For Pakistan, no exit from watchdog’s gray list in sight

Islamabad has been struggling to get off the Financial Action Task Force’s (FATF) gray list since 2018. However, internal and external environments have not been conducive. Opposition parties censured and attempted to obstruct or at least delay the government’s legislative process to promulgate laws-- an FATF precondition. Besides, Pakistan’s archrival India has been lobbying to keep Islamabad on the gray list and in fact move it into a monitored jurisdiction-- a blacklist. 

The FATF’s plenary virtual meeting is scheduled from October 21-23 in Paris. Will the decision in the forthcoming session be made on merit? Or will it be grounded in the political veracities of global politics, which limits Pakistan’s chances of exiting the gray list. 

For two decades, Pakistani state and society have suffered from militant attacks. It acted as a front-line state in the US-led war on terrorism. Even today, its armed forces have been engaged in sub-conventional warfare. But despite all its sacrifices, Islamabad has failed to muster enough support among the international community to aid the country in exiting the gray list. 

Pakistan’s financial system contains built-in loopholes, which are easily exploited for money laundering. Besides, the realignment in the global strategic environment has provided its adversaries, including India, an opportunity to place the country on the FATF gray list twice. 

It was in 2018 that the FATF listed Pakistan on its gray list for the second time and ordered it to execute a 27-step action plan, including the legislation of new laws to curb terrorism financing and money laundering. If the country fails to comply with the action plan’s requirements, it will be moved to the blacklist. This would be a disaster for the country’s fragile economy and financial assistance from major international financial institutions, such as the IMF, World Bank, and Asia Development Bank will stop. 

Qureshi contacted his Saudi, Turkish and Malaysian counterparts and requested their support in the FATF meeting. Indeed, with its allies’ help in the forum, Pakistan can prevent its entry into the blacklist. Its exit from the gray list however, is very much dependent on the US, UK and European countries’ perceptions about its compliance with FATF rules.

Dr. Zafar Nawaz Jaspal 

And yet, the polarized Pakistani political elite seems less sensitive to the current and daunting challenge to the country. The opposition is determined to block the government’s sponsored bill in parliament. Its majority in the senate is a significant obstruction in smooth legislation for curbing money laundering. 

Opposition parties are afraid that the government will use these laws for political victimization. Both leading political parties— the PML-N and PPP high-ups have been subjected to money-laundering litigation, like former President Asif Ali Zardari and ex-Prime Minister Nawaz Sharif. 

Nonetheless, the government was able to amend 15 laws to upgrade its legal system matching international standards as required by the FATF. It also started taking action against domestic militant units, such as JuD and the government froze their movable and immovable assets. 

With the approval of laws, the government has gained some confidence in its removal from the gray list. On October 10, Foreign Minister Shah Mehmood Qureshi expressed his optimism that the country would soon be off the FATF gray list. 

Qureshi contacted his Saudi, Turkish and Malaysian counterparts and requested their support in the FATF meeting. Indeed, with its allies’ help in the forum, Pakistan can prevent its entry into the blacklist. Its exit from the gray list however, is very much dependent on the US, UK and European countries’ perceptions about its compliance with FATF rules. Without their support, Pakistan cannot garner the votes of 12 out of 39 FATF members, which is required for removal from the gray list. 

The Asia-Pacific Group on Money Laundering (APG), despite acknowledging Pakistan’s improvement in compliance with two of the 40 FATF recommendations on the effectiveness of anti-money laundering and combating financing terror (AML/CFT) system, has refrained from recommending its exit from the gray list. 

Last month, its follow up report (FUR) on Pakistan reported, “In keeping with APG third round procedures, Pakistan will remain in enhanced (expedited) follow up, and will continue to report back to the APG on progress to strengthen its implementation of AML/CFT measures.” 

In summary, Pakistan has been struggling on two fronts in the FATF: to foil any attempt aimed at its blacklisting and to get itself rid of the gray list. 

Recent multiple, legislative, regulatory and practical steps will save it from blacklisting in the next virtual meeting, but it seems, Pakistan will still remain on the gray list.

*Dr. Zafar Nawaz Jaspal is an Islamabad-based analyst and professor at the School of Politics and International Relations, Quaid-i-Azam University. E-mail: [email protected] Twitter: @zafar_jaspal