WHY WAS PAKISTAN PUT ON THE FATF ‘GREY LIST’?
At the end of the terror financing watchdog Financial Action Task Force’s plenary meeting, Pakistan remains on the grey list and gets a reprieve of four months from joining North Korea and Iran on the blacklist.
WHY WAS THIS FATF MEETING SIGNIFICANT?
Around 205 countries, jurisdictions and other countries started the first FATF plenary meeting for 2020 in Paris. Every year, there are three plenary meetings of the inter-governmental body tasked with rooting out money laundering and terror financing by plugging loops holes in the international financial system.
For India, FATF has become an important measure to put pressure on Pakistan to dismantle the infrastructure that supports cross-border attacks.
WHAT ARE THE ‘BLACK’ AND ‘GREY’ LISTS?
- These two terms actually do not exist in official FATF terminology. The group does identify “jurisdictions with weak measures” through two documents issued at the end of the plenary held thrice a year.
- The first document is the FATF’s “public statement” that identifies two sets of countries. The first category groups countries into what is roughly equivalent to a ‘black list’ and is for “countries or jurisdictions with such serious strategic deficiencies that the FATF calls on its members and non-members to apply counter-measures”.
- The second category constitutes countries for which “FATF calls on its members to apply enhanced due diligence measures proportionate to the risks arising from the deficiencies associated with the country”. While North Korea is listed in the first category, Iran falls in the second.
- Pakistan was, however, not identified in the public statement. Rather, in June 2018, Pakistan was the new country listed in the second document issued after a plenary meeting. This second document was called “Improving Global AML/CFT Compliance: On-Going Process”. This is what is known, colloquially, as the ‘grey list’.
- These countries have “strategic weakness” in their regime to prevent money laundering and terror financing, but they will get a second chance as they have “provided a high-level commitment to an action plan developed with the FATF”. If a country does not make “timely progress” in the action plan, FATF can put further pressure by “moving it to the Public Statement,” as per its guidelines.
WHY WAS PAKISTAN PUT ON THE FATF ‘GREY LIST’?
Pakistan had first figured in a FATF statement after the plenary of February 2008. At that time, FATF had noted Pakistan’s recent progress in adopting anti-money laundering legislation but urged financial institutions to be aware of the “remaining deficiencies” that could constitute a vulnerability in the international financial system.
Pakistan gave a “high level” commitment in June 2010 that it would work with FATF and Asia Pacific Group, the regional FATF-like body, to sort out these differences. But, it continued to not demonstrate enough progress to be taken out of the grey list even in October 2011.
The FATF public statement of February 2012 listed Pakistan among countries who have “Jurisdictions with strategic AML/CFT deficiencies that have not made sufficient progress in addressing the deficiencies or have not committed to an action plan developed with the FATF to address the deficiencies”.
The FATF’s main concern was that Pakistan did not have appropriate legislation to identify terror financing, as well as, confiscate terrorist assets. Pakistan went out of the Public Statement to the second statement of “Improving public compliance” from June 2014, which noted that the country had made “significant progress”.
Within nine months, Pakistan was “no longer subject to the FATF’s monitoring process under its on-going global AML/CFT compliance process”. After three years, Pakistan was back on the ‘grey list’ in June 2018. The FATF press release indicated that the ‘action plan’ should largely look at plugging the holes in terror financing and activities of UN-designated terrorists.
The action plan submitted by Pakistan has 26 points, including demonstrating that targeted financial sanctions against all UN-designated terrorists have been implemented.
WHY DOES PAKISTAN REMAIN ON THE GREY LIST? WILL IT EVER BE ‘BLACKLISTED’?
It is highly unlikely that Pakistan would ever join North Korea and Iran in the FATF public statement. As evident from the composition of the ‘black list’, the US would have to show a strong push to put Pakistan in the top tier of countries whose financial regimes face isolation from the international system.
With the US currently in the midst of the final leg of a peace deal with the Taliban, Washington may not have been too eager to push Islamabad, especially since Pakistan’s economy was already in deep doldrums.
However, Pakistan, despite support from countries like Turkey, Malaysia and China, had not made enough progress to also exit the grey list, as per various technical evaluations. This means that the only diplomatic consensus possible was the status-quo, till diplomatic wrangling begin again before the next plenary.