Pakistan’s repeated fall into the ditch of the grey list while narrowly escaping blacklisting every time makes one raise the question of the effectiveness of the structure and approach of the international financial watchdog. There is a general impression that the global financial watchdog responds to geopolitical and realpolitik considerations of other powers creating a security risk for the targeted countries.
Upon scrutiny, it can be established that there are procedural flaws in FATF working, mainly the mutual evaluation system, that creates room for manipulation. This article attempts to shed light upon the potential politicization of the global watchdog while presenting the case of Pakistan, showing how countries enjoying the upper hand in the diplomatic circle i.e. India and the US are striving to wage economic war against Pakistan using FATF, in order to advance their own strategic interests.
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FATF: at the glance
The Financial Action Task Force as an institution emerged in 1989 on the directive of G7 group of countries to counter the growing threat that money laundering posed to the global financial architecture. Currently, FATF is a 38 membered body headquartered in Paris, France. It is a policy-making organization whose mandate includes establishing standards for combating money laundering, terrorism financing and sponsoring the proliferation of weapons of mass destruction. FATF is a regulatory authority that enlists countries in three categories:
- The countries which are clear from money laundering and have coped with terror financing are included in the white list.
- The second list is called as Grey-List which includes Syria, Bahamas and Pakistan, etc.
The third list includes black-listed countries. For example, Iran and North Korea.
FATF has drafted a list of 40 recommendations that serve as an international standard on anti-money laundering and countering the financing of terrorism (AML/CFT). All states must align their national policies with the framework to prove themselves responsible and avoid naming and shaming by the international financial watchdog.
The general principles that FATF wants states to deliver upon include:
- Understanding money laundering and terrorist financing risks, developing a comprehensive policy and coordinating actions to mitigate it.
- Income of crime and funds for the support of terrorism to be prevented from entering the financial and other sectors or should be detected and reported by the sectors.
- Threats of money laundering and terrorist financing are to be spotted and disrupted along with sanctioning and depriving of illicit proceeds
Read more: How Pakistan successfully implemented FATF’s Action Plan?
The FATF working procedure primarily includes the assessment of countries on the following two grounds:
- Technical compliance i.e., the country’s laws and procedures provide for AML/CFT.
- Effectiveness i.e., assessment of a country’s efforts and efficacy in protecting its financial system from abuse.
Based on the progress in the above two areas, a mutual evaluation report is prepared.
The Financial Action Task Force (FATF) conducted its four plenary sessions from 14-17 June 2022. Questions were being raised regarding Pakistan’s ability and strategy in the compliance of FATF but finally, Pakistan about to be removed is an example of national effort and shows the synergy between the civil administration and the Pakistan Army. Pakistan had met all 34 items on two separate action plans, adding that it will now schedule an on-site visit to verify the sustainability of the country’s money laundering and counter-terrorism financing measures before removing it from the grey list.
Pakistan has time and again fallen into the Financial Action Task Force grey list
The action by the financial watchdog further adds to the uncertainty of the already sluggish economy of the country and poses a serious economic security risk to the state. This article attempts to shed light upon the potential politicization of the global watchdog while presenting the case of Pakistan, showing how countries enjoying the upper hand in the diplomatic circle i.e., India and the United States are striving to wage economic war against Pakistan using FATF, to advance their own strategic interest.
Pakistan’s journey with FATF has been a roller coaster ride. Pakistan was put, yet again, on the grey list in June 2018. Pakistan has taken rigorous measures to comply with FATF demands. Almost all the state institutions including NACTA, CTDs, FIA, Ministry of Interior and Ministry of Foreign Affairs have worked and are currently working on a special note to mitigate, intercept and penalize illicit financial activities of money laundering and terrorist financing. Given the turbulent nature of Pakistan’s economy, it cannot withstand any further risks that hinder remittances, delay international lending, or mar investors’ confidence and ultimately threaten its economic/financial security.
