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Pakistan has gone through so many challenges and adversaries in its relatively short life span of 75 years that it is not only remarkable, but it shows its resiliency and determination for succeeding against all odds.

Political instability created cycles of economic chaos, leading to lack of FDI for modernizing its industrial base for higher value manufacturing and its economic diversification.

The then Soviet Union’s invasion/occupation of Afghanistan during 1979-89 and later in the aftermath of the 9/11, both events brought influx of millions of Afghan refugees into Pakistan.

This further exacerbated the fragile economy of the country and created a fertile environment for money laundering (ML) and terrorism financing (TF).

Most importantly, Pakistan being a developing country, also inherited the DNA of ML, corruption and TF, and these things became more prevalent because of its fragile infrastructure for transactions’ monitoring, undeveloped financial, capital, credit markets and weaker national institutions.

In the wake of Afghanistan occupation by the two superpowers, as the economic assistance started flowing in the country, the ML and TF ramped up.

And this was the beginning for Pakistan to get on the slippery slopes of the ML and TF. Since then, Pakistan has attempted many times to get off the slippery slopes, but it has always been uphill battles for the institutions, policy makers, regulators, and the politicians, alike.

The FATF (Financial Action Task Force) was created in July 1989 during the G-7 Summit in Paris with the goal to combat the money laundering (ML).

However, in the wake of the 9/11, its mandate was extended to include combating the terrorism financing, also. The FATF is a transnational organization that establishes international standards for preventing international financial crimes and funding of terrorist activities.

Since its inception in 1989, the FATF has been playing its major role in identifying and preventing financial crimes (ML, TF, etc.) by creating standards and recommendations that are regarded as laws by its members and non-members, alike.

In other words, FATF is a policymaking organization that encourages political will to the countries for implementing legislative and regulatory reforms for preventing ML and TF. FATF monitors its standards compliance globally through its global network of nine FATF-Style Regional Bodies (FSRBs) and FATF members.

Since its inception, it is based in Paris, France and currently over 200 UN members have signed their commitments for implementing the FATF standards in their jurisdictions for preventing organized crimes, corruption, ML, and terrorism activities.

There are three lists related to the ML, Corruption, and TF activities that covers the entire landscape of the countries. The Blacklist (BL), the Greylist (GL) and the Whitelist (WL). On the BL, there are only just two countries, namely North Korea and Iran.

Countries on the BL are exposed to severe economic sanctions. The GL is comprised of the countries that are under the vigilance of the FATF for the non-compliance mainly of the ML and TF.

Currently, the FATF body is composed of a total of 39 members, including the EC (European Commission) and the GCC (Gulf Cooperation Council). India became member of the FATF in 2010 and is also a member of its regional bodies, the Asia Pacific Group (APG) and the Eurasian Group (EUG).

Most of the countries on the GL belong to the developing economies, except one. Surprisingly, the UAE, one of the richest countries and the global energy supplier and the member of the OPEC+ is also on the list! The reasons for being on the GL is that in the recent past due to its liberal policies and a regional hub for financial and capital markets, the UAE became a safe haven for the ML fugitives.

However, recently, the UAE has taken its inclusion on the GL very seriously and is closing the loopholes in its financial transaction regimes. By implementing the FATF recommendations, the UAE has started apprehending and deporting the fugitives to their home countries or the countries issuing the warrants against them related to the alleged financial crimes. Recently, the UAE deported individuals who were wanted by India and South Africa for alleged ML and other financial crime activities.

The decision of putting a country on the GL or taking it off from it does not depend on just any single member’s recommendations, but it is decided collectively using the majority consensus. Additionally, it uses opinions of the independent observers and resident representatives of the donors and watchdog agencies (the IMF, WB, ADB, Paris Club, etc.) who may or may not be affiliated with the FATF.

Pakistan has been on the GL on and off again few times and is among the other 23 countries who have been included on this list. It was put on the list the very first time in 2008 but after implementing FATF recommendations and showing good progress, Pakistan was taken off from the GL.

In the aftermath of the 9/11, Pakistan was put back on the GL and stayed on it from 2012-2015. After a brief period of few years off the list, it was put back again on the list in 2018. And since then, as of to-date, it has been on the GL.

The ousted government had made some excellent progress by implementing and enforcing the recommendations and streamlining its policies and legislations for eliminating ML and TF from the society. The strategy and commitments resulted into satisfying 26 conditions out of a total of 27 FATF recommendations.

This attainment was publicly applauded in March of this year by the FATF leadership. By being on the GL, country can have drastic impacts on its economy, like frightening the investors, creditors, causing currency devaluation, decline in exports, tourism, and higher costs for the imports. It can also create negative image for the bilateral and multilateral donor agencies.

They can add more controls and conditions for releasing any additional funds against the previously negotiated favourable funding terms. Currently, Pakistan has been experiencing extended delays in the release of the approved funding from the IMF.

According to some estimates, since 2018, after its listing on the GL, Pakistan’s economy has suffered a lot. According to “Tabadlab”, Pakistan has lost ~$38 billion in its GDP, which has caused a major blow to its economy.

The current government after taking office in April of this year, too, has realized the challenges and implications of being on the GL. After encountering the funding resistance from the multilateral donors and lack of interest from the investors and the entrepreneurs, the government had revamped its efforts to addressing all the deficiencies as were outlined by the FATF and its affiliated agencies.

As a result, all the indications were to celebrate Pakistan’s removal from the GL during FATF’s June 17, 2022, meeting in Berlin, Germany.

In the anticipation of the victory, Pakistan dispatched a very high-level delegation led by Deputy Foreign Minister, Ms. Hina Rabbani Khar to participate in the discussions with the FATF team. After the meeting, FATF President, Mr. Marcus Pleyer, acknowledged that Pakistan has made excellent progress in complying with the recommendations, including the last one condition.

But he postponed his final verdict of declaring Pakistan to be out of the GL until his physical visit to Pakistan to confirm the needed changes have been permanently implemented. Though, it was very disappointing and was against all the expectations of the entire Pakistani society, including the politicians, policy makers, law & order agencies and the military leadership, the pivotal and incomparable force in combating the terrorism, AML and CFT.

Now, the entire Pakistani nation is anxiously waiting for October to get back again on the “Whitelist” of the FATF. This will not only be just a ceremonial victory for Pakistan, but it will be one of the major landmarks for efforts aimed at transforming Pakistan into a robust and vibrant economy, again.

Getting off the GL will create a new landscape for attracting FDI, better credit terms from the foreign commercial banks, favourable environments for the entrepreneurs, angel investors, and crowd fundings that will transmute Pakistan back into its manufacturing growth, higher exports, higher paying job opportunities, robust wealth creation environment and widespread economic prosperity to share with everyone.

Copyright Business Recorder, 2022

Dr Jamil Khan

The writer is Executive Director, Polykemya International


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