Pakistan Tango with Financial Action Task Force (FATF)

 By Dr. Jyoti M. Pathania
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FATF or it’s not so common French Name Groupe d’action Financiere (GAFI) was constituted on 14th July 1989 by a group of G-7 countries in a summit held in Paris. This inter-governmental task force and the policy-making body were formed to combat money laundering caused primarily due to drug trafficking. It has additional two regional organizations – The European Commission and the Gulf Cooperation Council, and other associate bodies like the Asia-Pacific, World Bank, IMF, and UN bodies which functions as observers; including several plenary groups, working groups, and FATF Style regional bodies. Post 9/11, It has become a significant body with expanded domain to include, terror financing activities and human trafficking. Currently, it has also started dealing with matters involving Virtual Currency.

 The methodology of FATF consists of two basic components:

  • The technical compliance assessment: this addresses the specific requirements of the FATF Recommendations, principally as they relate to the relevant legal and institutional framework of the country and the powers and procedures of the competent authorities. These represent the fundamental building blocks of an anti-money laundering and counter-terrorist financing (AML/CFT) system.
  • The effectiveness assessment: This assesses the adequacy of the implementation of the FATF Recommendations, and identifies the extent to which a country achieves a defined set of outcomes that are central to a robust AML/CFT system. The focus of the effectiveness assessment is therefore on the extent to which the legal and institutional framework is producing the expected results.

Together, the assessments of both technical compliance and effectiveness will present an integrated analysis of the extent to which the country is compliant with the FATF Standards and how successful it is in maintaining a strong AML/CFT system, as required by the FATF Recommendations.[1]

Over the years the FATF has reconstructed, evolved, and reinvented itself to cope up with challenging times, but Pakistan is a unique test case, as it keeps playing hide and seek by going in and out of the grey list time and again. The organizational structure constitutes of the President, selected for two years. Dr. Marcus Pleyer, the current President is from Germany and had assumed office on July 1, 2020. Germans, known for their disciplined quality control and checks were also one of the sponsor nations to put Pakistan on the Grey List.

Since 2001, FATF has been maintaining two types of list: commonly known as the Black List (Formally called the “Call for Action”) and the Greylist (Formally called “other Monitored jurisdictions)

The blacklist comprises of high risk “Non-Cooperative Countries or Territories” (NCCTs) or states which refuse to cooperate in the global fight against money laundering and terrorism financing. These countries face severe isolation at a global level, don’t receive any financial aid, and are boycotted by the international community. As of 21 February 2020, only two countries are on the FATF blacklist are North Korea and Iran. Whitelist All other nations adopting stringent and effective AML/CTF legislative policies belong to this group. Grey List comprises of nations that apply “cosmetic” changes within their legislative procedures to convey they’re making efforts to meet AML/CTF challenges within their states, but are not making efforts seriously enough and the legislation exists only to convince FATF.[2]

Pakistan was included in the Greylist for the first time in 2012 and remained there till 2015 without any effective remedial actions being initiated. On 28th June 2018, the FATF monitored and put Pakistan again under the Grey List till Oct 2019. Due to the COVID-19, it managed to get an extension of 4 months, until Feb 2020 courtesy of China. Since then it has continued to remain on the Grey List as it failed to check the flow of money to terror groups like Lashkar-e Taiba, and Jaish-e-Mohammed (JeM). This decision was taken virtually in the plenary meetings, even when its all-weather friend, China was the president of the plenary session.

Source: https://www.dawn.com/news/1511678/pakistan-escapes-fatf-blacklist-but-gets-warning

The Asia Pacific Group, an additional affiliate of the FATF in its 45-page mutual evaluation report on Pakistan, submitted on 13th Oct mentioned that out of the 40 recommendations only 25 were partially compliant; 4 were non-compliant; 9 were largely compliant areas, only one was fully compliant, hence Pakistan was lacking in its full compliance parameter.[3] Pakistan needs 12 out of 39 member countries to keep it out of the grey list. A Houston based Linden Strategies Company has been hired by Pakistan to promote the narrative that Pakistan has taken action against the terrorist organisation operating from its land. Furthermore, certain domestic measures have been undertaken to impress upon the international community of the steps it has taken to comply with the FATF directives; such as; Passing of 3 FATF bills in the Joint session of the Parliament, Passing of Anti-terrorists Act Amendment Bill, Hafiz Saeed put behind bars for 11 years for terror financing.[4]

At the domestic level, there is a belief that Pakistan has been unjustly nailed due to the combined US-India conspiracy. The Global Bank reported 2 trillion dollars as suspicions transactions.[5], out of which Pakistan supposedly claims to have only a minuscule transaction, and hence feels targeted. A clever trick indeed to deceive the international community.

The consequences of remaining in the grey list will make it difficult for Pakistan to get financial aid from, World Bank, ADB and the EU. It is estimated that around 10 billion dollars annually is the damage caused to Pakistan for remaining in the grey list.[6] Another media report claims that it has been unable to comply with six of the 27 points in the global watchdog’s action plan, hence the likelihood of remaining in the grey list is more.

