Two years have passed since Pakistan was placed on the grey list of the Financial Action Task Force (FATF) in 2018. Though, Islamabad has undertaken efforts to convince FATF members of the steps it has taken to counter money laundering and terrorist financing under the previous PML (N) government under Nawaz Sharif and the present PTI government under Imran Khan, these have still fallen short of FATF’s expectations and requirements of a robust international anti-money laundering and anti-terrorist financing regime.
The FATF review week was held in Paris from February 16-21, 2020. It was attended by 800 representatives from 205 countries and jurisdictions around the world, the IMF, UN, World Bank and other international organisations. The multilateral body ‘sets standards, promoting effective implementation of legal, regulatory and operational measures for countering and combating money laundering, terrorist financing and other related threats to the integrity of the international financial system. The body makes attempts to generate necessary political will to bring about national legislative and regulatory reforms in these areas’.[i]
The body assesses any participating or non-participating country supporting terror funding and money laundering activities, when it is placed on the blacklist. Presently Iran and North Korea fall in the blacklist. Blacklisted countries face severe economic sanctions from international financial institutions like the World Bank, International Monetary Fund, etc., as a result of which their international trade suffers and they face international economic isolation. Countries are placed in the grey list if they lack the financial infrastructure to counter money laundering or terror financing and are required to take actions to remedy this within a specific time frame. Countries in the grey list face the threat of being black listed in case of inadequate action. Presently, there are twelve nations, including Pakistan is on the grey list.[ii]
It is not the first time that Pakistan has been placed on the grey list. It was previously included in the grey list in 2008, was removed in 2012, then reinserted the same year, removed in 2015 and reinserted yet again in June 29, 2018. As analysts argued, ‘the reason Pakistan keeps entering the grey list is because of its failure to shut down all access to funding of United Nations Security Council (UNSC)- designated terrorist groups, including the Taliban, Al-Qaeda, Lashkar-e-Taiba and Jaish-e-Mohammad’.[iii]
During the February 2020 review meeting of the FATF, issues discussed included assessments of measures by North Korea and the United Arab Emirates to combat money laundering and terrorist financing, progress made by Iran, Pakistan and other countries that present a risk to the financial system, the progress of an FATF initiative to combat financial flows from the illegal wildlife trade, to publish a guidance paper on digital identity and assessing developments in the financing of ISIL, Al-Qaeda and affiliates.[iv]
In a series of reviews that was undertaken by FATF, it was concluded that though Pakistan has taken steps to counter terror financing and money laundering, but it has not been able to address the roots, lacking formal and informal structural alterations which facilitate such monetary transactions.[v] Pakistan has been given extra time, till June 2020, so that the government can make such permanent changes that would finally put an end to the growth and harbouring of terrorist groups in Pakistan.
Initially, China, the current Chair of FATF, was critical of countries pushing Pakistan to be in the ‘grey list’. It has been reported in the media that policy makers in China felt that countries were picking on Pakistan to appease India, though it had taken steps against terror financing and money laundering.
The verdict given against Jamaat-ud-Dawa chief Hafiz Saeed by the Lahore High Court on February 12, 2020, four days ahead of the FATF review meeting, is related to terror financing. He has been sentenced to 11 years of prison. This is a verdict which can be challenged by Hafiz Saeed in higher courts. The verdict is for two cases of funneling money for terrorist activities. The two sentences are to run concurrently—meaning Saeed’s term in prison will effectively be slightly more than five years. The pressure that was created by FATF on Pakistan for taking stringent steps, has been cited as a reason by analysts for the timing of the verdict.[vi]
It’s unfortunate that despite numerous evidences presented by the Indian government regarding Hafiz Saeed’s involvement in the attack on the Indian parliament in 2001, in the Mumbai train bombing in 2006 and the 2008 Mumbai terror attacks, the Pakistan government has not brought any charges against Saeed on such terrorist attacks.[vii] The Pakistani government’s continuous denial with regard to the presence of Masood Azhar operating openly on Pakistani soil, the establishment considering him to be reportedly missing shows the ingrained hypocrisy within the Pakistani leadership and the establishment with regard to countering terrorists and terrorist groups. As per reports from the Indian media, Masood Azhar and his family have actually been taken to a safe house in Bahawalpur and has been kept at the Markaz Usman-o-Ali in Bahawalpur, which is the new Jaish-e-Mohammed headquarters.[viii]
Pakistan, in its defence, submitted its compliance report stating that it has shown compliance with 14 of the 27 point FATF action plan. It also stated that it has partially complied with additional 11 points, whereas it will not be possible to comply with two points that have been asked for.[ix] As expected, the Pakistani representatives led by Federal Minister for Economic Affairs Hammad Azhar stressed on the way the Lahore High Court had passed a verdict of imprisoning Jamaat-ud-Dawa chief Hafiz Saeed for 11 years.[x]
Over the last few months, Prime Minister Khan and Foreign Minister Shah Mehmood Qureshi have made efforts to garner support to ensure that they are not blacklisted, especially so during the recent two high-level exchanges with Malaysia and Turkey.
