Why Has Pakistan Been Removed From the Infamous 'Grey List' of the FATF?

The decision to remove Pakistan from the list was announced at the end of the FATF's two-day session on 21 October.

Pakistan had been put on the FATF's grey list in February 2018, and had been constantly retained in it over the last four years.

(Photo: Arnica Kala/The Quint)

The Financial Action Task Force (FATF) on Friday, 21 October, took Pakistan off its infamous 'grey list', four years after the country was put on it.

The decision was taken at a two-day plenary session of the financial body, from 20-21 October in Paris, France. Pakistan had been put on the grey list in February 2018 and constantly retained in it over the last four years.

In a statement, the global body said that it welcomed Pakistan's "significant progress in improving its anti-money laundering, combating financial terrorism (AML/CFT) regime."

"Pakistan is no longer subject to FATF’s increased monitoring process," the FATF said, but added that the country must "continue to work with APG (Asia/Pacific Group on Money Laundering) to further improve its AML/CFT (anti-money laundering & counter-terrorist financing) system."

When it had first been put on the grey list in 2018, the FATF had put before Pakistan a 27-point action plan to check terror financing. Over time, seven more points were added to this.

Before getting into why Pakistan was removed from the grey list and how significant it is for the country, we must understand what the FATF and its grey list are.

What is the FATF & What Is Its Grey List?

Established by the G7 (Group of Seven) in 1989, the FATF is an inter-governmental body that is tasked with setting global standards that countries are expected to adhere to, to prevent terror financing and global financial crimes.

Countries that are considered to be "safe havens" for terror groups and their financing are put on the FATF's grey list.

The body encourages due caution and proper assessment of risks while dealing with these countries, which usually sets back investment opportunities for them.

The FATF can also ask global financial institutions to end their association with offending countries, and urge governments to apply sanctions on them if they are moved to its "black list".

Currently, only North Korea and Iran are in the FATF's black list.

Reasons for Pakistan's Exit from the Grey List

The win for Pakistan comes amid the improvement in ties with the United States (US), especially after the ouster of Imran Khan – who had on several occasions made his dislike for the US known in public and had also accused Washington of orchestrating a coup to replace him.

US President Joe Biden had also met Pakistan Prime Minister Shehbaz Sharif in September this year in a bid to boost ties. The US had further announced that it would provide support towards modernising Pakistan's F-16 fighter jets, indicating closer cooperation between the two nations.

In this backdrop, the FATF in June this year had said that Pakistan's efforts to check terrorism, including the prosecution of UN-designated terrorists, cutting off funding for terror groups, and amending money laundering laws had been "substantially completed."

Pakistan had also provided "documentary evidence" of its efforts to seize the assets of terror groups, and of convicted terrorists like 26/11 accused Hafiz Saeed, Zaki Ur Rahman Lakhvi and Sajid Mir, The Hindu reported.

"Pakistan has made considerable progress for several years in completing its action plan. But it was stuck on the final few items, which were the most ambitious and involved convictions for several designated terrorists," Michael Kugelman, director of the South Asia Institute at the Wilson Center think-tank, told The Quint.

"So it wasn’t until recent months, when Hafiz Saeed and Sajjid Mir, top terrorists with Lashkar-e-Taiba, got new convictions that Pakistan was able to get a proverbial clean bill of health from FATF," he added.

However, India has repeatedly raised objections against Pakistan's alleged laxity in tracking down dreaded terrorist Masood Azhar, who has only been charged with minor terror financing cases and not for larger crimes, such as his role in the 26/11 attack or the 2001 Parliament attack.

Pakistan, on the other hand, has claimed that Azhar had not been traced in the country, and was believed to be residing in neighbouring Afghanistan instead - a claim which has been slammed by India and denied by the Taliban.

Significance for Pakistan

The financial body's decision comes as a shot in the arm for Pakistan, which has been undergoing immense economic turmoil and skyrocketing inflation rates. The country has also been facing brutal after-effects of floods, which had ravaged several parts of the country and impacted over 30 million people.

Hence, the country's removal from the grey list is expected to open the doors for international investment, which is need to boost the cash-strapped economy – especially after the country's sovereign credit ratings were downgraded by Moody's.

Further, the country will also attempt to apply for economic aid from global financial institutions, like the International Monetary Fund (IMF), the World Bank, the Asian Development Bank (ADB), and the European Union (EU).

Pakistani officials had expressed optimism ahead of the October plenary session, as they claimed to have made "strenuous efforts" for an outcome in their favour. They had also said that a visit by an FATF delegation to Lahore and Islamabad in September had gone well.

"There’s no special significance to the timing of the decision. At its June plenary, FATF had indicated that Pakistan had completed its action plan. That meant all that was needed was a visit by FATF staff to Pakistan to affirm that all was in place, which it was," Kugelman said.

He further added, "This then meant that the formal decision to de-list Pakistan could be made at the FATF October plenary, which ended today."

'Vindication of Our Efforts': Pakistan PM Shehbaz Sharif

Pakistan PM Shehbaz Sharif took to social media to hail the FATF's move, calling it a "vindication of our determined and sustained efforts over the years".

"I would like to congratulate our civil and military leadership as well as all institutions whose hard work led to today's success," he said.

He particularly thanked the efforts of Foreign Minister Bilawal Bhutto and Army Chief General Qamar Javed Bajwa in this regard.

The decision comes as a big win for the Sharif government, after the loss of face following its decimation in the recent byelections to 11 seats, eight of which had been won by the Imran Khan-led Pakistan Tehreek-e-Insaf.

Delegates from 206 members of the FATF's international network and observer organisations, including the United Nations, the IMF, the World Bank, and Interpol, had participated in the the two-day session.

India's Response

While India acknowledged Pakistan's removal from the grey list, it called for the latter to continue to crack down on terror activities and financing.

The Ministry of External Affairs (MEA) said that Pakistan had been "forced" to take action against terrorists owing to FATF scrutiny, including those involved in the 26/11 attacks.

"It is in global interest that the world remains clear that Pakistan must continue to take credible, verifiable, irreversible and sustained action against terrorism and terrorist financing emanating from territories under its control," the MEA said in a statement.

(With inputs from PTI and The Hindu.)