The Financial Action Task Force (FATF) will hold its Plenary and Working Group meeting in Orlando, Florida, from Sunday onward. The FATF, an inter-governmental body that is now in its 30th year, works to “set standards and promote effective implementation of legal, regulatory and operational measures for combating money laundering, terrorist financing and other related threats to the integrity of the international financial system”. The June 16-21 Plenary could take up a proposal to downgrade Pakistan to the blacklist on terrorist financing from its current “greylisted” status.
What Pak committed
Pakistan has been under the FATF’s scanner since last June, when it was put on the greylist for terror financing and money laundering risks, after an assessment of its financial system and law enforcement mechanisms. FATF and its partners such as the Asia Pacific Group (APG) review Pakistan’s processes, systems, and weaknesses on the basis of a standard matrix for anti-money laundering (AML) and combating the financing of terrorism (CFT) regime.
In June 2018, Pakistan gave a high-level political commitment to work with the FATF and APG to strengthen its AML/CFT regime, and to address its strategic counter-terrorism financing-related deficiencies. Based on this commitment, Pakistan and the FATF agreed on the monitoring of 27 indicators under a 10-point action plan, with deadlines.
Successful implementation of the action plan and its physical verification by the APG will lead the FATF to move Pakistan out of the greylist; failure by Pakistan will result in its blacklisting by September 2019.
In a statement, the FATF said in February: “Given the limited progress on action plan items due in January 2019, the FATF urges Pakistan to swiftly complete its action plan, particularly those with timelines of May 2019.”
Last month, at a meeting in Guangzhou, China, Pakistan presented its progress on the 27 indicators in a meeting with the Joint Group of the APG. India is co-chair of the Joint Group.
Last week, the Joint Group informed Islamabad that its compliance on 18 of the 27 indicators was unsatisfactory, and asked it to do more to demonstrate strict action against eight terrorist groups, and in combating money laundering.
If Pak is blacklisted
The formal announcement will be made at the FATF Plenary scheduled in Paris from October 13-18, but the decision will be made in the forthcoming FATF Plenary in Orlando, where such a proposal could be moved.
It is theoretically possible that Pakistan is moved out of the greylist. But that would require the votes of at least 15 of the FATF’s 36 voting members. At least three votes would be needed to block a move to blacklist Pakistan.
The 36 countries include mostly developed Western nations, but also China, Hong Kong (China), Malaysia, and Turkey. Pakistan will make a diplomatic push to thwart blacklisting. It claims it has done enough on the action plan, banning Hafiz Saeed’s Jamaat-ud-Dawa and Masood Azhar’s Jaish-e-Mohammed, and taking over their properties.
The FATF has agreed that there have been improvements in the AML/CFT regime and the integrated database for currency declaration arrangements. But it has also said that Pakistan must demonstrate that terror financing prosecutions result in effective, proportionate and dissuasive sanctions, enhancing the capacity and support for prosecutors and the judiciary.
It must show effective implementation of targeted financial sanctions (supported by a comprehensive legal obligation) against all terrorists designated under UN Security Council Resolutions 1267 and 1373, and those acting for or on their behalf, including preventing the raising and moving of funds, identifying and freezing movable and immovable assets, and prohibiting access to funds and financial services.
The FATF highlighted contradictory situations and poor coordination among stakeholders; the APG identified lack of cooperation among law enforcement agencies at various tiers of Pakistan’s government, and expressed serious reservations over insufficient physical action against proscribed organisations to block the flow of funds.
Where India comes in
India is a voting member of the FATF and APG, and co-chair of the Joint Group where it is represented by the Director General of India’s Financial Intelligence Unit (FIU). Pakistan had asked for India’s removal from the group, citing bias and motivated action, but that demand has been rejected.
India was not part of the group that moved the resolution to greylist Pakistan last year in Paris. The movers were the US, UK, France, and Germany; China did not oppose.
Why FATF action matters
Pakistan faces an estimated annual loss of $10 billion if it stays in the greylist; if blacklisted, its already fragile economy will be dealt a powerful blow.
Pakistan’s $6 billion loan agreement with the International Monetary Fund (IMF) could be threatened. The IMF has asked Pakistan to show commitment against money laundering and terror financing.