Washington, DC – Pakistan’s efforts to get out of the ‘grey list’ of the Financial Action Task Force (FATF) appear to be yielding no result. Instead, it is likely to slip into the ‘black list’ of the global anti-terrorist financing and anti-money laundering watchdog for non-compliance. Placed on the grey list by the FATF in 2018, Pakistan has remained on it ever since. Though it did not cause economic sanctions, the greylisting adversely impacted its imports, exports, remittances, and limited access to international lending. Prime Minister Imran Khan and other Pakistani ministers have been campaigning for Pakistan’s removal from the FATF’s greylisting. However, the Islamabad government has failed to take action against terror organizations. Instead, it has been capitulating before radical Islamist outfits such as Tehreek-e-Taliban Pakistan (TTP).
A few more decisions of the Islamabad government may have violated the FATF’s mandates. All this could cost Pakistan dearly. If the FATF puts Pakistan on the ‘black list,’ economic penalties and other restrictive measures will be imposed. This will be a big blow to the struggling economy of Pakistan whose economy has witnessed a cumulative decline of about $38 billion during 2008-2019 as a result of FATF’s grey-listing, according to Pakistani economist Dr. Naafey Sardar.
There are strong signals that it could be placed in the ‘black list’. The Islamabad government has decided to start the Afghanistan Relief Fund to collect funds from the world, primarily from Muslim countries. However, the decision was criticized in Pakistan as financing the new Taliban regime would not go well with the western bloc and may result in sanctions from the FATF. The State Bank of Pakistan (SBP) has refused to start the fund and has asked the Imran Khan government to review the decision. Two more issues that can make things difficult for Pakistan are the Khan government’s failure to prosecute and confiscate the assets of UN-designated terrorists.
Pakistan has often been blamed for being the source of global terrorism as many of the major global terror attacks saw the involvement of elements in Pakistan. These include terror attacks in Madrid, London, Washington, and Mumbai, in which Pakistani actors were found to be involved in planning, executing, and funding.
Pakistan has time and again failed to punish terrorists despite concrete evidence. Even after the FATF ‘grey listing’, terrorists linked to the UN-designated terror groups such as Jaish-e-Muhammed (JeM) and Jamaat- ud-Dawah (JuD) are roaming freely in the country. JeM chief Maulana Masood Azhar has been provoking people for jihad through published articles. Also, campaigns to raise funds for militant activities are going on without any fear. The JuD is trying to channel funds for the training and recruitment of militants. Moreover, the Imran Khan government had surrendered before the banned extremist group Tehreek-e-Labbaik Pakistan (TLP) and released its chief, Saad Rizvi, following the siege of Islamabad in November 2021.
FATF and Pakistan
Pakistan was first publicly identified by the Financial Action Task Force (FATF) – global anti-money laundering watchdog — in February 2008 for deficiencies in its AML/CTF (Anti-Money Laundering and Countering Financing of Terrorism) regime. On February 28, 2008, FATF urged Pakistan to continue its efforts to improve its AML/CFT laws to comply with international AML/CFT standards and work closely with the APG to achieve this.
FATF recommendations on Pakistan
In June 2010, the FATF identified a few strategic AML/CFT deficiencies in Pakistan. It was asked to demonstrate adequate criminalization of money laundering and terrorist financing; adequate procedures to identify, freeze and confiscate terrorist assets; ensure a fully operational and functioning Financial Intelligence Unit; demonstrate effective regulation of money service providers, including an appropriate sanctions regime, and increasing the range of ML/FT preventive measures for these services and improve and implement effective controls for cross-border cash transactions.
On October 28, 2011, FATF had expressed its disappointment regarding five countries, including Pakistan, stating:
The FATF is not yet satisfied that the following jurisdictions have made sufficient progress on their action plan agreed upon with the FATF. The most significant action plan items and/or the majority of the action plan items have not been addressed. If these jurisdictions do not take sufficient action to implement significant components of their action plan by February 2012, then the FATF will identify these jurisdictions as being out of compliance with their agreed action plans and will take the additional step of calling upon its members to consider the risks arising from the deficiencies associated with the jurisdiction.
