Pakistan is on the verge of being 'Blacklisted' - Seeker's Thoughts

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Pakistan is on the verge of being 'Blacklisted'



Pakistan is on the verge of being blacklisted by the Asia-Pacific Group (APG) -- one of the nine regional affiliates of the anti-money laundering watchdog.


The APG is currently meeting at Canberra in Australia conducting a five-year mutual evaluation of Pakistan's progress on upgrading its systems in areas of financial and insurance services and sectors.
In June 2019, Pakistan was found ‘failed to curb’ funneling of funds to terror groups by international watchdog Financial Action Task Force (FATF).
Pakistan already is under ‘Grey List’ of FATF, and if unable to curb the flow, would be blacklisted by the 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, but 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 as 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.

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Is Pakistan alone in Grey List?
No, there are other countries which are in Grey list.


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

However, Pakistan remains as the most significant name on the list for having the largest population, economy and the largest military among other listed members. 
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Pakistan has long been a difficult and disruptive neighbor to Afghanistan, hoping to limit India's influence there, and cultivating 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.
The FATF in a report brought out in June 2018, 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 around the world, 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 in support of 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 not only 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 in Grey List. Earlier in June 2018, Pakistan was listed in Grey list.
Pakistan included in Grey List in June 2018
There were charges against Pakistan for not doing enough for combating terrorism and this was recommended by – ICRG (International Cooperation Review Group) In 2018. 
It impacted on 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, the terror financing was also included in FATF List.  

What does FATF do?
The basic work of FATF is to monitor the activities which are included in Money Laundering, terror financing and curbing that. However, FATF does not put sanction 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 till 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 which did not cooperate with rules However FATF carries no formal sanction.


It is a very difficult task to track money launderers and terrorists for their crimes, therefore, FATF and other try to take an indirect route to measure the vulnerability of a country 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.

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There is, however, no debate that it is indeed negative. Here are some of the ways in which greylisting could affect Pakistan.
1.    It 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 access to international lending.
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 pertaining to money laundering and financing of terrorism.
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 the commentary by international news media is any indicator, Pakistan’s placement on FATF’s grey list is far more political than financial in nature.
It is being seen as one of the several ways the US is attempting to pressure Pakistan to “do more” on issues related to terrorism.
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”. 





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