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Pakistan Deaths
Pakistan Cases

Pakistan has been in and out of the enhanced enforcement list (grey list) of Financial Action Task Force (FATF) since 2008. Prior to being placed on the grey list again in 2018, the topic had never been hot in Pakistan or the international media. Now, it is a talking point in every household. One reason for media hype is that this time around the world is “serious” about forcing Pakistan to get its act together. The other is that the economic news in past two years has begun to gain traction in public sphere – be it current account position, weekly inflation or FATF – all are making headlines.

FATF is all about fighting money laundering (ML) and terror financing (FT). Usually, when a country is placed on the grey list, the action plan is followed by the completion of mutual evaluation report (MER). Normally, the action plan has few items (in single digit) for a country under scrutiny. However, the action plan comprises a whopping 27 items for Pakistan, and the MER was completed after Pakistan was placed on the grey list. Clearly, politics is playing its role.

The progress made by authorities so far is remarkable. No country in the past had made such progress in a similar time span. Pakistan was placed on the grey list in February 2018, while action plan was charted out by June 2018. Later, the PTI government took its time to take stock of the situation before beginning to work on the plan. Once the pandemic hit, like everything else progress on FATF’s action plan was also affected. Moreover, Indian foreign ministry and its right-wing media were also out against Pakistan and relentlessly fabricating news against it.

In this backdrop, ‘largely compliant’ status on 24 items is applaudable. The remaining three are also partially addressed. These three are (mostly) political in nature, and form core of the process. These are about TF; demonstrating TF investigation and prosecuting target persons and entities; demonstrating that TF prosecution results in effective sentencing; and demonstrating effective implementation of targeted financial sanctions against all 1,267 and 1,373 designated terrorists.

In the next plenary scheduled for June 2021, if the work in progress on these three agenda items reaches satisfactory levels, then the on-site inspection (audit) will take place and based on satisfaction of its criteria Pakistan can potentially come out of the grey list by October 2021. However, there is another process going on in parallel; Pakistan is also part of a FATF-style regional body – Asia-Pacific Group (APG) on ML.

APG has made a set of recommendations and intended outcomes. There are forty recommendations on which technical compliance will be judged. And assessment is based on 11 intended outcomes on which effectiveness will be judged. Based on the APG’s first follow-up report released in September 2020 - in continuation of MER shared in October 2019 - Pakistan had low effectiveness on 10 out of 11 intended outcomes. Based on the recommendations, 11 items were compliant or largely compliant, four were non- compliant, and rest were partially compliant.

The positive development is that the kind of work Pakistani authorities have done in the past eighteen months is remarkable. In the history of FATF, no country has worked on two action plans (second plan is of APG) simultaneously. Significant progress has been made on both plans. The fact of the matter is that over 14 laws have been enacted or amended. All requisite legislative work has been completed. Moreover, institutional level rules and regulations have also been made or revised by relevant bodies such as SBP, SECP, NACTA and FMU.

The authorities are confident that the FATF action plan and APG evaluation must remain separate. They believe that the work in progress on the remaining three items shall be completed by June 2021. For that to happen, strong diplomatic efforts are required as geopolitics also comes into play.

The merger of FATF action plan and APG evaluation will not happen. The FATF action plan shall meet closure independently. The progress on APG’s plan is good as the revisions in several legislations and regulations are part of APG’s recommendations. The work is taking place in parallel. The outcome is hinged on the report that shall be submitted by May 2021. In any case, the blacklist is out of the question as of now, which is itself a big sigh of relief.

Having said that, politics is an important part of FATF evaluation. The fact that Pakistan was given a tough plan and two parallel evaluations is demonstrative of geopolitics at play – the stage was set to place Pakistan on the blacklist. That fear is behind us now even if progress is slow.

In between, India has been playing dirty games reflected in overt politicization of the process. At times, information was leaked while meetings were in progress. Members are not happy with India and the country has exposed its prejudice and biasness. India has become a joke in the process. Indian game to malign Pakistan is over at the FATF forum.

This has given Pakistan’s foreign policy makers space to reposition the country based on the merits of its case. The kind of work Pakistan has done under FATF will go a long way towards curbing ML and TF in Pakistan. It carries benefits for local economy. Cross-border smuggling, cash handling, hundi/hawala, etc., shall now be curbed successfully which is good for the country. Covid-19 has given a lucky break to Pakistan to speed up the economic cleansing – incidence of smuggling is lower; similarly, formal channel remittances have improved.

Moreover, there is little cost associated with FATF grey list. No issues are being faced on banking transactions nor sanctions have been placed on cross-border transactions. There are very few additional adverse advisory or cumbersome processes to follow on private sector dealings. But blacklist would have had adverse repercussions. Since that option is now out of the equation, the future holds smooth sailing for Pakistan’s economy. Now, new investment and flows can come into the country which in the past had stayed away due to threat of being blacklisted.

Copyright Business Recorder, 2021

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Ali Khizar

Ali Khizar is the head of research at Business Recorder,