Indian Council of World Affairs

On 20-21 October 2022, the Financial Action Task Force (FATF) held its plenary session in Paris. After much speculation, Pakistan was taken off the ‘grey list’. Earlier the same week, attempts to sanction Talha Saeed and Shahid Mehmood of the Lashkar-e-Taiba (LeT), a Pakistan-based terrorist organisation, was vetoed by China at the United Nation Security Council (UNSC). In this context, it is crucial to understand how Pakistan’s exit from the FATF grey list impacts the fight against global terrorism and Islamabad’s position within it.

Where to place FATF in the global counter-terrorism effort?

In 1989, the G-7 countries set up a one-year task force to find ways to cap the expanding transnational narcotics market. As a result, the FATF was established as an inter-governmental body, consisting of 16 members, aimed at creating an international anti-money laundering regime[i]. It came up with a set of forty recommendations. At the time, though regulating illicit drug money that made way into financing terror groups was very much within the scope of the FATF, global security issues were to be essentially dealt with by the UNSC.

As per Article 24 of the UN Charter, the Security Council has the primary responsibility to uphold the UN principle aiming “to maintain international peace and security” [ii]. For this purpose, “collective measures for the prevention and removal of threats to peace”[iii], is to be taken by the Council, including steps to counter terrorism. To achieve this and address the growing instances of terrorism, the UNSC 1267 Committee was set up in 1999. Also known as Islamic State of Iraq and Levant (ISIL/Da’esh) and Al Qaeda Sanctions Committee, this body enables UN member states to propose names of terrorist groups and individuals associated with it, to be blacklisted or put into the UN Sanction List, provided the UNSC’s approval. Though analysts opine that the UNSC blacklisting does little more than “embarrass states hosting these entities/individuals”[iv], it is considered to be one way of pressurising states to take action in countering terrorism.

Counter-terrorism found priority in global agendas of multilateral institutions largely in the aftermath of 9/11 and America’s global ‘war on terror’. As a result, the above two West-led mechanisms were strengthened to deal with the issue of terrorism.

In 2001, into the FATF mission was added “development of standards in the fight against terrorist financing”[v]. By October that year, eight special recommendations were inserted to deal specifically with terrorist financing[vi]. Already, 28 members had joined the FATF by 2000, when it was further expanded to 31. By 2012, a review of the FATF was done. With 40+9 recommendations in place, the FATF norms became recognised as the global standards on anti-money laundering (AML) and combating financing of terror (CFT). Membership of FATF continued to increase, with 39 members (37 states and 2 regional organisation, namely the European Commission and Gulf Cooperation Council) and Indonesia as its Observer at present. Further, along with 9 FATF Styled Regional Bodies (FSRB), FATF today is a global network “to fight money laundering and the financing of terrorism and the financing of proliferation of weapons of mass destruction”[vii], turning it into an organ that forms the core of the global counter-terrorism regime.  

As regards the UNSC, the 1267 Committee found more prominence in 2001. The blacklisting of individuals and entities/groups linked to terrorist acts, gained edge. Currently, there are 703 individuals and 253 entities listed in the UNSC Sanction List[viii]. Yet, this process has not been without hurdles. The most prominent is the veto placed by China on blacklisting some of the most notorious terrorists operating out of Pakistan. The latest example has already been mentioned above. Additionally, though Jaish-e-Mohammed (JeM) as a terrorist outfit was blacklisted by the UNSC in 2001, China vetoed the blacklisting of its Chief, Masood Azhar, for ten years, before it was finally approved in 2019.

Notwithstanding the steps taken by individual states in their fight against terror, in the context of global counter-terrorism measures, it is pertinent to note the establishment of the UN Counter-Terrorism Committee (UN-CTC) in 2001, under Resolution 1373.  The UN-CTC comprises all 15 members of the UNSC and regularly receives reports from members on steps required to be taken to counter terrorism across regions[ix]. Currently, India as the Chair of the Committee has been focusing on “countering the use of new and emerging technologies for terrorist purposes”[x]. To this effect, the CTC adopted the Delhi Declaration on 29 October 2022. 

How to read Pakistan’s exit from the FATF grey list?