However, at the last review meeting of the FATF, except Turkey, all participating countries including China and Saudi Arabia sent a stern message to Pakistan to fulfill its commitments on action against terror financing before June 2020. FATF decided to keep Pakistan in the grey list and that a decision would be taken in June 2020 on whether further actions were required. FATF stated that Pakistan had made ‘progress in a number of areas in its action plan, including risk-based supervision and pursuing domestic and international cooperation to identify cash couriers’.[xi] FATF laid out the areas where Pakistani administration is required to take action by June 2020. The areas demarcated are ‘(1) demonstrating that remedial actions and sanctions are applied in cases of (Anti-Money Laundering/Countering Financing of Terrorism) AML/CFT violations, relating to [terror financing] TF risk management and [terror financing sources] TFS obligations; (2) demonstrating that competent authorities are cooperating and taking action to identify and take enforcement action against illegal money or value transfer services (MVTS); (3) demonstrating the implementation of cross-border currency and bearer negotiable instruments (BNI) controls at all ports of entry, including applying effective, proportionate and dissuasive sanctions; (4) demonstrating that law enforcement agencies (LEAs) are identifying and investigating the widest range of TF activity and that TF investigations and prosecutions target designated persons and entities, and those acting on behalf or at the direction of the designated persons or entities; (5) demonstrating that (terrorist financing) TF prosecutions result in effective, proportionate and dissuasive sanctions (6) demonstrating effective implementation of targeted financial sanctions (supported by a comprehensive legal obligation) against all 1267[xii] and 1373[xiii] designated terrorists and those acting for or on their behalf, including preventing the raising and moving of funds, identifying and freezing assets (movable and immovable), and prohibiting access to funds and financial services; (7) demonstrating enforcement against TFS violations including administrative and criminal penalties and provincial and federal authorities cooperating on enforcement cases; (8) demonstrating that facilities and services owned or controlled by designated person are deprived of their resources and the usage of the resources’.[xiv]
One should note that, given Pakistan’s history with regard to terrorism, it will find it difficult to take remedial actions and sanctions against elements that continue to harbour and sponsor UN designated terrorist organisations in Pakistani soil. The increasing role of Islamist hardliners is a major hurdle. Secondly, Pakistan authorities have consistently desisted from taking demonstrable actions (like FIR, arrests, investigations, convictions, etc.) when it comes to anti-India terror elements. Without a strong political will on the part of the civilian, military and intelligence institutions in Pakistan, it will be difficult for Pakistan to genuinely fulfill all its FATF commitments.
Though China has asked all the countries to note the visible progress made by Pakistan to strengthen its domestic counterterrorism financing system[xv], FATF in its statement noted Pakistan’s ‘failure to complete its action plan in line with the agreed timelines and in light of the TF risks emanating from the jurisdiction’.[xvi]As an advisory warning it stated that if Pakistan fails to implement the eight points stated above by June 2020, ‘the FATF will take action, which could include the FATF calling on its members and urging all jurisdiction to advise their financial institutions to give special attention to business relations and transactions with Pakistan’.[xvii] The phrase ‘special attention’ as stated in the statement, may imply restriction of flow of investments or loans, and restricting exports to Pakistan and imports from Pakistan. The June meeting will likely present a dilemma for China with its extensive trade and investment linkages with Pakistan, to support any further adverse action by the FATF against Pakistan.
