Pakistan has officially been placed on the Financial Action Task Force (FATF) 'Grey List' on June 27, 2018. Pakistan’s diplomacy tried hard but couldn't hide the ground situation and its duplicity. Terror factories are thriving and they are now being politically mainstreamed. This is the second time Pakistan has reached the 'Grey Listing' category.
FATF, the terrorism financing watchdog, took the decision during the plenary meeting in Paris, arguing that Pakistan had failed to act against terror financing on its soil. On being 'grey list' means that Pakistan's financial system will be seen as risk to the international financial system because of ‘strategic deficiencies’ in its ability to prevent terror financing and money laundering. Now Pakistan will be directly scrutinised by the financial watchdog until it is satisfied by the measures taken to curb terror financing and money laundering.
In February 2018, China and Turkey supported Pakistan but this time Chinese informed Islamabad that they did not want to “lose face by supporting a move that’s doomed to fail”.
FATF is an inter-governmental body established in 1989 by the Ministers of its Member jurisdictions. The objectives of the FATF are to set standards and effective implementation of legal, regulatory and operational measures for combating money laundering, terrorist financing and other related threats to the integrity of the international finance system. The FATF is therefore a policy-making body which works to generate the necessary political will to bring about national legislative and regulatory reforms in these areas.
The FATF has developed a series of recommendations that are recognised as the international standards for combating of money laundering and financing of terrorism and proliferation of weapons of mass destruction. They form the basis of coordinated response to these threats to the integrity of the financial system and help curb spread of international terrorism. The recommendations of FATF are intended for universal application.
To achieve implementation of FATF recommendation, FATF relies on a strong global network of FATF-Style Regional Bodies (FSRBs), in addition to its own 37 members. India is its member since 2010.
There are over 190 Jurisdictions around the world who have committed to FATF recommendations. FATF's decision making body, FATF Plenary, meets three times per year. In collaboration with other international stake holders, the FATF works to identify national level vulnerabilities with the aim of protecting the international finance system from misuse
The move to get Pakistan black listed was sponsored by US, UK, France and Germany. The listing is the outcome of Pakistan's continued funding and sponsoring of international terrorism apart from the deterioration of Pakistan-US relations.
Pakistan has failed to curb fund flowing to Jamaat-ud Dawa, Falah-i-Insaniat, Lashkar-e Taiba, Jaish-e-Muhammed, Haqqani network and Afghan Taliban. Pakistan also failed to have concrete action plan despite having been warned in February 2018. Did Pakistan fail or did Pakistan never want to succeed? After all, terrorism and state-sponsored terrorism are local industries.
FATF has identified deficiencies in Pakistan anti-money laundering and counter terrorism financing regime including inadequate monitoring and regulatory mechanisms, low convictions rate on unlawful transactions, poor implementation of United Nations Security Council resolutions 1267 and 1373 and cross-border illicit movement of currency by terrorist groups.
Pakistan is likely to suffer the risk of downgrades by multi lateral lenders such as IMF, World Bank, ADB and also a reduction in risk-rating by Moody's, S&P and Fitch.
As a result, the Pakistani stock market is likely to fall significantly and China will exploit the economic situation by expanding its investment footprint. Being in 'Grey List' Pakistan will find it difficult to access funds from international markets. In addition to the above, FATF decision would be a setback for ‘Islamabad's effort to improve its image’. It is a big embarrassment for any nation.
Decline in foreign transactions and foreign currency inflows will lead to further declining of Pakistan's large Current Account Deficit (CAD). Pakistani economy had to be bailed out by IMF in 2013. The financial sector will take a hit as Standard Chartered bank with 116 branches as well as Citibank and Deutsche Bank will pull out or will reassess risk-reward ratio, which will bleed Pakistan economy heavily.
Pakistan is obsessed with India-centricity, Wahabism and state-sponsored terrorism as its core of existence. With mainstreaming of terrorist groups into national politics, Pakistan may step-up on more and more terrorism.
International financial institutions may impose more sanctions and may brand it as a terrorist state.
Yet Pakistan is unlikely to learn and change.
The engines of change in Pakistan are fully coupled and totally connected to terrorism.