Home Global Village Government deliberately ignored the brewing FATF Imbroglio?

Government deliberately ignored the brewing FATF Imbroglio?

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News Desk |

GVS sat down with Dr. Mohammad Zubair Khan to discuss the issue of Pakistan’s inclusion in FATF greylist. Dr Zubair was former Commerce Minister, has worked at the IMF and consulted extensively for the World Bank, ADB, and other donor agencies. 

Read more: The real reasons why Pakistan was put on the FATF ‘grey…

GVS: Do you see Pakistan on the greylist again in June?

Zubair Khan: We will be definitely on the list in June.  FATF is all about maintaining the integrity of the now very much integrated global banking system. Even if one particular believes that money laundering, terrorist funding or proliferation of nuclear funding does not happen in its own country, but it happens in another country, it can impact the banking system. Now 37 countries got together and they created this task force. These are the major financial powers and everyone wants to be compliant with their requirements. These three criteria is the money laundering, terrorist funded or proliferation of nuclear funding, ensures it is not channeled through any country’s banking system and thus it does not pose any danger to the global banking system. This is the purpose of all of this, now Pakistan has adopted many money laundering laws so that we are compliant. But it took us too long such that first we went on their greylist, and then we legislated actions so that we were removed.

Read more: Did dropping Pakistan support lead to China becoming Vice President of…

Now one of the glaring violations was Habib Bank’s actions in the New York bank. Though it’s a very good, serious bank, its New York branch made serious mistakes and they were recorded and they were fined over $200 million in the US. This was because money was channeled into HBL from Saudi Arabia, from one of the banks there which was already being investigated for money laundering issues. Some of the money under question is purportedly that of Mr. Nawaz Sharif related to Azizia Steel Mill, that went from HBL’s New York branch to Standard Chartered Bank in Lahore. For the FATF members, these kinds of stats show that these are not necessarily individual violations but maybe systematic violations, if so they can put us on a watch list. If Pakistan had taken actions, that it doesn’t happen again, it could have been averted.

 GVS: Can one country – for example the USA – put us on the list?

Zubair Khan: No, it doesn’t happen like that. What happens is that out of the 37 permanent members of the FATF, if 3 0r 4 members say that your banking system is okay. If there was no consensus of all the members, they would not be able to put us on greylist.

FATF as such does not have headquarters, they don’t have a secretariat which evaluates the individual banking system.  These are bilateral opinions, bilateral monitoring, and bilateral scrutiny. They can send team any country – for example to Pakistan to investigate the banking system.

Read more: Pakistan to be placed on FATF’s grey list in June: Confirms…

But, when they put you on the grey list, they are essentially saying that you have weaknesses in your banking system or treatment of money or terrorism or proliferation, they will issue a to-do list.  Then, a country in question will have to comply with it to come out of the greylist. If they don’t fulfill it, then they go on the blacklist.

GVS: What impact would it have on Pakistan’s economy?

Zubair Khan: As long as, you are in the greylist what happens is that every time Pakistani banks deal with any bank, there will be a far great scrutiny of these banks. They might charge you more for that financial transaction because of the greater administration involved.

Second, international banks which are operating in Pakistan, they will be afraid of being used for money laundering or another crime – despite how diligently they may check everything, then they would be frightened of getting caught up in something and getting fined. Western banks-HSBC and other EU banks have been fined hundreds of millions/billions for such errors. Given the size of the fine, the international banks could start thinking what is the point of operating in Pakistan. The benefit of operating in Pakistan will be only few hundred million dollars, versus potential fines of billions. They might decide to stay out of Pakistan.

So, fewer international banks are left in Pakistan. There was the time when we had many banks. Since we were on the greylist previously, they thought, cost of doing business in Pakistan is very high. If that happens again it reduces Pakistan’s integration with the global banking system. It impacts international trade, capital in and out, investment, all of these things. So, it has impact shall we say international infrastructure of economic growth. They can’t say that IMF/WB will continue to work in Pakistan as they were last time when we were on greylist. In fact, they would be more involved/be more diligent so that our banking system improves.

Greylist means that look, we are not happy with you; you have to do things to avoid blacklist. And in that they could tell you these two institutions are best, they could advise us and monitor us.

GVS: Than why is Ismail Mifta, Finance Advisor downplaying the impact on the economy?

Zubair Khan: No, I am not saying that it would have a major impact on the economy. Definitely, it would lead to people downgrading the integrity of our financial system. However, our banking system is very robust. We have banks which are performing well and they are making good profits. There are non-performing banks but generally, we have good industry.

The banking system is also colored by red and green money going around which impacts out the ability to integrate with the global banking system.

On the other hand, let me also say, if I was a very suspicious person, I would think that PML-N government-Nawaz Sharif and Ishaq Dar in last 2 to 3 years, they deliberately ignored all this, when all of this was developing. It did not develop all of sudden in the meeting.

Pakistan knew that FATF team was coming, it was a few months ago. If they had taken action, it could have been averted/ to save Pakistan. But, putting Pakistan in such a difficult position, after it has been very heavily indebted with deliberate policies of Dar and Nawaz. They have put Pakistan at the mercy of the international creditors whose favorite is Nawaz, they want people like him, who are pro-India, anti-Army, I think they have played into creating conditions, where the West could squeeze us and have leverage over Pakistan.

Dar’s policies have heavily indebted Pakistan instead of increasing exports which were clearly meant to subject Pakistan to dictates of the US and other powers.

GVS: We are now in pre-election mode – will the government really cut expenses given this is prime time to spend money in the constituencies to win votes.  

Zubair Khan: The two are not directly related. Pakistan’s weak economic position is due to heavy budgetary spending. They have spent money only to win votes, irrespective of Pakistan’s debt profile and its economy. They could have taken actions increased taxes, increased exports, which could be one route, our foreign exchange would go up. Now they are borrowing more and more and spending in their constituencies so that they can win the elections.

They will leave Pakistan heavily indebted and subject to pressure from the west. Pressure will be to take it easy on politicians who are favorites of the West. This is the policy by which pro-west, anti-Army parties benefit.  But, I am glad, Supreme Court has taken action as they are clearly buying votes through unaffordable means, not out of the allocated development budget.


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