Read more: Imran Khan claims credit for FATF ‘achievement’
Pakistan’s repeated fall in the ditch of the grey list while narrowly escaping blacklisting every time makes one raise the question of the efficacy of the structure and approach of the watchdog. There is a general impression that the global financial watchdog responds to geopolitical and realpolitik considerations of other powers creating a security risk for the targeted countries. Upon scrutiny, it can be established that there are procedural flaws in FATF working, mainly the mutual evaluation system, that creates room for manipulation. In the case of Pakistan, it gets proven time and again; notably in relation to the US and India. In FATF, noncompliance of jurisdictions with Anti-money laundering or Counter Financing terrorism is more of a political issue than a financial one.
India-Pakistan Animosity and FATF
The rivalry between India and Pakistan is an open secret. Both states since independence have a history of rivalry, conflict and competition which is rooted in a painful partition history and the protracted Kashmir conflict. India’s recent stance of isolating Pakistan diplomatically made headlines around the globe. Even that wasn’t enough to prove India’s open hostility toward Pakistan that Indian External Affairs Minister Jaishankar in 2019 outrightly declared:
“India will ask the global money laundering and terror finance watchdog to put Pakistan on a blacklist of countries that fail to meet international standards in stopping financial crime.”
India has violently been accusing Pakistan of ‘exporting’ terrorism and has been acutely exploiting every potential global forum for this particular purpose. India’s allegations regarding transnational terrorism financing by Pakistan are always rooted in its self-assumed hypothesis that the indigenous struggle in Indian Occupied Kashmir is Pakistan sponsored. The Indian atrocities in IIOK have been going on for almost 70 years however it was very recently, after the death of the young freedom fighter Burhan Wani in 2016 that the movement gained immense acceleration. A new wave of Kashmiri’s struggle to gain independence from India emerged. The attack on Indian Army personnel in Pulwama was also a retaliation on the part of a young Kashmiri boy who got radicalized by the unending brutality of Indian forces in the valley.
Read more: FATF grey list: Hina Rabbani sparks criticism for not appreciating PTI efforts
The Asia/Pacific Group on Money Laundering (APG) is to ensure the adoption, implementation and enforcement of internationally accepted anti-money laundering and counter-terrorist financing as per the FATF. India became a member of APG which means that now India will also evaluate the performance of Pakistan. The relations between Pakistan and India are rocky, so considering that its evaluation will be biased, Pakistan protested this decision.
The government of Pakistan has several times complained to IMF about India’s politicizing the activities of FATF as part of its greater malicious campaign to harm Pakistan, but the protests went unnoticed. India’s deliberate politicizing of the technical forum can be established from the fact that prior to the plenary meeting, India disseminated its own assessment of Pakistan’s progress and petitioned immediate support to blacklist Pakistan.
Pakistan Army’s relentless efforts, under the directive of COAS, in developing, synergizing and coordinating a comprehensive action plan for FATF compliance, have proved to be monumental in achieving unprecedented progress in the FATF implementation. In the National Executive Committee on terror financing and money laundering, Pakistan Army steered enormous efforts inactions against all Entities of Concern who were involved in Terror Financing. Worked on national risk assessment and streamlined Non-profit organizations. Pakistan acted in line with the unanimously adopted National Action Plan (NAP) against all terrorist groups without any discrimination wherein input of the Pakistan Army was most crucial.
FATF might not be a United Nations body with enforcing powers but it certainly enjoys an Adhoc legitimacy in the international community. The state of Pakistan is already going through a crisis situation. Trouble has surrounded it from all domains be it political, financial or administrative. FATF and its biasness have posed an additional threat in form of dismantling its economic growth. Moreover, the security dynamics of South Asia are already fragile. Instigating a law fare on a key geostrategic and military power by an international body likthe e FATF on request of other powers particularly by its rival neighbor further adds to deteriorating the security of the region and this need to be inspected.
Read more: #ThankyouImranKhan trends as Pakistan nears exit from FATF Grey List
FATF and its dominion is a reality of the prevalent world order. Further research can deliberate upon the preposition that international bodies like FATF falling prey to politics of power and playing a facilitator to advance the interests of other states can develop a conflict that may have direct regional connotations and won’t be limited to non-traditional security threats to states like the one faced by Pakistan today, to which India and Pakistan case study can again be used for analysis.
The writer is an MPhil graduate in Strategic studies from National Defense University. The views expressed in this article are the author’s own and do not necessarily reflect the editorial policy of Global Village Space.