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Monday, July 15, 2024

The FATF ghost is staring Pakistan in the face

Pakistan’s delegation recently returned after attending the FATF Plenary in Paris. Pakistan is given until February 2020 to convince FATF of progress or risks being moved to the blacklist. The rather somber outcome of the FATF Plenary for Pakistan forced me to go down memory lane.

The Personal Story

In my school days, Mathematics was a subject I hated most. I loved to avoid it. I would barely pass exams through last minute scrambles. All went well and good until the 10th Grade examination. The result would determine whether I was eligible to sit for the State Board Examination.

True to my habit, I took a last minute crash course. Riding on the back of luck, I assured myself that I would pass. I entered the examination room with an eerie sense of confidence and exited it with a sense of newfound relief. Lo and behold, the results proved me wrong! I failed by a margin. This possibly explains why I ended up being a lawyer and not a mathematician.

Perhaps it’s a rather ambitious parallel between a personal story and a country’s experience. But if habits and preconceived notions are the benchmark, then it is not entirely unreasonable to compare the two.

The next Plenary is in February 2020. This leaves Pakistan with barely 90 days to slay the FATF ghost haunting it since June 2018 when it was first placed on the grey list

Last minute scrambles at FATF, we are told, will work for Pakistan. But will – or rather, can – they?

The FATF Warning

Things aren’t looking good at the FATF front no matter what spin is given to it by the Government. The tone and tenor of the FATF President (a Chinese National no less) should be cause for serious concern.

“All deadlines in the action plan have expired”, the President said in his statement at the end of the Plenary. “While noting recent improvements”, he expressed FATF’s “serious concerns with the overall lack of progress by Pakistan to address its TF [terrorism financing] risks, including remaining deficiencies in demonstrating a sufficient understanding of Pakistan’s transnational TF risks…”

As if not enough, the statement concludes with the dire – and I repeat, dire – warning that “the FATF will take action” if Pakistan fails to make “significant and sustainable progress” across the full range of its action plan by the next Plenary. This “action” could mean blacklisting Pakistan. If this is not a sign of impending doom for Pakistan, then I don’t know what is!

Read more: Pakistan in midst of aggressive FATF lawfare

The next Plenary is in February 2020. This leaves Pakistan with barely 90 days to slay the FATF ghost haunting it since June 2018 when it was first placed on the grey list.

Let’s have a look at some possible reasons why Pakistan continues to remain on the grey list, and why it landed in the grey list in the first place.

Why Pakistan Landed in the Grey List?

This can be explained in two words: geo-strategic developments. US and India have been gunning for Pakistan since Pakistan firmly positioned itself in China’s orbit. The marriage on both sides – US-India and China-Pakistan – is complete. Handling a nuclear Pakistan is no easy task, but arm twisting Pakistan is. Even better: disconnect Pakistan from the international financial grid and choke its financial lifeline (economy). FATF asking Pakistan to “do more” is the ongoing financial lawfare against Pakistan. Pakistan’s strategic and policy circles are unable to fathom the true nature of this threat.

If the US conceived the plan and provided the know-how, it is India that has been the driver of the process. India’s contempt for Pakistan is profound and unconcealed. It has called out Pakistan as the hub of terrorism and terrorism financing. It made a fool of itself by predicting Pakistan would land in some fictional “enhanced grey list”. But it has continued to unashamedly make its intentions about Pakistan known to everyone. India will not relent. With the fascist BJP Government at the helm of affairs in India, all bets are off and Pakistan should prepare for all eventualities.

The FATF’s findings on Pakistan are partly based on the APG’s Mutual Evaluation Report (MER) on Pakistan which was issued this month (October)

But all this is the simplistic explanation. Now onto the hard part, the bitter reality. If US and India made Pakistan land in the grey list, it is Pakistan that is making sure it stays there. Let me explain.

Present Day International Law

In the present day, countries are required to meet minimum standards of ‘compliance’. These are set out in international treaties and rules made by international and regional organizations. The result is a complex web of laws, rules and regulations. Ignorance of this law (international law) is no excuse.

FATF, short for Financial Action Task Force, is an inter-governmental organization. It does not have a “tightly defined Constitution” that prescribes its working but has pre-defined objectives and rules for anti-money laundering measures (AML) and combating financing of terrorism (CFT). Certain international organizations with an AML/CFT have become members of FATF. These include the Asia Pacific Group for Money Laundering (APG). Also some prominent international organizations with an AML/CFT mandate such as the World Bank and IMF have an observer status in FATF. But most importantly, FATF has a close relationship with United Nations (UN). UN Security Council (UNSC) has passed important resolutions over the years that have given an enhanced mandate to FATF.

