Introduction:
In an attempt to be dropped from the Financial Action Task Force’s grey list, Pakistan has banned 88 new terrorists, in compliance with the new list issued by the United Nations Security Council (UNSC). The banned terrorists include Hafiz Saeed, Masood Azhar and Dawood Ibrahim. Paris-based FATF put Pakistan on the grey list in June 2018 and asked Islamabad to implement a plan of action by the end of 2019, but the deadline was extended later due to the Covid-19 pandemic. The Pakistan government issued two notifications on August 18 announcing sanctions on key leaders of terror outfits such as 26/11 Mumbai attack mastermind and Jamaat-ud-Dawa (JuD) chief Hafiz Saeed, Jaish-e-Mohammed (JeM) chief Masood Azhar, and underworld don Dawood Ibrahim.
FATF:
- The Financial Action Task Force (FATF) is an inter-governmental body established in 1989 on the initiative of the G7.
- It is a “policy-making body” which works to generate the necessary political will to bring about national legislative and regulatory reforms in various areas.
- The FATF Secretariat is housed at the OECD headquarters in Paris.
- Objectives: The objectives of the FATF are to set standards and promote effective implementation of legal, regulatory and operational measures for combating money laundering, terrorist financing and other related threats to the integrity of the international financial system.
- Functions: The FATF monitors the progress of its members in implementing necessary measures, reviews money laundering and terrorist financing techniques and counter-measures and promotes the adoption and implementation of appropriate measures globally. In collaboration with other international stakeholders, the FATF works to identify national-level vulnerabilities with the aim of protecting the international financial system from misuse.
- Pakistan was placed on the grey list by the FATF in June 2018 for failing to curb anti-terror financing. It has been scrambling in recent months to avoid being added to a list of countries deemed non-compliant with anti-money laundering and terrorist financing regulations by the Paris-based FATF, a measure that officials here fear could further hurt its economy.
Blacklist and grey list:
- FATF maintains two different lists of countries: those that have deficiencies in their AML/CTF regimes, but they commit to an action plan to address these loopholes, and those that do not end up doing enough. The former is commonly known as grey list and latter as blacklist.
- Once a country is blacklisted, FATF calls on other countries to apply enhanced due diligence and counter measures, increasing the cost of doing business with the country and in some cases severing it altogether. As of now there are only two countries in the blacklist — Iran and North Korea — and seven on the grey list, including Pakistan, Sri Lanka, Syria and Yemen.
Issue now:
- Pakistan is likely to remain on the grey list of the Financial Action Task Force (FATF) for failing to comply with the global terrorist financing watchdog’s deadline to prosecute and penalise terrorist financing in the country.
- At an FATF meeting in February, Islamabad had been told that ‘all deadlines’ had expired and if they didn’t prosecute and penalise terrorist financing by June, the watchdog would take action.
- At the Paris plenary too, the FATF had expressed serious concerns over Pakistan’s failure to complete its 27-point action plan in line with the agreed timelines – which ended in September 2019.
Why did FATF decide to place Pakistan on its watch list?
- Pakistan had been on the same list from 2012 to 2015.
- The decision is overdue, given Pakistan’s blatant violation of its obligations to crack down on groups banned by the Security Council 1267 sanctions committee that monitors groups affiliated to the Taliban such as the Lashkar-e-Taiba, Jaish-e-Mohammed and the Haqqani network.
- Their leaders like Hafiz Saeed and Masood Azhar continue to hold public rallies and freely garner support and donations.
- Both the LeT and JeM, continue to praise and claim credit for terror attacks in India. They have grown their bases in Pakistan, with fortress-like headquarters in Muridke and Bahawalpur that the authorities turn a blind eye to.
- By doing this, successive Pakistani governments shown disregard for the outcry against terrorism worldwide.
- One violation was a Pakistani court’s bail to Zaki-ur-Rehman Lakhvi, LeT operational commander and a key planner of the November 2008 Mumbai terror attacks.
- Under the 1267 sanctions ruling, banned entities can get no funds, yet Lakhvi received the bail amount, and the authorities have since lost track of him.
What are the implications for Pakistan now?
- Once placed in the “grey list”, countries face risk of downgrade by multilateral lenders like IMF, World Bank, ADB etc. And further reduction in their risk-rating by agencies.
- It may impede Pakistan’s access to global markets to attract foreign investments at a time when its foreign reserves are dwindling and external deficits are widening.
- Some kind of pressure is increased up with financial censures on its banks and businesses and targeted sanctions imposed against specific law enforcement and intelligence officials.
- If Islamabad will not comply with the obligations then the country runs the risk of being included on to the blacklist of the FATF that currently features Iran and North Korea.
- As a reaction to this move, authorities in Pakistan recently confiscated all properties of the Jamaat-ud-Dawa (JuD) and its charity arm, the Falah-e-Insaniat Foundation (FIF).
Why Softer Tone on Pakistan?
- Geopolitics and bilateral deals play a role in deciding outcomes.
- Pakistan’s role in ensuring Taliban talks are brought to a successful conclusion soon may have weighed with the U.S. and its allies in the grouping.
- With China in the President’s Chair, and the backing of Turkey and Malaysia, Pakistan could escape being blacklisted in any case.
India want more scrutiny on removing Pakistan’s Grey list:
- While Pakistan’s progress will come as a disappointment to India, it wants more scrutiny of Pakistan’s support to terror groups lest Islamabad feels it has been let off the hook there are a few points to consider.
- First, the grey listing is not new. Pakistan was placed on it in 2012, and was removed in 2015 after it passed a National Action Plan to deal with terrorism following the 2014 Peshawar School massacre. It was also placed under severe restrictions in the years 2008-2012, after the Mumbai attack.
- Second, this last grey list period has already seen some Indian demands met, including the chargesheeting of Hafiz Saeed for terror financing, and the addition of JeM chief Masood Azhar to the UNSC 1267 list.
- Finally, although the FATF is a technical organisation, there is no doubting that geopolitics and bilateral deals play a part in deciding outcomes.
