What Pakistan needs to do to exit FATF’s endless loop
Whenever Pakistan is held on the grey list of the Financial Action Task Force (FATF) in a review session, a section of people blames the US and India for influencing the decision of the international watchdog. Though powerful countries can influence the decisions of international agencies, in this case, it goes in Pakistan’s own favor to implement the demands of the task force.
Countries are put on the grey list if they demonstrate a deficiency in implementing anti-money laundering and counter terror-financing practices in their countries. Unlike the blacklisted countries, FATF does not ask its member countries to take additional “due diligence” measures against grey listed countries. Member countries are only encouraged to use the given information in their risk analyzes.
Pakistan’s first encounter with the FATF was in February 2008 when despite appreciating Pakistan’s progress in adopting anti-money laundering legislation, the watchdog warned the financial institution of the “remaining deficiencies” that could expose the international financial system to serious vulnerabilities. Pakistan committed to filling the identified gaps in 2010 but failed to keep its promise. In 2012 Pakistan was listed among countries that have “jurisdictions with strategic AML/CFT deficiencies that have not made sufficient progress in addressing the deficiencies or have not committed to an action plan developed with the FATF to address the deficiencies.” At that time, FATF’s main concern was that Pakistan lacked laws tackling terror financing and confiscating assets. However, in 2014, Pakistan was applauded for making significant strides in this regard, and within nine months, was “no longer subject to the FATF’s monitoring process under its on-going global AML/CFT compliance process.”
Thus, FATF’s demand to investigate and prosecute terror financers requires a rigorous overhauling of the legal system that feeds on a convoluted prosecution system and a passive investigative mechanism that takes years to settle cases.
After a hiatus of three years, Pakistan was back on the list in 2018. The watchdog instructed the country to plug the holes in terror financing legislation and take action against UN-designated terrorists. Since 2018, all FATF plenaries have retained Pakistan in the grey list. On the latest plenaries on June 25, 2021, Pakistan showed progress in 26 out of 27 action points. Hopes were raised that the margin of one point would not stand between FATF’s decision to remove Pakistan from the grey list.
But it was not to be.
Marcus Pleyer, president FATF, said on Friday: “One action plan still needs to be completed. It concerns investigation and prosecution of senior leaders and commanders of UN-designated terror groups.” He also said that the risk of money laundering remained high, which could fuel corruption and organized crime. In addition, Pakistan will also have to deliver on the six-action plan delineated by FATF’s regional outlet, the Asia Pacific Group.
The action plan demands Pakistan to investigate, prosecute and punish terrorists designated as global threats. Pakistan has made a substantial stride in this regard. Over the last year and a half, Pakistan has frozen 946 properties of proscribed groups such as Jamaat-ud-Dawa and Jaish-e-Muhammad. In February 2020, an anti-terrorism court convicted JuD Chief Hafiz Saeed. In January 2021, Pakistan also arrested the Lashkar-e-Taiba (LeT) leader, Zaki-ur-Rahman Lakhvi, who is accused of planning the 26/11 Mumbai attacks. The United Nations monitoring team responsible for tracking down militant groups also acknowledged Pakistan’s efforts in “individuals engaging in terrorism financing” and clamping down on the assets of said designated “individuals and entities.”
The question is: despite getting almost 99 percent of it right, and having tightened the noose around terror financing, what is it that Pakistan is not doing?
It seems to be a case of two glitches. One is the technical flaw in the financial sector that still allows for money laundering. The second concerns the structural flaws of the legal system. When the transaction of money had no procedural bottlenecks to face, businessmen and politicians used the unregulated banking sector to their advantage and transferred their wealth abroad to launder black money and avoid taxation. Though over the years, businesses have been brought under the scanner of the regulatory framework and illegal modes of the transaction have been considerably eliminated, the flow of terror financing can still find its way through the financial system. Thus, FATF’s demand to investigate and prosecute terror financers requires a rigorous overhauling of the legal system that feeds on a convoluted prosecution system and a passive investigative mechanism that takes years to settle cases.
Pakistan has come a long way in combating terrorism in all forms and manifestations and has sacrificed almost 80,000 people to this war. Now is the time for the country to display zero tolerance toward a complacent and comprised judicial system to come out of the FATF’s loop.
– Durdana Najam is an oped writer based in Lahore. She writes on security and policy issues.