Financial Action Task Force (FATF) Explained and FATF Grey List Ramifications for Pakistan
Financial Action Task Force (FATF) was established in 1989 as an intergovernmental organization. There are 37 member states of FTAF, and all of them are signatories of its main charter. Initially, its primary focus was on anti-money laundering. But after the 09/11 attacks, along with the money laundering, terror financing i.e., counter-terrorism finance, became FATF’s additional point of focus.
It is essential to understand what FTAF stands for, what it means, and why the Pakistani government is so concerned about its judgments? Why is there so much discussion and scrutiny about it in media and the Senate?
These are the countries that present a threat to the global financial system. Because, there counter-terrorist finance or anti-money laundering laws are not strong enough either to stop (terror financing), or their implementation is ineffective, or the government does not have the adequate control and understanding of these issues within its own economic system. Because the global economy is so interlinked, such inefficiencies present significant threats to it.
Pakistan already suffers from a fragile economy. We rely heavily on foreign aid and loans. If Pakistan is unsuccessful in getting a clean chit from the FATF, organizations like IMF Or World Bank or Asian Development Bank would implement more scrutiny and even more stringent conditions before providing further loans.
Secondary, the private investors which Pakistan is trying to attract, for instance from China, may also be affected due to FATF’s greylisting. The interest they may have in investing in Pakistani markets will be affected. Non-governmental organizations look towards rating agencies such as Modi’s and Fitch for potential investment opportunities. There is a significant chance that after making it to the grey list, if Pakistan stays on the grey list or God forbids gets on the blacklist, Pakistan’s ranking will be downgraded by these agencies, and this will significantly affect the private investment in the country. So, a grey FATF listing demonstrates that the Pakistani economic system is under significant threat as well as the countries that have financial dealings with Pakistan.
That is why since last October 2019, Pakistan has been under such close scrutiny by FATF.
Last year (2019), FATF found that out of 27 points which were given to Pakistan for improvement, Pakistan was the only complaint on 5. Now this next meeting (February 2020) will assess how much progress has been made on those 27 points, how much improvement is notable, and on how much significant points are (Pakistan) partially or fully compliant on.
So, to date, the clear actions Pakistani government, particularly Imran Khan’s government, has undertaken to demonstrate compliance includes the recent arrest of Hafiz Muhammad Saeed, and four other top tier Lashkar-e-Tayyiba leaders, along with several risk-based assessments and measures implemented by the State Bank of Pakistan, and also from the private banking sector to implement anti-money laundering regulations and investigations.
Between 60 to 70 organizations and nearly 7,500 people in Pakistan are banned under the government’s anti-terrorism act, being either subjected to close scrutiny or facing registered cases. To date, 228 cases have been registered regarding terror financing, but only 58 convictions have been carried out in Pakistan.
Additionally, it is observed that the majority of cases that have progressed are from Punjab province, which implies there is not much information available from other provinces. So there is a massive gap in understanding this entire ecosystem.
How is money being laundered? Where is it coming from, and where is it going?
Analyzing such efforts by the Pakistani State, FATF’s observed that there have been some improvements in Pakistan’s counter-terror financing profile and efforts. This upcoming meeting (plenary) will discuss and assess that how effective the Pakistani State’s actions have been to date and to what extent they are successful and compliant according to FATF’s s key assessment criteria.
If Pakistan gets declared as a non-compliant, this will have significant negative ramifications on its economy.
Financial Action Task Force (FATF) in its February meeting maintained Pakistan’s ranking as Grey list and give it three months more to comply with its 27 points. In this meeting, Iran and North Korea were blacklisted.
Now the next meeting of FATF will be held in the month of June 2020.