Pakistan placed on FATF
Why in news?
- In a blow to Pakistan, the Financial Action Task Force (FATF) has placed it on the ‘grey list’ for failing to curb anti-terror financing, despite Islamabad submitting a 26-point action plan and launching a concerted diplomatic effort to avert the decision.
- FATF felt there are ‘strategic deficiencies’ in the country’s Anti-Money Laundering and Counter Terrorist Financing (AML/CTF)
- Pakistan remained on the FATF ‘grey list’ from 2012 to 2015 previously.
- The FATF is an inter-governmental body established in 1989 to combat money laundering, terrorist financing and other related threats to the integrity of the international financial system.
- It maintains “grey” and “black” lists
- Grey list are those countries that have deficiencies in their AML/CTF regimes but they commit to an action plan to address these loopholes
- Countries in Grey list Pakistan, Ethiopia, Iraq, Yemen, Serbia, Syria, Sri Lanka, Trinidad and Tobago, Tunisia, and Vanuatu.
- Black list countries are those which are judged to be non-cooperative in the global fight against money laundering and terrorist financing, calling them “Non-Cooperative Countries or Territories” (NCCTs)
- Black list includes Countries like North Korea, Iran .
Why is Pakistan in Grey list?
- Pakistan has failed to comply with the anti-money laundering and terror funding guidelines despite repeated attempts.
- The case against Pakistan is its inaction against UN-banned terror groups like the Taliban and Haqqani Network, Jaish-e-Mohammed, Lashkar-e-Taiba, Jamaat-ud Dawa and its affiliate Falah-i-Insaaniyat Foundation, besides terrorists like Hafiz Saeed and Masood Azhar.
Why has Pakistan failed to comply or choke terror funding?
- Pakistan has been claiming its economy is highly cash driven so they are not able to control cash transactions that is espousing terrorism
- Jamaat-ud-Dawa has been on the UN sanctions list in terms of financial transactions and one of its affiliated groups listed by United Nations has built up huge ambulance service. So, with JuD running a number of social and development programs all across Pakistan, it is garnering popular support from various sections of society. So, Pakistan administration is not able to control the spread.
- System of denial and mindset in Pakistan that everything seems to be fine but the world is just targeting them.
- Inclusion in this list is not good for any country especially a country like Pakistan whose global reputation continues to suffer. Pakistan’s inclusion in the terror financing list portrays a negative image to the world.
- The cost of doing business in the country would have increased manifold, besides drying up the foreign investment.
- No company wants to be doing business with a country that has possible ties with terrorist funding activities or lacks a process that prevents such activities.
- it will be difficult for Pakistan to get foreign loans from IMF, World Bank or Asian Development Bank
- It would worsen the country’s macroeconomic position which is already under pressure due to a widening trade deficit and falling foreign exchange reserves.
- Grey-listing could also lead to a downgrade in Pakistan’s debt ratings, making it more difficult to tap into the international bond markets.
26 Point action plan
It has been created in consensus with Asia Pacific Group
- Pakistan has told the FATF that it will implement its action plan to accomplish these objectives of properly identifying, assessing and supervising the removal of terrorism financing risks on a risk-sensitive basis.
- It will improve inter-agency coordination between provincial and federal authorities to combat terror financing risks.
- It will demonstrate that Law-Enforcement Agencies (LEAs) are identifying and investigating the widest range of terrorism financing activity.
- As per the plan approved by the FATF, nine targets have to be met in January 2018, about 13 by May 2019 and the remaining in September 2019.
How far can China help Pakistan?
- China will bail out Pakistan as long as monetary disbursement is within its range, until it pinches their purse. So if China feels it will impact their banking they will start rethinking
- China in the past has advised Pakistan to move to international organisations like World Bank in case the loan amount is huge
- Moody’s has downgraded the bond value, Pakistan has devalued its currency two to three times, exports have reduced and imports have been increasing. With all this China alone won’t do the heavy lifting to bail out Pakistan.
Has Pakistan changed with external Pressures?
- Pakistan has conducted Operation Zarb-e-Azb. It was a joint military offensive conducted by the Pakistan Armed Forces against various militant groups to bring peace and tranquility in the region
- This has brought about societal stability in Pakistan as compared to six to seven years ago
- With continuous US pressure changes can be seen on Afghanistan’s front
- But Pakistan has not made Policy amendments when it comes to India
- Pakistan should democratize its politics and military rule should be restricted
- There is a rise of civil and political administration resilience against Military rule and its imposition. This has to be sustained as there is lot of support from civil society
- With time being imposed on Pakistan to make changes, Pakistan has to stick to its commitments as there will be direct monitoring and intense scrutiny by the International organisations