Removal of Pakistan from FATF’s Grey List | India’s Response

Removal of Pakistan from FATF list

The Financial Action Task Force (FATF), a global money laundering and terrorism financing watchdog, has removed Pakistan from a list of countries under ‘increased monitoring’ for terror financing, the organisation said on Friday. The Paris-based global watchdog said, “Pakistan is no longer subject to FATF’s increased monitoring process; to continue to work with APG (Asia/ Pacific Group on Money Laundering) to further improve its AML/CFT (anti-money laundering & counter-terrorist financing) system.

FATF in its latest report on Pakistan observed: “Overall, Pakistan has made good progress in addressing the technical compliance deficiencies identified in its MER (mutual evaluation report). “Pakistan has been on FATF’s grey list since 2018. After a lot of work by Pakistani authorities, FATF welcomed Pakistan’s significant progress in improving anti-money laundering, combating financial terror.

“Pakistan can now more effectively tackle money laundering and terror financing. An FATF team has verified that reforms are in place and there is high level commitment and capacity to sustain those reforms. These reforms are good for the stability and security of the country and indeed the region.

Why this Shift in FATF position?

Last October, the agency had said that Pakistan had addressed 30 of the 34 areas where it had raised concerns and recommended further compliance. It found Pakistan’s deficiencies in its legal, financial, regulatory, investigation, prosecution, judicial and non-government sectors to fight money laundering and combat terror financing.

This does not mean that there is not more work to do. Going forward, Pakistan will need to work with FATF’s regional partner to continue to strengthen its system. More than once, Pakistan avoided slipping into the ‘black list’ with help from friendly countries China, Turkey and Malaysia.

Till June, Pakistan had completed most of the action items and only a few items that were left unfulfilled included its failure to take action against UN-designated terrorists, Including Jaish-e-Mohammed (JeM) chief Masood Azhar, Lashker-eTaiba (LeT) founder Hafiz Saeed and his trusted aide and the group’s “operational commander”, Zakiur Rehman Lakhvi. In its July 2022 report, FATF has rated the country on the remaining four parameters as “Largely Compliant,” “Compliant,” “Largely Compliant and “Partially Compliant,” respectively.

“When Pakistan, in recent months, announced new sentences for Hafiz Saeed and Sajid Mir – two top terrorists of Lashkar-e-Taiba, one of the key terrorist groups under the FATF spotlight – That’s what got things done in the end,” said Michael Kugelman, director of the South Asia Institute at the Washington-based Wilson Center think-tank. The two were involved in the 2008 Mumbai attacks in neighbouring India that killed over 160 people.

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How grey-listing had impacted Pakistan?

  • FATF stresses the need to consider associated risks when dealing with countries on greylist. It had increasingly become difficult for Islamabad to get financial aid from the International Monetary Fund (IMF), the World Bank, the Asian Development Bank (ADB) and the European Union (EU), Thus further enhancing problems for the cash-strapped country.
  • According to research paper published by Islamabad-based think-tank Tabadlab, Pakistan’s frequent grey-listing by FATF from 2008 to 2019 may have resulted in a cumulative GDP loss of $38 billion.

India’s Response:

Reacting to the announcement, India’s external affairs ministry spokesperson Arindam Bagchi noted that Pakistan would have to continue working with the APG. “As a result of FATF scrutiny, Pakistan has been forced to take some action against well-known terrorists, including those involved in attacks against the entire international community in Mumbai on 26/11,” he said.

“It is in global interest that the world remains clear that Pakistan must continue to take credible, verifiable, irreversible and sustained action, Against terrorism and terrorist financing emanating from territories under its control,” he added.

How Removal from grey-list might help?

Since removed from the list, Pakistan would essentially receive a reputational boost and get a “clean bill of health” from FATF. While it would not have an impact on the country’s struggling economy as a whole, it would help reduce scrutiny of global transactions involving Pakistan. Two large Pakistani banks, HBL and National Bank of Pakistan, paid $225 million in 2017 and $55 million in 2022 respectively in fines imposed by US regulators for compliance failures and anti-money laundering violations.

Removal from the FATF list would provide Pakistan a boost after the country’s sovereign credit rating was downgraded by Moody’s. It would also improve sentiment, important from a foreign direct investment perspective.

Sodhi Gautam

Sodhi Gautam

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