Following a spate of conflicting and official statements and news reports, the Pakistani government plainly confirmed that the country will be placed on the Financial Action Task Force’s (FATF) ‘grey list’ from June 2018.[1] On 01 March 2018, Pakistan’s Foreign Office stated: “Pakistan will be assigned to the ‘grey list’ in June, once an Action Plan has been mutually negotiated.”[2]
Formed in 1989, the FATF is an international body formed of 35 member states and two regional bodies – i.e. the European Commission and the Gulf Cooperation Council (GCC) – with the objective of measuring Anti-Money Laundering (AML) and Counter Financing Terrorism (CFT) compliance of all states. In general, the FATF uses United Nations Security Council Resolutions (UNSCR) as its legal framework against which it examines the financial policies and actions (and the results of those actions).
Simply, Pakistan’s inclusion in the FATF’s ‘grey list’ basically means that the FATF cannot authenticate or guarantee that Pakistan is fully adhering to AML/CFT mandates set by UNSCRs. However, because Pakistan is committed to adhering to those mandates, the FATF will have Pakistan demonstrate improvement.
In June, Pakistan will be put on that list provided it submits an approved plan to the FATF to improve its AML and CTF compliance measures. This will be done through the ‘Action Plan’ described by Pakistan’s Foreign Office. However, if the FATF rejects Pakistan’s plan (or Pakistan fails to submit one), then Pakistan would be at risk of being put on the FATF’s ‘black list’.
Functionally, the FATF is a watchdog. It is not a legal entity nor do the FATF’s decisions necessarily result in legal ramifications for states identified by it. However, the FATF’s membership comprises of important states, such as the US, UK, France, Germany, China and other leading commercial, financial and trading hubs, giving the watchdog actual teeth (provided the member states respect it in their own dealings).
The process to place Pakistan in the FATF’s grey list began in February, with Reuters reporting that the US had forwarded the motion to do so (citing a Pakistani official).[3] Pakistan was confident that it could avoid being put on the list, and in that vein, had mustered the support of Saudi Arabia, China and Turkey to put a stay on the US-led motion.[4] However, the US succeeded in a second round of deliberations at the FATF, where it succeeded in pulling Saudi Arabia from supporting the stay, ensuring that its motion passes.[5]
Purportedly, it was an errant tweet by Pakistan’s foreign minister, Khawaja Asif, that provided the US the necessary fuel to push for a second round for its motion – an unprecedented feat at the FATF. Basically, it was Foreign Minister Asif who broke the confidentiality of FATF meetings by discussing the stay (secured by China, Turkey and Saudi Arabia), providing the US a case (pointing to Pakistan’s irresponsibility and its apparent lack of respect for the FATF) to renew the motion.[6] Moreover, the US leveraged its deep bilateral relations with Saudi Arabia to guarantee that the motion passed (atop of its bilateral ties with the UK and others to have the motion sponsored in the first place).
Of the reasons contributing to Pakistan’s listing under FATF, there are three that seemed to have served as the critical drivers for the result. First, Washington’s further pressuring Pakistan on a spectrum of areas, though ultimately tying back to US interests in Afghanistan. Second, Pakistan’s failure in cultivating and in maintaining sufficiently strong bilateral relationships with the primary countries involved, be it the US or others, such as the UK, France and Germany. Third, the failure of those responsible for Pakistan’s foreign relations work to proactively sustain bilateral ties and to manage the FATF issue.
In terms of US interests in Afghanistan, the US has put Pakistan’s apparent support for non-state militant groups on notice. In her statement responding to the stay on the FATF motion (before Pakistan was put on the grey list), US State Department spokesperson Heather Nauert noted of Hafiz Saeed, relating him to Washington’s broader concerns of Pakistan’s lack of traction in CFT efforts.[7] However, the issue of non-state actors and their backers in Pakistan is being addressed at more levels than just the FATF, such as tightly conditioning the release of military aid to achieving specific counter-terrorism (CT) objectives.
However, Pakistan is unlikely to respond to this pressure adversely. Despite the political rhetoric, it seems that Pakistan’s leaders – civilian/political and military alike – will remain linked with the US. The rationale for this point is discussed in two Quwa Premium articles (05 January; 18 January).[8][9] Pakistan has continued to demonstrate its willingness to provide military and intelligence services to the US, even to the extent of preserving the air and land supply routes feeding into Afghanistan when Trump berated Pakistan and promised to curb assistance. However, Pakistan wishes to remain allies with the US.
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