List in June 2018
There were charges against Pakistan for not doing enough to combat terrorism, which was recommended by – ICRG (International Cooperation Review Group) In 2018. 
It impacted Pakistan as countries need funds to develop infrastructure.
What is the FATF or Financial Action Task Force?
The Financial Action Task Force, also known by its French name, Groupe d'action financière, is an intergovernmental organization founded in 1989 on the initiative of the G7 to develop policies to combat money laundering. 
There are two things which are curbed by the FATF-
Money Laundering – Originally, FATF was formed to curb practices of Money Laundering. 
Terror Financing-   When the United States was attacked by terrorists in 2001, terror financing was also included in FATF List.  

What does FATF do?
FATF's basic work is to monitor the activities included in Money Laundering, terror financing, and curbing. However, FATF does not put sanctions on the countries. There are two categories of recommendation given by FATF---
•      40 recommendations for money laundering – since 1992
•      9 recommendation for special – terror financing Since 2001
It declares noncooperative countries (NCCTs), commonly called as FATF blacklist, after enough warnings have been served. 
The obligation on Member Countries of FATF
Originally there were 16 countries when FATF was formed; however, now the number has
reached 39. There are certain obligations on the members of FATF, and those
obligations are as follow-- 
-Implement relevant international conventions
-Criminalize money laundering and enable authorities to confiscate the proceeds of money laundering
-Implement customer due to diligence (e.g., identity verification), record keeping, and suspicious transaction reporting requirements for financial institutions and designated non-financial businesses and professions
- Establish a financial intelligence unit to receive and disseminate suspicious transaction reports, and
- Cooperate internationally in investigating and prosecuting money laundering.

Does FATF’s sanction work?
So far, it has worked well in recent years that put a huge financial burden on countries that did not cooperate with rules; However, FATF carries no formal sanction.

It is a challenging task to track money launderers and terrorists for their crimes. Therefore, FATF and others try to take an indirect route to measure a country's vulnerability to these crimes by evaluating laws and their implementation.
FATF uses peer pressure through the age-old technique of name-and-shame. There are many factors at play, and it remains unclear how negative Pakistan’s placement on the greylist will eventually turn out to be.

Also, read - World peace under threat.
There is, however, no debate that it is indeed negative. Here are some of how greylisting could affect Pakistan.
1. Could adversely affect the link between Pakistan and the International Financial System
Pakistan’s banking channel could be adversely affected as it is inevitably linked with the international financial system.
The impact on Pakistan’s economy could be relatively wide, touching imports, exports, remittances, and international lending access.
2.    The Suspicion among Financial Institution would rise
Foreign financial institutions may carry out enhanced checking of transactions with Pakistan to avoid the risk of violations of money laundering and terrorism financing.
3.    Lesser foreign investment
Another effect is the sentiment of foreign investors. That Pakistan has been placed on the greylist has been covered in international news media, and the fact will not go unnoticed by potential investors. Stock prices at Pakistan Stock Exchange appear to have already felt this impact.
Perhaps the biggest threat from being placed on the grey list is Pakistan could be pushed further down to the blacklist.
Is this a financial or a political issue?
If international news media's commentary is any indicator, Pakistan’s placement on FATF’s grey list is far more political than financial in nature.
It is seen as one of the several ways the US is attempting to pressure Pakistan to “do more” on terrorism issues.
The long-winded, jargon-filled recommendations, and methodology used by FATF leave plenty of flexibility for the team of assessors to exercise their “informed judgment.”