The virtual plenary meeting taking place from the 21st-23rd Oct, will take a call, either to continue Pakistan in the grey list or move to the blacklist, but it should take into consideration the following factors:

  • Terrorism in Pakistan is linked to its National Security and Foreign policy and has engulfed the whole of South Asia with Bangladesh and Sri-lanka as its epicentre.
  • Terrorism is State-sponsored and continues to remain to provide training and building networks all over.
  • The 1267 UN Resolution Sanction Committee designated Masood Azhar as International Terrorist,[7] but he is roaming freely in Pakistan, currently lying with a medical condition of spine problem in the army medical hospital in Bahawalpur In Punjab.[8]His family continues to carry out the terror show in Afghanistan and Jammu & Kashmir. [9]
  • 26/11 attackers still roaming free in Pakistan and Hafiz Saeed[10] son is running the show, along with commander in chief Jaki-Ur-Rehman Laqvi.
  • There are 66 organisations and 7,600 individuals covered under the UNSC 1267and 1373 resolution post 9/11, which continue to operate in Pakistan.
  • Hafiz Saeed’s brother-in-law Abdul Rehman Makki is a conduit between Lashkar-e-Taiba and Taliban,[11] was handed 18 months jail but the sentence was later suspended by the Lahore high court itself.
  • The courts also ordered release of 196 terrorists convicted by military courts.[12]
  • It erased the names of approximately 3,600 from the list of terrorist names and also told the UN that only 19 out of 130 were found who were designated as terrorists. This is a classic strategy of Pakistan as one terrorist group is pushed up and another brought down. For instance, after the Dec 2001 Parliament Attacks, JeM was pulled down but Lashkar was upgraded. But after the 26/11 Lashkar was pulled down and JeM was upgraded, hence this huge game continues being played by Pakistan.[13]
  • Pakistan remains the epicentre of terrorism and none other than their own Prime Minister Imran Khan speaking at the US Institute of Peace in Washington last July had said, Pakistan still has “about 30,000 to 40,000-armed people who have been trained and fought in some part of Afghanistan or Kashmir”.[14]

Pakistan is certainly a test case for FATF. The moot question though remains. Are the AML/CFT strategic constraints imposed under the grey list, strong enough to restrain Pakistan from using its soil as a safe haven for terrorists?

There is no denying the fact that Pakistan continues to hoodwink the world but is found wanting. Mere Lobbying and propaganda should not overpower the factual and technical issues, which remain the very foundation of FATF methodology. All eyes are now set for the two days deliberations of the FATF session.

End Notes

[1] FATF (2013-2018), Methodology for Assessing Compliance with the FATF Recommendations and the Effectiveness of AML/CFT Systems, updated February 2018, FATF, Paris, France, Available athttp://www.fatf-gafi.org/publications/fatfrecommendations/documents/fatfissuesnewmech Accessed on18-10-2020

[2] Available at: https://www.quora.com/What-does-it-mean-by-placing-a-country-on-Grey-list-by-FATF-How-does-it-affect-that-country, Accessed on 20-10-2020

[3] Available at: https://factly.forumias.com/fatfs-asia-pacific-group-keeps-pakistan-in-the-enhanced-follow-up-list/ Accessed on 20-10-2020

[4] Available at: https://economictimes.indiatimes.com/news/defence/pakistan-court-sentences-hafiz-saeed-to-11-years-in-jail-in-terror-financing-cases/articleshow/74100508.cms, Accessed on 28-10-2020

[5] Global Banks Reported $2 Trillion In Suspicious Transactions Over Two Decades, New Report Shows

September 20, 2020, 19:50 GMT By RFE/RL

[6] MP-IDSA  webinar on: ‘FATF and Challenges of Pak Terrorism 13 Oct 2020.

[7] United Nations 1267 Sanctions Committee Designation of Masood Azhar

press statement Morgan ortagus, department spokesperson Washington, dc May 1, 2019, Available at https://www.state.gov/united-nations-1267-sanctions-committee-designation-of-masood-azhar, Accessed on 19-10-2020

[8] How Pakistan is hoodwinking FATF and the world on terror funding; all you need to know, Oct 16 2020

Available at: https://www.youtube.com/watch?v=44DY4Lvy2vM Accessed on 18-10-2020

[9] How Pakistan is hoodwinking FATF and the world on terror funding; all you need to know, Oct 16 2020

Available at: https://www.youtube.com/watch?v=44DY4Lvy2vM Accessed on 18-10-2020

[10] Hafiz Saeed, the founder of Jamat-ud-Dawa (JuD), was designated as a global terrorist by the UN under the United Nations Security Council Resolution 1267 on December 10, 2008.

[11] Available at https:// timesofindia.indiatimes.com/world/pakistan/Hafiz-Saeeds-brother-in-law-Abdul-Rehman-Makki-is-a-conduit-between-Lashkar-e-Taiba-and-Taliban/articleshow/12539443.cms, Accessed on 18-10-2020

[12] Available at:https:// www.geo.tv/latest/299069-sc-suspends-release-order-of-196-inmates-indicted-by-military-courts, Accessed on 18-10-2020

[13] How Pakistan is hoodwinking FATF and the world on terror funding; all you need to know, Oct 16 2020

Available at: https://www.youtube.com/watch?v=44DY4Lvy2vM Accessed on 18-10-2020

[14]Available at: https://www.hindustantimes.com/india-news/in-rebuttal-to-pak-india-quotes-imran-khan-s-40-000-terrorists-remark/story-CaUcsfsqLFSiOPWJsKitoO.html Accessed on 19-10-2020