What does Pakistan’s exit from FATF grey list imply? | By Sultan M Hali


What does Pakistan’s exit from FATF grey list imply?

PAKISTAN finally managed to wriggle out of the FATF grey list last month. Only two countries were removed from the FATF’s IML, Pakistan and Nicaragua while 23 others still remain in the list, including Jordan, Turkiye and the United Arab Emirates (UAE).

The exit from the FATF IML comes after 4 years when Pakistan was placed in the grey list on 28 June 2018 for failing to effectively act against terror financing on its soil.

It was hanging like the Sword of Damocles ever since Pakistan first came under the FATF’s microscope after activities of the proscribed Tehreek-i-Taliban Pakistan (TTP) surged following the outfit’s formation in December of 2007.

To add salt to injury, there was a marked rise in terrorist activities in the country after that; ultimately Pakistan was placed under the grey list on 28 February 2008.

From 2008, Pakistan had been sporadically in and out of the grey list. Once in 2012 before it was taken out in 2015 till the time Pakistan’s placement in the FATF IML again in 2018.

Now, after a major struggle, Pakistan is out of the grey list after it submitted a solemn pledge to make concerted efforts to address FATF’s concerns. For the record, Pakistan effectively fulfilled all 34 Standards of the 2 Action Plans of 2018 and 2021.

On 17 June 2022, the 2nd FATF plenary session for the year 2022 was held in Berlin and Pakistan’s progress on the 2 Action Plans was reviewed. The review acknowledged the Action Plans’ substantial and successful completion by Pakistan.

However, Pakistan’s exit from the grey list was dependent upon the green light of the FATF on-site inspection team that was instructed to visit Pakistan in the coming months to review the genuine implementation of Anti-Money Laundering (AML)/Combating Financial Terrorism (CFT) reforms and regulations, their sustainability, along with the presence of the necessary political commitment for further improvement and continuity of these reforms in future.

In consonance with the ruling, a 15-member FATF team visited Pakistan on a 5-day visit from 29 August 2022 till 02 September 2022 to record its formal findings in this regard.

The compiled report came under review in the last plenary session for this year on 18-21 October 2022 in Paris.

The FATF Plenary concluded that Pakistan had reinforced the efficacy of its AML/CFT regime and addressed technical deficiencies to meet the commitments of its action plans.

Pakistan’s efforts in addressing FATF’s concerns regarding 2021’s Action Plan well before the deadline were appreciated, concluding that Pakistan is no longer in the financial watchdog’s increased monitoring process.

This exit comes with a caveat since it was declared to be a “whole-of-nation” endeavour in which vital contributions were made by multiple ministries, departments and agencies at the Federal and Provincial levels.

Despite the Herculean effort of cleaning the Augean Stables despite the constraints of COVID-19, the country will have to traverse the path positively on a reform trajectory and align itself with international economic best practices. However, the removal from the grey list does not guarantee smooth sailing for Pakistan henceforth.

The next step is that Pakistan is now automatically placed in the “Regular Follow-up List” (RFL) by default.

It would have been more challenging if Pakistan were placed under the Enhanced Follow-up List of the FATF which is a more intensive mechanism.

In the current milieu, Pakistan has become a part of the regular reporting system where it will submit timely reports to the Asia-Pacific Group (APG) review group regarding its continued ‘technical, legal, institutional and operational’ compliance.

Pakistan will have to continue working closely with the APG to further improve its AML/CFT system.

Its follow-up Reports will need to be submitted to the FATF-Style Regional Body (FSRB), the APG in Pakistan’s case, which will be scrutinized for the issuance of a clean bill of health, or proposal for remedial actions and recommendations for re-rating in the next plenary session.

Additionally, besides AML/CFT and proliferation financing of weapons of mass destruction (WMDs), issues like corruption and tax crimes have also been added as new priority areas of the FATF mandate.

Pakistan may have significantly addressed FATF’s Standards pertaining to AML/CFT but the spectre of corruption and tax crimes in the country continues to haunt it, since they will certainly come under investigation.

The menace of corruption is rife in Pakistan. According to the Transparency International’s Corruption Perception Index (CPI), Pakistan ranks 140 out of the 180 countries indexed for corruption.

With its begging bowl out seeking dole outs from the IMF and being a victim of natural catastrophes of floods looking for foreign aid, Pakistan will be on the radar scope of organizations in the hunt for financial criminals.

To make matters worse, the current political milieu, further besmirched by an assassination attempt on the former Prime Minister Imran Khan and the brutal slaying of outspoken journalist Arshad Sharif will certainly be taken cognizance of by the FATF.

Another threat Pakistan faces is from India which has played a significant role in keeping Pakistan grey-listed in the FATF by effective lobbying and using its position in the organisation to the maximum.

It is imperative that Pakistan makes a concerted effort to maintain the current momentum of progress and improvement and further build upon strengthening its national AML/CFT frameworks.

The next progress report is due on 01 February 2023 and Pakistan should be ready for it. It is also in the best interest of Pakistan to take pre-emptive measures such as formulating effective policies and devising workable frameworks in consultation with all the relevant national stakeholders to address the challenges of corruption and tax crimes as well.

If Pakistan fails to address the looming challenges and does not strive to curb the factors that had contributed to its being placed in the FATF’s grey list, they will come back to haunt the struggling South Asian economy.

The downward slide will serve as a red flag to investors and commercial partners, further exacerbating national problems.

—The Author is a Retired Group Captain of PAF, who has written several books on China.


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