FATF: shades of grey

The global watchdog that has Pakistan in its crosshairs is to hold its first main meeting of 2020 in Paris next week. Between February 16 and 21, Pakistan’s case is expected to undergo further scrutiny at the Financial Action Task Force (FATF)’s plenary meeting. For a change, needless speculation over what may take place in the French capital is rather muted this time around. And that is a positive change.

Recall, at the October 2019 Paris plenary, Pakistan was able to get a temporary reprieve – a sort of an “extension” – to show more compliance in the near future. Not out of the woods just yet. However, given Pakistan’s trajectory of gradual improvements on technical level as well as its increasing diplomatic traction among member countries in the last six months, another extension is highly likely next week.

Contrary to news media stories on the subject, there is no such thing as a FATF ‘grey list’ or ‘black list’. There are only differing levels of supervision or monitoring, depending on how severe “strategic deficiencies” are, and that, too, through FATF affiliates. Also, Pakistan is undergoing not one, but two parallel oversights, both of which culminate in FATF determinations in the biannual plenaries.

More critical of the two oversights is the 27-point action plan complied by the International Co-operation Review Group, which is FATF’s arm for high-risk jurisdictions. The ICRG to-do-list, which mostly deals with issues relating to combating the financing of terrorism (CFT), is challenging, because it seeks full compliance on all 27 agenda items. Gradually, Pakistan is improving its compliance on those items.

The likely scrutiny at the upcoming FATF plenary may again be on issues like improving the capacity of law enforcement agencies to nab terrorism-financiers, monitor trans-national terrorism-financing risks, and curb physical cash smuggling. Pakistani officials are reportedly hopeful that they have made enough progress to justify an exit from heightened supervision. But FATF will determine whether pushing non-compliant action items up the rungs of compliance ladder is good enough for a clean chit later this month.

The second compliance stream runs through the Asia-Pacific Group, which is the FATF’s regional chapter for anti-money-laundering (AML) oversight. The APG action plan has 40 recommendations, which Pakistan has time until October 2020 to address. In case of an unsatisfactory review post October, Pakistan may be given between one to three years for further observation.

The authorities are rightly focused on addressing, at the earliest, aspects of institutional capacity, inter-agency coordination and risk-assessment frameworks on CFT-heavy ICRG action plan. This helps also because of spillover impact on APG action plan. From what it looks, it may be another year before Pakistan bids adieu to the so-called ‘grey list’. But the direction is right, and there is no room for complacency.