Will Pakistan be removed from the FATF gray list in October? Debt-ridden country hopes for relief after rejections

There are indications that Pakistan could be removed from the FATF gray list by October 2022 when the global money laundering and terrorist financing watchdog holds its next plenary in Paris. However, this can only happen after an on-the-spot inspection by FATF staff themselves, bearing in mind Pakistan’s shady record so far.

A country on the gray list means that it cannot control money laundering and terrorist financing operations and is subject to increased surveillance by the FATF, an intergovernmental body. It restricts access to the international trading and financial system. The country may have difficulty obtaining loans from multilateral organizations such as the IMF and the World Bank. Being on the FATF gray list is a warning to countries to take corrective action, otherwise their next destination will be the “FATF blacklist”.

Being on the FATF blacklist means the country has become a high-risk money laundering and terrorist financing jurisdiction with “significant strategic gaps in its regime” and faces a restriction almost complete access to the international trading and financial system coupled with an international boycott. Moreover, economic sanctions are also imposed on such an uncooperative state.

Looking back, the FATF first wants to confirm that its 34-point action plan is indeed being implemented on the ground to address FATF concerns regarding the fight against money laundering and the financing of terrorism. Clearly, the FATF is in no mood to accept Pakistan’s paper claims this time, as it has done twice in the past.

FATF 2008 GRAY LIST

Pakistan was first listed on the FATF gray list on February 28, 2008. The country had failed to meet the globally accepted FATF standards to combat money laundering and terrorist financing . The FATF then asked Pakistan to implement anti-money laundering (AML) and counter-terrorist financing (CFT) regulations to get out of the gray list. The FATF statement graylisting Pakistan was 66 words long and was really just a call for loopholes.

After 848 days (2 years, 3 months), Pakistan was removed from the gray list on June 25, 2010, following allegations of measures taken in the country to comply with FATF standards on AML and CFT. The watchdog took the decision to remove Pakistan from the gray list at its plenary meeting in Amsterdam (June 23-25, 2010) based on “the country’s high-level written commitment to implement action plans to address specific AML/CFT deficiencies”. .”

FATF GRAY LIST 2012

After 601 days (1 year, 7 months), again on February 16, 2012, Pakistan was back in the FATF gray list. The FATF found that Pakistan did not fully comply with the FATF Anti-Money Laundering and Anti-Terrorist Financing standards that it agreed to follow when it was delisted in 2010 and used harsh words against the Pakistani government for failing to curb terrorist financing.

The FATF opinion on Pakistan’s second gray list reads: “Pakistan has not made sufficient progress in implementing its action plan…Pakistan needs to enact legislation to s ensure that it meets FATF standards regarding the terrorist financing offense and the ability to identify, freeze, and confiscate terrorist assets.

The 2012 statement, at 139 words, once again placing Pakistan on the gray list, was more than twice as long as the 2008 statement on the gray list. Obviously, the FATF was disappointed to believe earlier that Pakistan was going to take the corrective action alone as it had planned and decided that it needed to monitor the situation more closely now.

The second gray list was of longer duration, for 1,106 days (approximately 3 years), indicating the FATF’s reduced confidence in Pakistan’s claims. To meet FATF standards, Pakistan had to establish legal and regulatory networks to combat money laundering and terrorist financing.

The FATF hopes that “Pakistan will work with the Asia/Pacific Group on Money Laundering (APG) as it continues to address the range of AML/CFT issues identified in its mutual evaluation report, and in particular, will fully implement UNSCR 1267” while removing Pakistan from the gray list on February 26, 2015. UNSCR 1267 was passed in 1999 to target Al-Qaeda and the Taliban.

GRAY LIST 2018

After 3 years and 4 months, Pakistan was back on the FATF gray list again on June 28, 2018, and the reason was the same as in 2015. Pakistan again failed to curb terrorist financing in its geography in accordance with FATF CFT standards. The watchdog found shortcomings in the steps taken by Pakistan to implement the FATF action plan given in 2015.

This time, the watchdog gave Pakistan a 10-point goal to work closely with FATF and APG to effectively control terrorist financing in the country. The FATF has asked Pakistan to demonstrate the measures taken regarding – the identification, analysis and monitoring of terrorist financing; the active involvement of law enforcement agencies in the financing of terrorism; effective, proportionate and dissuasive penalties for prosecution; and targeted financial sanctions against the 1,267 and 1,373 designated terrorists. The watchdog also asked Pakistan to demonstrate its enforcement against violation of Targeted Financial Sanctions (TFS), followed by concrete actions taken against facilities and services owned or controlled by designated individuals, depriving them of their resources and the use of these resources.

UNSC Resolution 1373 was passed in 2001 after 9/11 to control terrorist acts and the financing of terrorism. The resolution imposes restrictions on the provision of assets or the management of assets of designated persons and entities.

The 2018 FATF statement, in 317 words, placing Pakistan in the third gray list, was more than five times longer than the first gray list statement of 2008. As the FATF continued to demand new Pakistan’s measures, now represented in 10 goals, meant the watchdog had totally lost its faith in the country that former US President Donald Trump described as a ‘terror paradise’, a country that was world famous for separate terrorists into good terrorists and bad terrorists and who would have used terror as a state policy.

In June 2018, Pakistan received a 27-point action plan from FATF. These were largely related to the financing of terrorism. In October 2021, seven more points on money laundering were added. In total, Pakistan had to implement and demonstrate the actions taken on these 34 items to get out of the FATF gray list. To comply with these FATF action points, Pakistan again amended the existing AML regulations in January 2021. Additionally, the country’s Parliament passed 10 FATF-related bills.

Pakistan, since the very beginning of the entry into force of the third gray list, has claimed that it has taken all necessary measures to meet the FATF standards, but the FATF, so far, learning from the two episodes has repeatedly made clear – including the latest incident at its plenary meeting in Berlin (June 14-17, 2017) – that Pakistan should still be on the gray list as the country needs to work on its financial system to control the financing of terrorism.

OUT OF THE 3RD GRAY LIST?

During the Berlin Plenary, Pakistan received positive words from the FATF. The watchdog said Pakistan now meets FATF requirements on all 34 elements of the action plan given in 2018, but decided not to remove Pakistan from the gray list for four months, until its next plenary in Paris (16-21 October 2022).

Pakistan’s removal from the FATF’s third gray list depends on the FATF’s visit to the country to investigate steps taken on the ground to address the 34-point action plan to combat money laundering and financing. of terrorism. The FATF, during its visit, will examine the AML and CFT measures implemented by the Pakistani government. The watchdog will also see whether Pakistan’s current political setup has put in place the necessary political commitments to meet FATF standards today and in the future.

Pakistan completed four years on the FATF’s gray list on Tuesday, one year longer than its second gray list restriction period. Let’s see if October 2022 brings good news for the debt-ridden country that needs the support of the international financial system to survive.

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