FATF Gives Pak 3 Months But It is Likely to End Up on Black List

The more than excited media commentary on Pakistan’s possible future status in the eyes of the Financial Action Task Force (FATF) meeting held in Paris recently is rather telling. Not one news source speculated on the possibility that Pakistan may get off the list entirely, and be declared a responsible State.

Instead, the debate centred around whether it would be listed under various shades of grey or be awarded a solid black listing. In actual fact, the FATF, which evaluates States’ banking and financial system for its ability to prevent money laundering and terrorist finance, has only two criteria. One, generally known as the ‘black list’, enumerates high risk countries that will be virtually cordoned off from the international financial system. The second category consists of the so called ‘grey’ list which defines relatively less risky environments, which however still faces ‘enhanced diligence measures’.

Simply put, that means that the body will go on probing the country’s systems to a very uncomfortable degree till it is cleansed of its risky viruses. Pakistan was put in the grey category in 2017. The FATF deliberations centred on whether it would continue to remain in that category or would be designated in the high risk ‘black’ listing.

In the event, as expected, the FATF gave Pakistan a longer rope, till February – a mere three months away – to either hang itself metaphorically in terms of a black listing, or haul itself out of the mire with a continuation of a grey listing.

In other words, there is no immediate succour. Pakistan didn’t need a warning by the new FATF President Xiangmin Liu of a possible blacklisting down the road. That is obvious to anyone who goes through the findings of the ‘Mutual Evaluation Report’ (MER) submitted by the subsidiary APG (Asia Pacific Group on Money Laundering) recently.

This report is an admirably apolitical exercise, focusing only on a clear-eyed evaluation of the very precise requirements laid out by the world body. This is despite the fact that the main evaluators include Chinese, Turkish and British experts, all seen as ‘friendlies’ of Pakistan.

Evaluating Pakistan across the ‘forty recommendations’ that formed part of the original list, the expert body could find only one solitary area that could be rated as a ‘completed’ task. The rest of the report notes mostly partial, low or non-compliance statuses.

Pakistan was however given a chance to change itself by completing 27 tasks by October. In that too, Islamabad succeeded in completing only five. Given that, it seems extremely unlikely that Pakistan will escape black listing in the coming months.

A reading of the MER indicates considerable cause for alarm. The international financial system is like a large and rather fragile cobweb, intermeshed and dependent on the strength of each strand to retain its stability. Simply put, a high risk State is like a virus within that structure, that will quickly spread and weaken it from within. The MER on Pakistan provides a clear picture of this weakening, noting that its main institutions like the State Bank, the Securities and Exchange Commission, and the Federal Investigation Agency among others have a ‘low understanding’ of terrorist financing risks.

That’s not because these are staffed by ignorant or deliberately obstructive persons. It’s because the State itself has discouraged such awareness, with its many terrorist operations enmeshed in a shroud of secrecy.

This reality is apparent in another observation. The report notes that Provincial Police have a far better understanding of terrorist finance than their counterparts at the top. In short, those at the bottom know very well who is funding and protecting which terrorist institution. The top however doesn’t recognise it.

Then there are a large number of so called non-profit organisations and businesses – including so called trusts administered by various terrorist organisations – that remain outside the monitoring system. Again, in simple words that means that just about anyone can start up a trust and use it to fund a variety of terrorist groups not just in the country, but outside it.

All of this would lead one to suppose that Pakistan is an innocent victim of terrorism finance, unable to take action against risks. That is clearly not the case as the report proves.

Consider that the number of arrests for terrorist finance were the highest in Balochistan (337) as against those in Khyber Pakhtunkhwa (125) or Punjab (166) both of which are centres of terrorist activity. Apparently, Pakistani counter-terrorism institutions are far more agile than they want to admit.

The rest of the report in the unemotional language of a financial examination observes inter alia that UN-designated terrorist organisations continue to publicly raise funds, that banks and other financial institutions are active against money laundering – which the political opposition can certainly attest to – and most damagingly, that “no assets of proscribed organisations have been frozen”. That puts paid to Islamabad’s rather prurient claims of having acted against the Lashkar-e-Taeba for instance, and its many arms.

Clearly, Pakistan has received a three month bail out at the highest levels of the FATF due to its backing by China, Malaysia and Turkey. But this cannot go on indefinitely. The various evaluation criteria are difficult to skip around or obfuscate, given that a State is either compliant or it’s not.

At some point therefore, the cordon will tighten. Blacklisting may well affect the ability of the country to get international financing among other things. That means the IMF program itself may come under risk, a possibility which is extremely risky given that Pakistan is already in a virtual debt trap. And that’s just the tip of the iceberg.

As the situation worsens, many will believe Prime Minister Imran Khan’s repetitive assertion that India is behind the effort to blacklist it. Many Indian politicians may actually encourage that perception to showcase their own power. However, a reading of the Mutual Evaluation Report will effectively dispel that notion.

All of the issues listed there are clear evidence of years of deliberate corrosive practices that encouraged terrorism, and the moral and financial corruption that does with it. Finally, none of this should be viewed with glee by Indian commentators.

While the FATF report tables the extent of corrosion within Pakistan itself, it is equally likely that the innards of a target country have also been affected to a serious degree.

It’s time to take stock rather than gloat.

(Dr Tara Kartha was Director, National Security Council Secretariat. She is now a Distinguished Fellow at IPCS. She tweets at @kartha_tara. This is an opinion piece and the views expressed above are the author’s own. The Quint neither endorses, nor is responsible for them.)