Pakistan was on FATF’s grey list between 2012 and 2015 as well. On February 27, 2015, during the FATF meeting in Paris, Pakistan’s name was put into the category of “Jurisdictions no longer subject to the FATF’s On-Going AML/CFT Compliance Process.” This list had seven countries, including Albania, Namibia, Kuwait, Cambodia, Zimbabwe, and Nicaragua, apart from Pakistan. Later, during the FATF meet at Brisbane in Australia in June 2015, India strongly raised the issue of non-compliance by Islamabad on freezing assets of LeT and its affiliates. India also pointed out that Muhammad Iqbal, the founding member of Falah-e-Insaniyat Foundation (FIF), one of LeT’s many front organizations, had been put on the List of Specially Designated Global Terrorists (SDGT) by the United States in August 2014.
Later, in June 2018, when Pakistan was put on the Grey List, it made a high-level political commitment to work with FATF and the APG to strengthen its Anti-Money Laundering/Combating the Financing of Terrorism regime. It had submitted a 27-point action plan. Subsequently, it started ‘working’ to implement the action plan. In a release on October 18, 2019, however, FATF noted that “all deadlines in the action plan have now expired” and that “to date, Pakistan has only largely addressed 05 of 27 action items, with varying levels of progress made on the rest of the action plan.” It further noted:
The FATF strongly urges Pakistan to swiftly complete its full action plan by February 2020. Otherwise, should significant and sustainable progress not be made across the full range of its action plan by the next Plenary, the FATF will take action, which could include the FATF calling on its members and urging all jurisdictions to advise their FIs [Foreign Investors] to give special attention to business relations and transactions with Pakistan.
In its October 2020 review, FATF decided that Pakistan would remain on the grey list as it had not fulfilled six of the 27 mandates to check terror financing. “To date, Pakistan has made progress across all action plan items and has now largely addressed 21 of the 27 action items. As all action plan deadlines have expired, the FATF strongly urges Pakistan to swiftly complete its full action plan by February 2021,” FATF said in a statement. Moreover, FATF asked Pakistan to continue implementing an action plan to address its strategic deficiencies. The action plan included demonstrating that its law enforcement agencies are detecting and investigating the widest range of terrorist financing activity and demonstrating that prosecutions result in effective, proportionate, and dissuasive sanctions.
Recent Developments
In August 2021, the APG, in its third Mutual Evaluation Report (MER), found that of the 40 FATF recommendations, Pakistan had been declared compliant or largely compliant on 35 of them. The APG report noted that Pakistan had also achieved the rating of largely compliant/compliant in all six major recommendations of the FATF, which includes: money laundering offenses; terrorist financing offenses; targeted financial sanctions related to terrorism and terrorist financing; customer due diligence; record-keeping and reporting of suspicious transactions.
Pakistani Eyewash
Pakistan has been highlighting various ‘actions’ to showcase the pro-active attitude of the government in rescuing Pakistan from falling into FATF’s black list.
On January 6, 2022, the Federal Investigation Agency (FIA) retrieved an industrial warehouse at Badami Bagh, Lahore in one such recent incident. “It was built on Evacuee Trust Property Board land worth PKR 2.7 billion illegally and converted into commercial venture in 2012 in connivance with Asif Akhtar Hashmi, former chairman ETPB,” the agency said. In addition, two properties worth PKR 65 million have been retrieved. The FIA has registered more than 40 FIRs against 120 suspects — present and former officials of the ETPB, revenue department as well as private people — for their alleged involvement in illegal occupation of the ETPB properties, non-payment of rent for years and violation of lease contracts, thus causing a loss to the exchequer.
Pakistan’s first response to the suggested FATF compliances was in mid-2020 (even though it was placed in the grey list in mid-2018), when its parliament passed two bills after much uproar from the Opposition parties — the Anti-Terrorism (Amendment) Bill 2020 and the United Nations (Security Council) Amendment Bill 2020. Secondly, a few UN-designated terrorists have been arrested and convicted. An arrest order has been issued against Masood Azhar, JeM ‘chief’ in a terror-financing case (not for an act of terrorism). Other significant arrests on the charges of terror financing include LeT ‘operational commander’ Zaki-ur-Rehman Lakhvi.
On January 22, 2021, the Pakistani Anti-Terrorism Court (ATC) in Lahore sentenced three leaders of Jamat-ud-Dawa (JuD) to six months in prison in a case of terror financing. LeT and JuD ‘chief’ Hafiz Saeed’s brother-in-law Hafiz Abdur Rehman Makki, ‘spokesperson’ Yahya Mujahid, and Zafar Iqbal were sentenced to six-month imprisonment each. The verdicts against them will run concurrently in the terror financing cases registered by the Counter-Terrorism Department (CTD) of the Punjab police. The CTD had registered as many as 41 FIRs against the leaders of the JuD in different cities of Punjab, adding that the trial courts have so far decided 37 cases.
