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How a poor bilateral relations effort cost Pakistan at the FATF

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.

Pakistan will look to submit an ‘Action Plan’ to the FATF and work to graduate from the grey list, just like it had from 2012 to 2015 when it was previously on the FATF’s grey list. With Pakistan government officials – such as Interior Minister Ahsan Iqbal – stating that the grey-listing will not impact the economy,[10] thus banking on Pakistan’s commitment to a FATF-approved Action Plan as goodwill and cause for continued access to loans as well as capital flows to and from Pakistan. However, it is premature to extrapolate from 2012-2015 to the current situation, which is marred with more tenuous ties with Washington.

Pakistan’s edgy relationship with the US builds upon the problem of Pakistan’s inability to sustain strong bilateral relationships with many countries, especially the major economic players (besides China and the US) that form entities such as the Organisation for Economic Co-operation and Development (OECD), the European Union and others. For example, how is it that the entirety of Pakistan’s support was put on the shoulders of just three countries (i.e. China, Turkey and Saudi Arabia)? However, the FATF also comprises of Brazil, Canada, Italy, Norway, Russia, South Africa, Spain, Sweden and Switzerland.

Granted, there is no way to build strong relations in months or even several years, but a sustained effort spanning 10+ years through big-ticket initiatives, such as defence, industrial collaboration and investment, can produce opportunities for support. Pakistan had procured systems from Spain and Italy, with the latter (i.e. Leonardo) potentially eying access to the Block-III through its radar and electronic subsystems. South Africa had even extended a memorandum-of-understanding to strengthen defence relations. In fact, even Canada is undergoing an odd diplomatic tiff with India.

It is one thing for Pakistan to try its best in building strong relations and failing, but a cursory look at the messaging of Pakistani political leaders demonstrates that there is a lack of creativity and initiative to forging relations with countries such as South Africa, Canada, and others that, while smaller than the US and China, can be relevant in less apparent respects when they matter most – such as the FATF. In an op-ed to Dawn, Pakistan’s former Ambassador to the US, India and China, Ashraf Qazi, simply stated: “But the rot lies deeper. India has not isolated Pakistan. The US has not isolated Pakistan. Afghanistan has not isolated Pakistan. They cannot. Only Pakistan can isolate itself…”[11] There are many causes for Pakistan’s self-isolation, but its inability to utilize bilateral relations as a tool for national interests is among them.

Finally, this stems on the lack of foreign relations and foreign policy skill in Pakistan. Considerable focus is paid to who manages foreign and national security policies in Pakistan, with discussions looking to see if the military is governing by proxy. However, there is also the question of how well these actors, whoever they may be, manage these portfolios. In Pakistan, someone (be it an individual, party or establishment) has evidently failed in its responsibility (earned or unearned). This can, in part, be a result of Pakistan not heeding to the advice of an organic intelligentsia, ideally a non-establishment one untied to the political spectrum and the armed forces, to provide nuanced perspectives and recommendations.

In the strongest states, failure – be it from incompetency, neglect, corruption or malevolence – is met with accountability, often resulting in a change at the seat responsible for the task. In Pakistan, this lack of accountability speaks to the cost of having an incomplete political development process. Unfortunately, this cannot change overnight, but attention must be paid at how well Pakistan is progressing (or not) at building a culture of accountability among those deciding policy. The cost of lacking that accountability is not superficial, as the FATF – and a plethora of issues before it, such as the human and economic cost of Afghanistan’s fall-out in the Tribal Areas and others – affect national security.

In isolation, FATF might not mean much, especially if the Pakistani government’s confidence about FATF’s impact on the economy comes to pass. However, the exposure of Pakistan’s lack of bilateral relationships demonstrates that it is far from a position to seriously engaging other governments in the sense of having them understand Pakistan’s national security interests and, if possible, respect them in earnest. This can contribute to the failure of accessing new technology, financing mechanisms (to back large contracts) and guarantee after-sale support during crises. Even indigenous development requires fiscal backing, and that comes from a strong economy built upon high-value exports and profits accruing, in some form (be it via state-owned exporters or taxation) to the public exchequer.

Bilateral relationships are essential. However, Pakistan’s inability or unwillingness to proactively produce such relationships (outside of China, the US, Saudi Arabia and Turkey) have stung it at the FATF in a period of several weeks. Unsurprisingly, the near and long-term solution to the FATF problem still resides in the need to build those relationships, if not to ensure Pakistan’s graduation out of the ‘grey list’ in the long-term, but to ensure that crucial trade relationships, capital exchange flows and other inputs of national interest are not adversely impacted by the grey-listing. Ultimately, the FATF is as effective as the actions of its members in enforcement, Pakistan must engage those members.

[1] Naveed Siddiqui. “Govt confirms Pakistan will be placed on FATF terror financing watchlist in June”. Dawn. 28 February 2018. URL: https://www.dawn.com/news/1392285 (Last Accessed: 02 March 2018).

[2] Ibid.

[3] Drazen Jorgic, Asif Shahzad. “Exclusive: U.S. pushes motion to put Pakistan on global terrorist – financing watchlist”. Reuters. 13 February 2018. URL: https://www.reuters.com/article/us-pakistan-militants-financing-exclusiv/exclusive-u-s-pushes-motion-to-put-pakistan-on-global-terrorist-financing-watchlist-idUSKCN1FX2EV (Last Accessed: 02 March 2018).

[4] Naveed Siddiqui. “Govt confirms Pakistan will be placed on FATF terror financing watchlist in June”. 28 February 2018. URL: https://www.dawn.com/news/1392285 (Last Accessed: 02 March 2018).

[5] Ibid.

[6] Anwar Iqbal. “Pakistan may find itself on FATF blacklist after June”. Dawn. 26 February 2018. URL: https://www.dawn.com/news/1391835 (Last Accessed: 02 March 2018).

[7] Ibid.

[8] “Despite tension, US-Pakistani defence ties unlikely to end”. Quwa Premium. 05 January 2018. URL: https://quwa.org/2018/01/05/despite-tension-us-pakistan-defence-ties-unlikely-to-change-much/

[9] China-Pakistan Relations: difference between ‘allies’ and ‘partners’. Quwa Premium. 18 January 2018. URL: https://quwa.org/2018/01/18/china-pakistan-relations-difference-between-allies-and-partners/

[10] “Pakistan’s Name In FATF Grey List Not To Affect Economy: Ahsan Iqbal”. Associated Press of Pakistan. 01 March 2018. URL: http://www.app.com.pk/pakistans-name-fatf-grey-list-not-affect-economy-ahsan-iqbal/ (Last Accessed: 02 March 2018).

[11] Ashraf Jehangir Qazi. “Embarrassments & Isolations”. Dawn. 27 February 2018. URL: https://www.dawn.com/news/1391973/embarrassments-isolations (Last Accessed: 02 March 2018).

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