All you need to know about FATF, Pakistan's latest headache

The FATF on June 22 decided to keep Pakistan on its 'Grey' list for failing to curb the funnelling of funds to terror outfits like LeT, JeM and others.

Published: 03rd July 2019 04:29 PM  |   Last Updated: 03rd July 2019 04:29 PM   |  A+A-

Pakistan PM Imran Khan

Pakistan PM Imran Khan ( File Photo | AP)

Online Desk

The Paris-based Financial Action Task Force (FATF) on June 22 decided to keep Pakistan on its 'Grey' list for failing to curb the funnelling of funds to terror outfits like LeT, JeM and others, apart from giving a September 2019 deadline to comply with its 27-point action plan.

After its week-long meeting in Florida, the financial watchdog also directed Pakistan to take 'credible, verifiable, irreversible and sustainable measures' to address global concerns related to terrorism and terror financing from its territory.

The warning went on to turn starker for Pakistan in a few more days. On June 25, the outgoing FATF president Marshall Billingslea hinted at the possibility of blacklisting the country.

"Pakistan had 'significant' work to do. With regard to an action plan agreed in June 2018, they are 'lacking in almost every respect'," Billingslea told the media.

He added, "Pakistan was cautioned in February at the plenary that they had missed almost all of their January milestones. They were urged to not fail to meet the milestones in May. Unfortunately, Pakistan has yet again missed its May milestones."

What then is the FATF? How much power does it actually wield?

The Financial Action Task Force (on Money Laundering) is an intergovernmental organisation founded in 1989 on a G7 initiative to develop policies against money laundering.

While its initial role was monitoring legislative, financial and law-enforcement activities at the national and international level, its role became prominent after the 9/11 terror attacks in the US. In 2001, it expanded its operations and included terror financing under its ambit.

The Paris-based organisation monitors the progress of its recommendations through 'peer reviews' or 'mutual evaluations' of its member countries.

File Photo of an FATF meeting. | AFP

The mandate of the organisation was expanded to include terror financing following the September 11 terror attacks in 2001. FATF is seen as the lender of last resort for curbing terror funding globally.

In 1990, the organisation issued 'Forty Recommendations' on money laundering, and 'Nine Special Recommendations' (SR) on Terrorism Financing. 

The FATF revised the above guidelines in 1996 and 2003.

The 2003 guidelines require states to confiscate the proceeds of illegal transactions and form a financial intelligence unit to receive and probe suspicious transaction reports. They have to cooperate internationally and go after money launderers too.

Rules have also been framed for Non-Profit Organizations or NPOs to ensure the terror outfits don't use them for money laundering. 

What is the FATF Blacklist?

In 2000, FATF issued a list of "Non-Cooperative Countries or Territories" (NCCTs), also known as the FATF Blacklist.

Countries unwilling or unable to provide foreign law enforcement officials with data on illegal/suspicious money sought by them are known as uncooperative tax havens.

As of February 2016, only Iran and North Korea have been kept in this list.

The problematic relationship between FATF and Pakistan

Pakistan has been kept in the FATF Grey List since June 2018 and handed a 27-point action plan to be executed. They were in the same category from 2012 to 2015.

Pakistan needs to implement the FATF Action Plan fully by September 2019.

Pakistan being in the grey list can be attributed to the fact that the country's anti-terror laws are still non-compatible with FATF standards and also with the latest UN resolution 2462 that pitches for criminalising terrorist financing.

Pakistan Prime Minister Imran Khan. ( Photo| Twitter)

What Pakistan has mostly done in the past was detaining both Azhar and Saeed for 'apprehension' of breach of peace. The FATF seeks freezing of funds, denial of weapons access and travel ban.

While there were some arrests of LeT, JeM, JuD cadres, they were all apprehended under the country's Maintenance of Public Order Act and not the Anti-Terrorism Act, 1997. The big loophole in Pakistan's Maintenance of Public Order Act is the fact that the detainee can't be kept confined beyond 60 days.

What India did to put pressure on Pakistan

In FATF Plenary sessions, India has been actively supporting the US, UK, Germany and France, who have been saying that Pakistan is not doing enough to contain terror funding.

As per reports, in 2018, when India submitted new information about the terrorist groups operating from Pakistan, the country was again put into the 'Grey List'.

FATF had nominated Pakistan for a detailed review of its "serious deficiencies" in acting against terror financing in February 2018, and this was supported by the US, UK, France, Germany and India.

In April this year, Pakistan Foreign Minister Shah Mahmood Qureshi admitted the country faces the possibility of getting blacklisted by FATF due to 'India's lobbying'. He also estimated that his country could suffer a USD 10 billion loss annually if it remains in the watchdog's grey list.

