Pakistan on FATF’s grey list: What is the impact, progress, and the way forward

The Financial Action Task Force (FATF) decided to keep Pakistan on its grey list until further progress despite the country complying with 26 out of 27 action plans.

Pakistan was placed on the FATF’s grey list in June 2018 and was urged to strengthen anti-money laundering and increase the fight against financing terror. Following this, Pakistan enacted 17 laws against money laundering and terror financing and initiated several legislative amendments during the last two years to comply with FATF criteria.

The Financial Action Task Force (FATF) decided to keep Pakistan on its grey list until further progress despite the country complying with 26 out of 27 action plans. Political leaders and legal experts of the country term the decision as “unfortunate and discouraging”.

Minister Hammad Azhar, who is the chairman of the FATF coordination committee, said:

This is a new challenge for Pakistan struggling to get off the grey list since 2018. Pakistan has achieved exemplary progress despite the tough action plan, tight timelines, and pandemic challenges. Pakistan is committed to complying with both FATF evaluation processes and is determined to exit the grey list in 12 months. We have set a target to complete all the action plans in 12 months which normally takes countries two years.

FATF being doubted for its Political nature

Recently, Pakistan’s Foreign Minister Shah Mahmood Qureshi questioned the watchdog’s decision to keep Pakistan on the grey list despite the implementation of 26 out of 27 points. He said:

Experts need to look into whether FATF is a technical forum or a political one and if the forum is being used to serve political motives. Pakistan will continue to take anti-terrorism and anti-money laundering measures as these are in Pakistan’s own interest. However, there is no justification for FATF’s decision.

RSIL – one of the largest legal think tanks in Pakistan – published a detailed report on Pakistan’s FATF-related progress in June 2021. The report revealed that FATF’s scrutiny on the status of Pakistan’s TF/ML investigation and prosecution was nowhere near as stringent for the other countries.

Setback for the Government and Legal experts

According to reports, the Pakistani officials were optimistic about the country being cleared off the grey list in June 2021 due to the upgraded rankings in the recent reports. However, the expectations went tumbling down when the disappointing outcome was unveiled. Jamal Aziz, executive director at Research Society of International Law (RSIL), said:

This is an unfortunate development and a blow to advocates and practitioners of international law in Pakistan as FATF not only retained Pakistan on the grey list but also provided an additional action plan. This move also supports the opposing view held by many that global governance processes and legal frameworks are motivated by political considerations as opposed to adherence to the law.

What does it mean to be on the FATF Grey List

Being on the FATF grey list means that Pakistan will face enhanced monitoring procedures. Although there are no direct economic implications for the country, the listing has affected several sectors.

It should be noted that this is not the first time that Pakistan has been on the grey list. However, the monitoring mechanism is stricter now as the listings did not carry the financial, geopolitical, or reputational implications previously. RSIL’s director, Jamal Aziz said:

This is evident from Pakistan’s own history with the global AML/CFT watchdog as this time Pakistan was required to display effective results very rapidly and the whole review progress has attracted significant media coverage. The adverse economic effects of grey-listing are increasingly evident and have an impact on foreign direct investment (FDI) and ease of business whereas hostile states have also used Pakistan’s status to damage its reputation as a responsible member of the international community.

A research paper published by an independent think-tank, Tabadlab, in 2020 reported that grey-listing spanning from 2008 to 2019, may have resulted in GDP losses worth $38 billion.

Ali Farid Khwaja, a London-based financial expert, and chairman of KASB Securities, Pakistan’s leading stock brokerage and investment bank, explained:

The main impact of being on the grey list is that it raises the risk that the country could be placed on the blacklist which is a serious threat and factor that discourages investors. Given the geopolitics of the region, it is possible that FATF is being used as a stick to make Pakistan yield to political demands. Many Pakistanis have criticized FATF for acting as a politically driven forum to exert pressure on Pakistan to achieve desired objectives.

Barrister Taimur Malik said:

FATF is perceived as a geopolitical tool because of an increasing awareness that Pakistan’s legal, regulatory and financial frameworks are much more robust than other countries, which are currently on the grey list and even those which are not on the list. The legal reforms and compliance have enhanced customer due diligence requirements for ordinary citizens and businesses and people now feel the impact of the FATF requirements.

Not all is in the dark

On the brighter side, Pakistan’s grey-listing has enabled policymakers with the political impetus to undertake long-required structural reforms in the criminal justice sector, banking and finance, regulatory compliance, and initiate checks and balances.

They believe that the new action plan will allow the country to focus on Designated Non-Financial Business and Professions (DNFBPs) and improve international cooperation which will yield positive results for Pakistan’s economy, rule of law, and governance frameworks in the long run.

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