Will Pakistan Be Out of FATF Grey List in Oct? Debt-Ridden Country Hopes for Relief After Rejections

There are indications that Pakistan may be out of the FATF Grey List by October 2022 when the global money laundering and terror financing watchdog holds its next plenary in Paris. However, that can only happen after an on-ground inspection by the FATF staff itself, keeping in mind Pakistan’s shady record so far.

A country on the Grey List means it cannot control money-laundering and terror-financing operations and is put under increased monitoring by FATF, an inter-governmental body. It restricts access to the international trade and financial system. The country can face difficulty in getting loans from multilateral organisations like IMF and the World Bank. Being on the FATF Grey List is a warning to the countries to take corrective measures otherwise their next destination will be ‘FATF Black List’.

Being on FATF Black List means the country has become a high-risk jurisdiction on money laundering and terror financing with ‘significant strategic deficiencies in their regime’ and faces almost a complete restriction on access to international trade and financial system coupled with an international boycott. Additionally, economic penalties are also imposed on such a non-cooperative state.

Going by the past, FATF first wants to confirm that its 34-item action plan is being effectively implemented on the ground to meet the FATF concerns on combating money laundering and terror financing. Clearly, FATF is in no mood to accept Pakistan’s paper-based claims this time, like it did twice in the past.

2008 FATF GREY LIST

Pakistan was put on the FATF Grey List for the first time on February 28, 2008. The country had failed to meet the FATF standards accepted globally to combat international money laundering and terror financing. FATF then asked Pakistan to implement anti-money laundering (AML) and combating terror financing (CFT) regulation to come out of the Grey List. The FATF statement putting Pakistan in the Grey List was ’66 words’ long and in fact then was just an appeal to loopholes.

After 848 days (2 years, 3 months), Pakistan was out of the Grey List on June 25, 2010, on claims of action taken in the country to meet the FATF standards on AML and CFT standards. The watchdog took the decision to take Pakistan out of the Grey List in its plenary meeting in Amsterdam (June 23-25, 2010) based on “the high level written commitment made by the country to implement action plans to address specific AML/CFT deficiencies.”

2012 FATF GREY LIST

After 601 days (1 year, 7 months), again, on February 16, 2012, Pakistan was back in the FATF Grey List. FATF found Pakistan was not fully compliant on FATF AML and CFT combating standards that it agreed to follow on when it was removed from the Grey List in 2010 and used some tough words against the Pakistan government on failing to curb terror financing.

FATF’s notice on second Grey Listing of Pakistan read, “Pakistan has not made sufficient progress in implementing its action plan….Pakistan needs to enact legislation to ensure that it meets the FATF standards regarding the terrorist financing offence and the ability to identify, freeze, and confiscate terrorist assets.”

The 2012 statement, at 139 words, putting Pakistan in the Grey List again, was more than twice long than the 2008 Grey List statement. Clearly, FATF was disappointed in believing earlier that Pakistan was going to take the corrective measures on its own as it had expected and decided that it needed to monitor the situation more closely in now.

The second Grey List was for a longer duration, for 1,106 days (around 3 years) indicating FATF’s reduced trust in Pakistan’s claims. To meet FATF standards, Pakistan had to establish legal and regulatory networks to combat money laundering and terror financing.

FATF hoped “Pakistan will work with Asia/Pacific Group on Money Laundering (APG) as it continued to address the full range of AML/CFT issues identified in its mutual evaluation report, and particularly, will fully implement the UNSC Resolution 1267” while removing Pakistan from the Grey List on February 26, 2015. The UNSC Resolution 1267 was adopted in 1999 to target Al Qaeda and Taliban.

2018 GREY LIST

After 3 years and 4 months, Pakistan was out put back in FATF Grey List once again on June 28, 2018, and the reason was same like 2015. Pakistan had again failed to curb terror financing in its geography as per the FATF CFT standards. The watchdog found deficiencies in Pakistan’s measures to implement FATF action plan given in 2015.

This time, the watchdog gave Pakistan a 10-point objective to work closely with FATF and APG to effectively control terror finance in the country. FATF asked Pakistan to demonstrate the action taken on – identification, analysis and supervision of terror financing; active involvement of law enforcement agencies on terror financing; effective, proportionate and dissuasive sanctions of prosecutions; and targeted financial sanctions against all 1,267 and 1,373 designated terrorists. The watchdog also asked Pakistan to demonstrate enforcement against targeted financial sanctions (TFS) violation followed by concrete action taken against the facilities and services owned or controlled by designated persons depriving them of their resources and the usage of the resources.

UNSC Resolution 1373 was adopted in 2001 post 9/11 to control terror acts and terror financing. The Resolution puts restrictions on providing assets to or dealing with assets of designated persons and entities.

The 2018 FATF statement, at 317 words, putting Pakistan in the third Grey List, was over five times longer than the first Grey List statement of 2008. To the extent FATF went on to demand further action from Pakistan, now represented in 10 objectives, meant the watchdog had lost its confidence fully in the country that former US President Donald Trump described as a ‘terror haven’, a country that was globally known to segregate terrorists as good and bad terrorists and allegedly used terror as a state policy.

In June 2018, Pakistan was given a 27-point action plan by FATF. These were largely related to terror financing. In October 2021, another seven points on money laundering were added on it. In total, Pakistan had to implement and demonstrate measures taken on these 34 items to come out of the FATF Grey List. To meet these FATF action points, Pakistan amended the existing AML regulations again in January 2021. Also, the country’s Parliament has passed 10 FATF related bills.

Pakistan, from the very beginning of the third Grey List coming into effect, has been claiming that it has taken all actions to meet FATF norms but FATF, so far, learning from the previous two episodes, has repeatedly made it clear — including the latest incident in its Berlin Plenary meeting (June 14-17, 2017) — that Pakistan still needs to be on the Grey List as the country has to work on its financial system to control terror financing.

OUT OF THE 3RD GREY LIST?

During the Berlin Plenary, Pakistan had some positive words from FATF. The watchdog said Pakistan was fulfilling FATF requirement now on all 34 items on the action plan given in 2018 but decided not to remove Pakistan from the Grey List for another four months, till its next Plenary in Paris (October 16-21, 2022).

Pakistan’s removal from the FATF’s third Grey List depends on FATF’s visit to the country to investigate the on-the-ground steps taken to meet all the 34 items on the action plan to control money laundering and terror financing. FATF, during its visit, will scrutinise the AML and CFT measures being implemented by the Pakistan government. The watchdog will also see if Pakistan’s current political set-up has necessary political commitments in place to meet FATF norms today and in future.

Pakistan completed four years on the FATF Grey List on Tuesday, a year more than its second Grey List restriction period. Let’s see if October 2022 brings some good news for the debt-ridden country that needs support of the international financial system to survive.

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