On October 21, the Financial Action Task Force (FATF), the global money laundering and terrorist financing watchdog, announced the removal of Pakistan from its “Grey List.” The announcement was expected.
The FATF, a 39-member inter-governmental organisation with its headquarters in Paris, was set up in 1989 by the Group of Seven (G7) countries with the aim of setting global standards for countering the menace of money laundering. Following the terror attacks on September 11, 2001, the objective of countering the financing of terrorism was added to the FATF’s mandate. Later, its objectives were further expanded to counter the financing of proliferation of weapons of mass destruction.
The FATF seeks to fulfill its three-pronged mandate by drawing up a list of guidelines. Known as the “FATF Recommendations” or “FATF Standards,” these are meant to “ensure a coordinated global response to prevent organised crime, corruption and terrorism.” They encompass a range of domestic legislative, regulatory and enforcement actions, as well as international cooperation measures, that states are expected to adopt and implement. The FATF and its associate, or regional, members such as the Asia Pacific Group on Money Laundering (APG) take their decisions on the basis of consensus. More than 200 countries and jurisdictions are committed to implementing the FATF’s recommendations.
The FATF monitors adherence to its recommendations by periodic evaluations of the anti-money laundering (AML), combating financing of terrorism (CFT) and proliferation financing (PF) regimes of member countries and jurisdictions which voluntarily submit to its monitoring. Countries which exhibit “strategic deficiencies” in their AML/CFT/PF regimes are placed under a scheme of “increased monitoring” informally known as “Grey Listing.” States placed under the “Grey List” are expected to swiftly put in place the requisite measures to address their deficiencies on the basis of “Action Plans” drawn up and evaluated through a process of consultation with the FATF.
States that exhibit “serious strategic deficiencies” in their AML/CFT/ PF regimes are placed under a “Black List” formally known as “High-Risk Jurisdictions subject to a Call for Action.” While “Grey Listing” amounts to a warning, “Black Listing” entails serious economic consequences by making it incumbent on governments, international lenders and commercial entities to conduct “enhanced due diligence” checks while transacting business with the designated countries and, in extreme cases, apply “counter-measures” against offenders.
Following the removal of Pakistan, there are 23 countries on the FATF’s “Grey List.” There are only three countries on the “Black List” — North Korea, Iran and Myanmar. These listing processes of the FATF are driven predominantly by the pulls and pressures of international power politics and not merely by technical parameters.
Pakistan has been placed in — and removed from — the “Grey List” in the past too. The first time was from February, 2008 to June, 2010, when it was removed from the list after it supposedly “demonstrated progress” in improving its AML/AFT regime. The terrorist attacks in Mumbai on November 26, 2008 took place while Pakistan was on the Grey List for the first time. The second time was from February, 2012 to February, 2015, by the end of which period it had supposedly made “significant progress” in improving its AML/CFT regime. The elimination of Osama bin Laden in the American raid on Abbottabad on May 2, 2011 took place after Pakistan’s exit from the “Grey List” for the first time and before its placement on the list for the second time.
Pakistan was placed in the “Grey List” for the third time in June, 2018 and remained there till October, 2022. During this period, it was compelled to put in place several legislative, administrative and regulatory measures to improve its compliance with international AML/CFT standards. In recent years, there has been increasing realisation among FATF members that it is the “effectiveness” of action taken against individuals and entities of concern rather than pro-forma “technical compliance” that should form the basis of judging the extent of adherence to FATF standards.
It is this more realistic approach — coupled with the implicit threat of being moved from the “Grey List” to the “Black List” — that finally compelled Pakistan to prosecute, convict, fine and jail, on terrorism financing charges, Lashkar-e-Tayyaba (LeT) Amir, Hafiz Muhammad Saeed, LeT’s “chief operational commander,” Zakiur Rehman Lakhvi and Sajid Majeed aka Sajid Mir, “operational manager” of the 26/11 Mumbai attacks, after having pronounced him “missing” and “dead.” A disingenuous attempt by Pakistan to persuade a visiting FATF verification team in August-September, 2022 that Jaish-e-Mohammed (JeM) Amir, Maulana Masood Azhar, had escaped to Afghanistan was strongly countered by a spokesman of the Afghan Taliban.
It is well known that much of the diplomatic heavy-lifting to place Pakistan in the “Grey List” in June, 2018 and keep it on the list for an extended period of time was done by the US. There had been a feeling among those following developments at the FATF that American pressure on Pakistan would continue till such time as the US needed Pakistan to bring the Afghan Taliban to the negotiating table and once the US withdrawal from Afghanistan was completed, the pressure on Pakistan would ease. Subsequent developments have validated this assessment.
Although the threat of being moved from the “Grey List” to the “Black List” remained hanging over Pakistan’s head, this was never a realistic possibility, considering the likely opposition to any such move by Pakistan’s staunch friends in the FATF, such as China, Malaysia, Turkey and Saudi Arabia. It was equally unrealistic to expect the US — which has studiously refrained from declaring Pakistan a “state sponsor of terrorism” under American law despite the evidence in support of such a designation being overwhelming — to expend diplomatic capital on building a consensus that was bound to be resisted by the Chinese and others.
The occasional incidents of neutralisation of terrorists infiltrating across the Line of Control (LoC) in J&K, the regular sightings of drones bearing weapon-payloads along the international border and related developments suggest that Pakistan’s terrorism infrastructure directed against India is presently in a recessed mode but far from being dismantled comprehensively. There have been similar phases in the past — when Pakistan-sponsored terrorism remained at a low ebb only to rear its head thereafter. Under the circumstances, India will have to continue mustering all available instruments and options to deny Pakistan operating space to wield the jihadi weapon, till such time as there is convincing evidence of a consensus among the generals in Rawalpindi that the weapon has outlived its utility and needs to be renounced once and for all.
The writer retired as Special Secretary in the Research & Analysis Wing (R&AW). Views are personal