For representational purposes (File | AFP)

But despite these imminent threats, when the Asia-Pacific Group (APG) visited Pakistan in March, it expressed serious reservations over insufficient actions on the ground.

Ahead of the FATF's Florida meeting, Pakistan managed to garner the support of Turkey, China and Malaysia to avoid being placed on the FATF blacklist. As per the FATF charter, the support of at least three member states is essential to avoid the blacklisting phase.

How this can hurt Pakistan's economy

A report on June 10 shed light on how the whole issue can hurt Pakistan on the financial front.

Beyond the banking sector, the 'Grey Listing' can impact sectors like imports, exports, remittances and access to international lending.

Also, global financial bodies like the IMF can do diligence checks on transactions with Pakistan to avoid the risk of violations pertaining to money laundering and terror funding.

The International Monetary Fund logo is seen during the IMF/World Bank spring meetings in Washington (File | Reuters)

In the worst case, financial bodies can cut Pakistan off.

As per other reports, Pakistan's continued presence in the 'Grey List' also means downgrading by IMF, World Bank, the Asian Development Bank (ADB), European Union and also a reduction in risk rating by Moody's, S&P and Fitch. This will be problematic for Pakistan, as they have a massive debt burden and are seeking loans from all possible international avenues.

Pakistan and economic woes: A never-ending saga

While there was a change at the helm in Pakistan last year, it hasn't helped the country's economy get out of ICU.

On April 3, 2019, the Asian Development Bank forecast that the country's economic growth was set to slump further to 3.9 per cent in the ongoing fiscal year from 5.2 per cent in 2018, citing the "macroeconomic challenges" faced by the cash-strapped country.

Pakistan has been availing financial assistance and oil credit facilities from allies like Saudi Arabia, the UAE and China.

The country ranks at the 107th position among 140 economies on the 2018 Global Competitiveness Index. 

The total foreign debt stands at a staggering USD 97 billion.

And it has possibly run out of friends to turn to. For instance, according to reports, Pakistan owes China at least USD 10 billion for the construction of the Gwadar port.

A Pakistan Navy ship berth at Gwadar port, about 700 kilometers (435 miles) west of Karachi, Pakistan. (File | AP)

With the country under economic siege, the country's military, who many see as the de facto rulers, voluntarily decided to cut their budget allocation for the fiscal year 2020.

The most recent bailout package to Pakistan from the IMF forces them to have a market-determined exchange rate, which will lead to further devaluation of the Pakistani rupee, along with a higher interest rate. The package is also expected to bring cuts in fuel subsidies.

But even this deal faces pressure from the US, which is seeking "conditionality" clauses in the aid package. The country reportedly expressed serious reservations over IMF providing a bailout to Pakistan to pay off Chinese debts.

Will Pakistan's latest FATF mess help India in any way?

Senior journalist Ramananda Sengupta believes although Pakistan remaining in the FATF Grey List is a big diplomatic victory for India, we will have to adopt a 'wait and watch' approach in the whole matter.

"Even if Pakistan gets blacklisted by FATF, it won't stop terrorism completely. Also, there are no immediate possibilities of India-Pakistan bilateral talks. All India will do right now is wait and watch and see how Pakistan handles the whole 'blacklisting' situation. India's stance has always been pretty clear about going into talks with Pakistan, which is that they stop their state-sponsored terrorism completely," he said.

Though China is all set to assume the chair of FATF President, Sengupta feels it can't veto the process of Pakistan being blacklisted.

India PM Narendra Modi (R) and his Pakistan counterpart Imran Khan (File | Agencies)

"Maybe China can defer the process on technical reasons or even abstain from voting when the issue comes up for discussion in Paris, but it can't veto it as it does in the UNSC whenever there is a resolution against Pakistan's state-sponsored terrorism or terrorists like Hafeez Saeed or Masood Azhar. They are already handling problems like a trade war with the US. They don't want to be seen as a 'terror supporter'," he stressed.

Also, he feels that China may use the FATF matter as a 'bargaining chip' with India to get the latter on board in crucial infrastructural projects like the Belt and Road initiative that the Modi government has opposed since it passes through Pakistan-Occupied-Kashmir (PoK), which India lays claims to.

Sengupta also said that the role of countries like Saudi Arabia and Qatar will be important too, when the matter of blacklisting Pakistan will be taken up for deliberation in FATF.

"Although Imran secured investment deals from the Saudis and Qatar, India has also made diplomatic inroads in the Gulf countries," he added.

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