Before analysing any impact of Pakistan’s exit from the grey list, a few facts need to be outlined. First, the term ‘grey list’ or ‘black list’ does not exist in FATF nomenclature. Instead, the phrases used are ‘jurisdiction under increased monitoring’ and ‘high-risk jurisdiction subject to call for action’, respectively[xi]. Each year FATF conducts three plenary sessions - in October, in February and in June. If a State fails to comply with the FATF guidelines, or lack the financial infrastructure to counter and combat money laundering and terror financing activities within its territory, they come under increased scrutiny or are grey listed. This may follow severe economic sanctions from international financial institutions, like International Monetary Fund (IMF), World Bank (WB) and others[xii], which form part of the FATF Observer organisations. This means, States that are under FATF jurisdiction come under indirect financial sanctions and global embarrassment. Second, Pakistan is not a member of the FATF. It, however, is a part of the Asia Pacific Group on Money Laundering (APG), one of the 9 FSRBs and an Associate Member of FATF. Similarly, except for India, which became a full member of FATF in 2010, all States in South Asia are only part of the APG. Additionally, it is not the first time that Pakistan has been removed from the grey list. Pakistan was first put under the grey list in 2008, following the Mumbai attacks on 26 November. It was removed from the list in 2012[xiii], but brought back into it the same year citing ‘strategic AML/CFT deficiencies’. Again, it was removed from the grey list in 2015, only to be added back in 2018. At the time Pakistan was given a 27-point action plan to curb terror financing, followed by 7 more to deal with money laundering.

Removal from the FATF grey list appeared difficult for Pakistan in February 2022. But by the time the plenary session of June was approaching, Islamabad was more hopeful. Despite the lack of sincerity to address concerns over terrorism, especially vis-à-vis India, Pakistan had taken tactical measures to comply with the FATF recommendations. Right before the FATF plenary session in June, an anti-terror Court in Lahore convicted Sajid Mir, one of the LeT operatives responsible for the Mumbai attack in 2008. Less than a year earlier, Pakistan had claimed him to be ‘dead’. It is to be noted that even Mir’s blacklisting has been vetoed by China at the UNSC, in September 2022 and earlier. In a similar move, the Lahore High Court had sentenced Hafiz Saeed, a UNSC blacklisted terrorist, to 11 years in prison in two separate cases, right before the FATF review meeting in 2020. This year in April, an anti-terror Court increased Saeed’s term to 31 years[xiv]. These developments provided weight to Pakistan’s case at the FATF. The report prepared by the15-member FATF and APG delegation that visited Pakistan between August-September 2022, noted that Pakistan had ‘largely addressed’ all 34 items in the action plans given. Therefore, Pakistan’s removal from the grey list, in October 2022, did not come as a surprise. Nor should its slipping back into it in the future.

What can be expected now?

As already explained, Pakistan’s fight against terrorism has been based on convenient calculations than a genuine desire to uproot terrorism emanating from within its territory. Despite the recent steps taken to abide by global anti-terrorism norms, Islamabad continues to fall short of taking substantive action against blacklisted terror outfits and individuals operating from Pakistan. For instance, it has not yet prosecuted Masood Azhar, despite his blacklisting. Earlier, the conviction of Hafiz Saeed and the jailing of Sajjid Mir were put off until non-action became counter-productive. In fact, it is largely due to the scrutiny of the FATF that forced Pakistan to take action against terrorists involved in the 2008 Mumbai attacks[xv]. Further, within Pakistan, the Federal Investigation Agency (FIA) is one of the main bodies to investigate terror financing cases, so rampant due to corruption, drug trafficking and various illicit profits. Here too, there seems to be a lack of optimism. For instance, the FIA Chief’s silence on being asked about the whereabouts of Dawood Ibrahim, a wanted mafia gangster in India, during the 90^th Assembly of the Interpol held in New Delhi recently[xvi], alludes doubt on Pakistan’s counter-terrorism efforts at the regional level. Now, with Pakistan out of the FATF grey list, Islamabad’s lax attitude will possibly take over its marginal efforts to counter terrorism. Added to this is the protection China provides Pakistan (or terrorist based out of it) at the UNSC. Given that Pakistan will continue to be in a ‘mutual evaluations and follow ups report’ phase with the FATF and “continue to work with APG to further improve its AML/CFT systems”[xvii], the pressure on Pakistan will remain. As such, any loosening up on Islamabad’s part could land it back into trouble with the FATF therefore.  