India has consistently and in all fora, brought up the issue of terrorism from Pak soil, demanding strict policy and operational measures on part of the Pakistani government and military to counter any kind of terrorist activities or terror financing in the region, to stop using terrorism as an instrument of state policy, and to stop being the epicenter and hub of international terrorism.
Black listing of Pakistan, according to analysts, will lead to further deterioration of the Pakistani economy which would weaken the Pakistani social fabric, and bring more instability to the country, emboldening religious fanatics and extremists. On the other hand, there are some analysts, who opine that Pakistan might be removed from the grey list ‘after a decent interval and a spate of superficial measures’,[xviii] thereby, undermining the objective of the FATF. It is important that all FATF member countries should continue to put pressure on Pakistan to permanently abandon any kind of sponsoring and harboring of terrorist groups or individuals, and to abandon using terrorism as an instrument of state policy.
*Dr. Dhrubajyoti Bhattacharjee, Research Fellow, Indian Council of World Affairs.
Disclaimer: The views expressed are that of the Researcher and not of the Council.
[ii]FATF nations, Full member nations, Observer nations, Call for action nations (Blacklisted nations), Other monitored jurisdictions (grey listed nations), https://www.fatf-gafi.org/countries/ accessed on March 2, 2020
[iii] Husain Haqqani, “FATF’s grey list suits Pakistan’s jihadi ambitions. It only worries entering the black list”, The Print, February 28, 2020, https://theprint.in/opinion/fatfs-grey-list-suits-pakistans-jihadi-ambitions-it-only-worries-entering-the-black-list/372524/, accessed on March 2, 2020
[iv] Outcomes FATF Plenary, 19-21 February 2020, FATF, https://www.fatf-gafi.org/publications/fatfgeneral/documents/outcomes-fatf-plenary-february-2020.html, accessed on March 2, 2020
[v] Outcomes FATF Plenary, 19-21 February 2020, FATF, https://www.fatf-gafi.org/publications/fatfgeneral/documents/outcomes-fatf-plenary-february-2020.html, accessed on March 2, 2020
[vi] Imran Mukhtar, “Will Hafiz Saeed’s conviction benefit Pakistan?”, The Nation, February `4, 2020, https://nation.com.pk/14-Feb-2020/will-hafiz-saeed-s-conviction-benefit-pakistan, accessed on March 6, 2020
[vii] Celia W. Dugger, “Group In Pakistan Is Blamed By India For Suicide Raid”, The New York Times, December 15, 2001, https://www.nytimes.com/2001/12/15/world/group-in-pakistan-is-blamed-by-india-for-suicide-raid.html, accessed on March 18, 2020; “Pakistan jails alleged mastermind of Mumbai terror attack”, The Guardian, February 12, 2020, https://www.theguardian.com/world/2020/feb/12/pakistan-jails-alleged-mastermind-of-mumbai-terror-attack, accessed on March 18, 2020; Salman Masood, “Accused Mastermind of Mumbai Attack Convicted of links to terrorism”, The New York Times, February 12, 2020, https://www.nytimes.com/2020/02/12/world/asia/hafiz-saeed-mumbai-convicted.html, accessed on March 18, 2020
[viii]Jitendra Bahadur Singh, “Masood Azhar not missing, kept at Jaish safe house in Pakistan's Bahawalpur, say intel inputs”, India Today, February 18, 2020, https://www.indiatoday.in/india/story/masood-azhar-not-missing-kept-at-jaish-safe-house-in-pakistan-bahawalpur-1647478-2020-02-18, accessed on March 2, 2020
[ix] Hamza Ameer, “Pakistan submits report to FATF, cites Hafiz Saeed sentence to get out of grey list”, India Today, February 18, 2020, https://www.indiatoday.in/world/story/pakistan-submits-report-to-fatf-cites-hafiz-saeed-sentence-to-get-out-of-grey-list-1647596-2020-02-18, accessed on March 2, 2020: The various points that still needs compliance are (1) Pakistan will have to demonstrate effectiveness of sanctions including remedial actions to curb terrorist financing in the country; (2) Pakistan will have to ensure improved effectiveness for terror financing of financial institutions with particular to banned outfits; (3) Pakistan will have to take actions against illegal Money or Value Transfer Services (MVTS) such as Hundi-Hawala; (4) Pakistan will have to place sanction regime against