In a recent verdict, Zaki-ur-Rehman Lakhvi was sentenced to a 15-year imprisonment on three counts in a terror financing case. He will undergo a jail term of five years. Also, in January 2021, the ATC handed down 14-year imprisonment each to Iqbal and Mujahid while a six-month sentence to Makki in another terror financing case. The ATC has sentenced Saeed for a collective imprisonment of 36 years on terror finance charges in five cases so far. His jail terms will run concurrently.
Reality of Pakistan
Even if Pakistan fulfills 35/40 FATF recommendations ‘on paper, it is still the epicenter of terrorism and other criminal activities, hampering its immediate neighbors: India and Afghanistan. Recently, in January 2022, Pakistan’s FIA alleged that Gulf-based Pakistani businessman Umer Farooq Zahoor is a partner of wanted terrorist Dawood Ibrahim. While Pakistan has maintained that Dawood is not in Pakistan, India has consistently maintained otherwise. Incidentally, the investigation was filed by Pakistani FIA chief Sanaullah Abbasi to allege that Zahoor is a partner of Dawood.
Earlier, in another unfortunate but ‘actual’ event, Lahore High Court, in November 2021, acquitted LeT chief and mastermind of the 2008 Mumbai terror attacks, Hafiz Saeed’s six aides in a terror-financing case. In April 2021, the anti-terror court in Lahore gave nine years imprisonment to these six: Malik Zafar Iqbal; Yahya Mujahid; Nasarullah; Samiullah; Umar Bahadur and Hafiz Abdul Rehman Makki. They were charged with the unlawful collection of funds for use in terror activities. This move is a calculated step to convince the world that these so-called terror crackdowns are real.
It is widely known and acknowledged that Pakistan had a crucial role in creating instability in Afghanistan. Several Afghan leaders – including former Afghan Vice President Amrullah Saleh – expressed their apprehension about Pakistan’s support to the Taliban terrorists in Afghanistan before the takeover. Scores of top Afghan Taliban leaders were seen hiding in Pakistan, especially in the tribal belt of North Waziristan and South Waziristan. Pakistan also played a crucial role in the Taliban’s win in the war-torn country.
Now Pakistan is trying its best to ‘mainstream’ Taliban rule in Afghanistan. At the Shanghai Cooperation Organisation (SCO) summit in September 2021, Pakistan partnered with China to mainstream the Taliban in international affairs. Pakistan’s Prime Minister Imran Khan spoke almost on behalf of the Taliban. He said Afghanistan could not “be controlled from outside.” Imran Khan appealed for immediate ‘humanitarian’ assistance to the Taliban in ruling Afghanistan. “We must remember that the Afghan government is primarily dependent on foreign aid,” Imran Khan said. In a recent interview with Fareed Zakaria, Imran Khan said, “the only alternative we have right now is to work with them [Taliban] and incentivize them in — in what the world wants, inclusive government, human rights, women’s rights in particular.” Typical of the Pakistan government, we see a democratically elected Prime Minister championing the cause of terror and rogue elements at the political helm of Afghanistan.
Pakistan is anxious to move out of the grey list, which would relax the country’s international financial aid and investment channels, giving a breather to Pakistan’s frazzled financial situation. Even though the all-out assistance from its iron brother, China, has been lavish for Pakistan -last year, Beijing rescued Pakistan by helping it repay a substantial part of the Saudi loan of $1 billion – Pakistan needs external financial assistance to revive its ailing economy.
The overall situation in Pakistan as a hub of terror remains the same. Whether the FATF decides to keep Pakistan on the grey list or put it on the black list won’t change much of the terror formula thriving within the socio-political gamut of the country. More stringent international tactics are needed to pressure Pakistan, as its ‘abstinence’ from terror financing and assistance is yet a far-fetched goal.
Understanding FATF:
Financial Action Task Force (FATF) is the global money laundering and terrorist financing watchdog. It is an inter‐governmental policy-making body with a ministerial mandate to establish international standards for combating money laundering and terrorist financing to prevent illegal activities and the harm they may cause to society. It sets global standards to combat money laundering and terrorist financing; assesses and monitors compliance with the FATF standards; conducts typologies studies of money laundering and terrorist financing methods, supports the implementation of these standards, trends, and techniques, and responds to new and emerging trends threats, such as proliferation financing. In response to mounting concern over money laundering, FATF was established by the G-7 Summit held in Paris in 1989.