Another reason why Pakistan may falter in its counter-terror efforts, sooner than later, is because of the ensuing domestic conundrum within the country. Politically, ousted Prime Minister, Imran Khan, is not only attempting his ‘long march’ back to power by reaching Islamabad[xviii], but the attack on him on 3 November 2022, has catalysed the process of a political meltdown that began this year. On the other hand, Army Chief, General Qamar Bajwa’s retirement due on 29 November, leaves the most dominant institution in Pakistan, the military, in a temporary flux. Economically, the exit from the FATF’s list comes as a respite for Pakistan, as it allows financial institutions and other states to conduct normal trade, provide economic assistance and carry-on business with Islamabad, which has otherwise been impacted by sanctions, in line with FATF’s position. It is noted that Pakistan’s grey listing between 2008-2019 has caused losses of over USD 38 billion to Pakistan’s GDP[xix]. By June 2022, Pakistan’s external debt stood at USD 130 billion[xx]. By August, IMF had released the USD1.1 billion bail-out package to Pakistan, after a review under the Extended Fund Facility (EFF)[xxi]. Pakistan’s progress with the FATF norms had impacted this positive move, clearing the threat of defaulting. The exit from the grey list is expected to improve Pakistan’s economic stress to some extent. As seen, the Asian Development Bank (ADB) provided a loan of USD 1.5 billion to Pakistan under the Building Resilience with Active Countercyclical Expenditure (BRACE) Programme, in October[xxii]. This has already improved Pakistan’s forex reserves from USD 7.59 billion in August to USD 8.9 billion at present[xxiii]. Having said that, given Pakistan’s external debt is enormous (most of it is to China) and as it continues to have many socio-economic challenges, Islamabad will spend the money on addressing these issues, including rehabilitation and recovery related to the floods in the country, than channeling it for counter-terrorism efforts.  

Conclusion

Pakistan has had a history of slipping in and out of the FATF grey list since 2008. It’s efforts at global counter-terrorism has been mired by short term gains for Islamabad rather than long-term vision to uproot terrorist operations being conducted from its territory. The FATF exit in October 2022, though provides Islamabad with a breather to tackle its brewing economic crisis, suggests nothing about substantial gains for the AML-CFT. Instead, it hints at the need to put added pressure on anti-terrorism efforts through the UNSC mechanism at best. That Pakistan must continue to take “credible, verifiable, irreversible and sustained action against terrorism”[xxiv] will be in the global interest in the long run.

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*Dr Shrabana Barua is a Research Fellow at Indian Council of World Affairs
Disclaimer: The views expressed are personal.

Endnotes 

[i] History of FATF, Accessed on 31 October 2022, URL: https://www.fatf-gafi.org/about/historyofthefatf/.

[ii] United Nations Charter, Full text, Accessed on 31 October 2022URL:  https://www.un.org/en/about-us/un-charter/full-text.

[iii] Ibid.

[iv] “What Pakistan’s removal from FATF grey list signifies”, Indian Express, Editorial, 26 October 2022, URL: https://indianexpress.com/article/opinion/editorials/what-pakistans-removal-from-fatf-grey-list-signifies-8229739/.

[v] History of FATF, Accessed on 31 October 2022, URL: https://www.fatf-gafi.org/about/historyofthefatf/.

[vi] Ibid.

[vii] FATF Secretariat, Accessed on 2 November 2022, URL: https://www.fatf-gafi.org/about/fatfsecretariat/.

[viii] United Nations Security Council Consolidated List, Accessed on 31 October 2022, URL: https://www.un.org/securitycouncil/content/un-sc-consolidated-list#technical%20actions.

[ix] The Counter-Terrorism Committee of the United Nations Security Council (UN CTC), Accessed on 1 November 2022, URL:  https://www.fatf-gafi.org/pages/thecounter-terrorismcommitteeoftheunitednationssecuritycouncilunctc.html.