cash couriers; (5) Pakistan will have to ensure logical conclusion from ongoing terror financing investigation of law enforcing agencies (LEAs) against banned outfits and proscribed persons; (6) Pakistani authorities will have to ensure international cooperation based investigations and convictions against banned organisations (list provided to Pakistan) and proscribed persons (list provided to Pakistan); (7) The country will have to place effective domestic cooperation between Financial Monitoring Unit (FMU) and LEAs in investigation of terror financing; (8) Prosecution of banned outfits and proscribed persons (list provided to Pakistan); (9) Demonstrate convictions from court of law of banned outfits and proscribed persons (list provided to Pakistan); (10) Seizure of properties of banned outfits and proscribed persons (list provided to Pakistan); (11) Conversion of madrassas to schools and health units into official formations (list provided to Pakistan); (12) To cut off funding of banned outfits and proscribed persons; and (13) Pakistan will have to place permanent mechanism for management of properties and assets owned by the banned outfits and proscribed persons. Mehtab Haider, “Pakistan must comply with 13 points to come out of FATF grey list”, The News International, March 16, 2020, https://www.thenews.com.pk/print/629673-pakistan-must-comply-with-13-points-to-come-out-of-fatf-grey-list, accessed on March 18, 2020
[xi]Pakistan, Jurisdictions under Increased Monitoring – 21 February 2020, FATF, https://www.fatf-gafi.org/publications/high-risk-and-other-monitored-jurisdictions/documents/increased-monitoring-february-2020.html#pakistan, accessed on March 2, 2020
[xii]United Nations Security Council resolution 1267 was adopted unanimously on 15 October 1999, where inclusion of terrorist organisations are made regularly (latest been ISIS-West Africa (ISIS-WA) and ISIS-Greater Sahara (ISIS-GS) on February 23, 2020). It asks member nations to implement laws which must be passed within each member nation in order to implement sanctions on the terrorist group/organisation/individual in the UN list.
[xiii]United Nations Security Council Resolution 1373, adopted unanimously on 28 September 2001. The resolution aimed to hinder terrorist groups in various ways. UN member states were encouraged to share their intelligence on terrorist groups in order to assist in combating international terrorism. The resolution seeks a) Criminalization of financing of terrorism and associated money laundering; b) Freezing and confiscation of terrorist assets, provisional measures and confiscation; c) Prevention measures to be taken by financial institutions and non-financial businesses and professions; d) Institutional and other measures necessary in systems for combating money laundering and terrorist financing; and e)Cross-border control of the movement of cash and other monetary instruments. It stated that all States "should also ensure that terrorist acts are established as serious criminal offences in domestic laws and regulations and that the seriousness of such acts is duly reflected in sentences served."
[xiv]Pakistan, Jurisdictions under Increased Monitoring – 21 February 2020, FATF, https://www.fatf-gafi.org/publications/high-risk-and-other-monitored-jurisdictions/documents/increased-monitoring-february-2020.html#pakistan, accessed on March 2, 2020
[xvi] Pakistan, Jurisdictions under Increased Monitoring – 21 February 2020, FATF, https://www.fatf-gafi.org/publications/high-risk-and-other-monitored-jurisdictions/documents/increased-monitoring-february-2020.html#pakistan, accessed on March 2, 2020
[xvii] Pakistan, Jurisdictions under Increased Monitoring – 21 February 2020, FATF, https://www.fatf-gafi.org/publications/high-risk-and-other-monitored-jurisdictions/documents/increased-monitoring-february-2020.html#pakistan, accessed on March 2, 2020
[xviii] Husain Haqqani, “FATF’s grey list suits Pakistan’s jihadi ambitions. It only worries entering the black list”, The Print, February 28, 2020, https://theprint.in/opinion/fatfs-grey-list-suits-pakistans-jihadi-ambitions-it-only-worries-entering-the-black-list/372524/, accessed on March 2, 2020