Read more: Lawfare against Pakistan: coercion or self-inflicted wounds?

Two of these resolutions – the proverbial “eye of the storm” from Pakistan’s perspective – are UNSC Resolutions 1267 (1999) and 1373 (2001). Broadly, the former established the sanctions regime against Osama Bin Laden and Al Qaeda, and the latter requires all States to prevent and suppress financing of terrorist acts and to refrain from providing any support to entities or persons involved in terrorism. This resolution also introduced an asset freezing mechanism to target terrorism funding and set up the counter-terrorism committee which monitors state compliance.

Pakistan’s Poor Performance

Since being placed on the FATF grey list in June 2018, Pakistan has been required to meet a 27 point national action plan. In the FATF October Plenary, it was noted that of these 27 items, Pakistan had only “largely addressed” 5 items and had achieved “varying degree of progress” on the remaining 22. The FATF’s findings on Pakistan are partly based on the APG’s Mutual Evaluation Report (MER) on Pakistan which was issued this month (October).

The MER is a scathing critique of Pakistan. While it acknowledges that Pakistan has established a multi-agency approach to implement its AML/CFT regime, it notes that Pakistan is “not implementing a comprehensive and coordinated risk based approach to combating money laundering and terrorism financing”.

The MER in particular notes Pakistan’s efforts to combat terrorism financing are not consistent with the risks faced by the country. While acknowledging Pakistan having given domestic effect to UNSC Resolutions 1267 and 1373, the MER notes that “A number of terrorists groups, including UN-listed groups, operate in Pakistan all of which raise funds through a variety of means including direct support, public fundraising, abuse of NPOs and through criminal activities”.

FATF is coming for our wallet and that should worry us most. Pakistan has no choice but to make the last minute scramble

The MER also points to lack of “clear understanding” by the State Bank of Pakistan (SBP) of the money laundering and terrorism financing risks unique to the sectors it supervises. It also notes that SECP has a “limited understanding” of the money laundering and terrorism financing risks and has not implemented a risk-based supervisory approach. If State institutions such as the SBP and SECP are unable to come clean then this is a huge red flag for the State.


So what are some of the conclusions to be drawn? First, FATF is not looking for mere rhetoric. Nothing short of concrete results will be acceptable to FATF. Second, Pakistan appears to be failing to understand the true nature of the “risk” profile of “terrorism financing” assigned to it by FATF. This is the crux of the matter. If Pakistan is unable to understand the true nature of AML/CFT requirements, I am afraid this will simply reinforce failure.

What needs to be done is to (a) fully understand the assigned risk profile with reference to AML / CFT; (b) make a comprehensive and coordinated effort to ensure that this understanding permeates the public and private sectors; and (c) implement AML/CFT requirements across the entire public / private spectrum in both letter and spirit. And do all this in 90 days!

Lastly, a few words on the positive spin given by the Government. If Pakistan’s compliance with 5 out of 27 parameters is cause for celebration, then I am afraid, there is not much of a difference between Pakistan and my antics during school days. Victory for us should not be India failing to get us blacklisted. Rather, victory should be exiting the grey list and staying out in future.

Read more: Pakistan Avoids Blacklisting: Remains in Grey List Until February 2020

The next 90 days are crucial for Pakistan and will set the tone for future. All our battles and wars (ideological and kinetic) will depend on our pocket. FATF is coming for our wallet and that should worry us most. Pakistan has no choice but to make the last minute scramble. I end this article with the prayer that unlike my case, may Pakistan’s last minute scramble bear positive results and that it slays the FATF ghost once and for all.

Hassan Aslam Shad is the head of practice of a leading Middle Eastern law firm. He is a graduate of Harvard Law School, U.S., with a focus on international law and corporate law. Over the years, Hassan has written extensively on topics of law including public and private international law and international relations. Hassan has the distinctive honor of being the first person from Pakistan to intern at the Office of the President of the International Criminal Court, The Hague. He can be reached at: veritas@post.harvard.edu. His Twitter handle is: @HassShad. The views expressed in this article are the author’s own and do not necessarily reflect the editorial policy of Global Village Space.