[x] Ministry of External Affairs, Government of India, (2022), “Keynote Address by External Affairs Minister, Dr. S. Jaishankar at the Plenary Session of the Special Meeting of the Counter-Terrorism Committee on Countering the use of new and emerging technologies for terrorist purposes”, October 29 2022, URL: https://www.mea.gov.in/Speeches-Statements.htm?dtl/35838/Keynote_Address_by_External_Affairs_Minister_Dr_S_Jaishankar_at_the_Plenary_Session_of_the_Special_Meeting_of_the_CounterTerrorism_Committee_on_Counte.

[xi] Outcomes FATF Plenary, 19-21 February 2020, URL: https://www.fatf-gafi.org/publications/fatfgeneral/documents/outcomes-fatf-plenary-february-2020.html.

[xii] Dhrubajyoti Bhattacharjee, (2022), “Pakistan and the FATF: An Assessment”, Indian Council of World Affairs, 20 March 2022, URL: /show_content.php?lang=1&level=3&ls_id=4803&lid=3492#_edn3.

[xiii] Ibid.

[xiv] “Pakistan anti-terrorism court sentences Lashkar-e-Taiba chief Hafiz Saeed to 31 years in jail”, The Economic Times,  8 April 2022, URL: https://economictimes.indiatimes.com/news/international/world-news/pakistan-anti-terrorism-court-sentences-lashkar-e-taiba-chief-hafiz-saeed-to-31-years-in-jail/videoshow/90730876.cms.

[xv] Ministry of External Affairs, Government of India, “Official Spokesperson’s response to media queries on Pakistan and the FATF "Grey List"”, 21 October 2022, Accessed on 11 November 2022, URL: https://www.mea.gov.in/response-to-queries.htm?dtl/35825/Official_Spokespersons_response_to_media_queries_on_Pakistan_and_the_FATF_Grey_List.

[xvi] “Pakistan FIA chief silent on whereabouts of Dawood, Masood Azhar”, The Economic Times, 19 October 2022, URL: https://economictimes.indiatimes.com/news/international/world-news/pakistan-fia-chief-silent-on-whereabouts-of-dawood-masood-azhar/articleshow/94951431.cms.

[xvii] Ministry of External Affairs, Government of India, “Official Spokesperson’s response to media queries on Pakistan and the FATF "Grey List"”, 21 October 2022, Accessed on 11 November 2022, URL: https://www.mea.gov.in/response-to-queries.htm?dtl/35825/Official_Spokespersons_response_to_media_queries_on_Pakistan_and_the_FATF_Grey_List.

[xviii] Sushant Sareen, (2022), “Imran Khan’s long march: Capitulation, chaos or coup”, Raisina Debates, Observer Research Foundation, 3 November 2022, URL: https://www.orfonline.org/expert-speak/imran-khans-long-march/.

[xix] “Research shows that FATF grey-listing from 2008 to 2019 has caused losses of over $38 billion to Pakistan's GDP”, European Foundation for South Asian Studies, Commentary, 12 March 2021, URL: https://www.efsas.org/commentaries/fatf-grey-listing-from-2008-to-2019-has-caused-losses-of-over-$38-billion-to-pakistan/.

[xx] Pakistan External Debt, Accessed on 1 November 2022, URL: https://www.ceicdata.com/en/indicator/pakistan/external-debt.

[xxi] “IMF Executive Board Completes the Combined Seventh, and Eighth Reviews of the Extended Fund Facility for Pakistan”, Press Release No. 22/293, 29 August 2022, URL:

 https://www.imf.org/en/News/Articles/2022/08/29/pr22293-imf-executive-board-completes-reviews-of-extended-fund-facility-pakistan.

[xxii] “$1.5 Billion ADB Financing to Promote Social Protection, Food Security in Pakistan”, News Release, 21 October 2022, URL: https://www.adb.org/news/1-5-billion-adb-financing-promote-social-protection-food-security-pakistan.

[xxiii] “Forex reserves rise to $8.9b”, Tribune.com, 4 November 2022, URL: https://tribune.com.pk/story/2384560/forex-reserves-rise-to-89b.

[xxiv] Ministry of External Affairs, Government of India, “Official Spokesperson’s response to media queries on Pakistan and the FATF "Grey List"”, 21 October 2022, Accessed on 11 November 2022, URL: https://www.mea.gov.in/response-to-queries.htm?dtl/35825/Official_Spokespersons_response_to_media_queries_on_Pakistan_and_the_FATF_Grey_List.