Explained: FATF, Pakistan and the 'Grey List'

India has often used the FATF list to put pressure on Pakistan to dismantle the infrastructure that supports cross-border attacks.

New Delhi: At the end of the terror financing watchdog Financial Action Task Force’s plenary meeting, Pakistan remains on the grey list and gets a reprieve of four months from joining North Korea and Iran on the blacklist.

Here is a quick overview of the FATF categorisation and Pakistan’s chequered history with the inter-governmental group.

Why was this FATF meeting significant?

From Sunday, officials from around 205 countries, jurisdictions and other countries started the first FATF plenary meeting for 2020 in Paris. Every year, there are three plenary meetings of the inter-governmental body tasked with rooting out money laundering and terror financing by plugging loops holes in the international financial system.

For India, FATF has become an important measure to put pressure on Pakistan to dismantle the infrastructure that supports cross-border attacks.

What are the ‘black’ and ‘grey’ lists?

These two terms actually do not exist in official FATF terminology. The group does identify “jurisdictions with weak measures” through two documents issued at the end of the plenary held thrice a year.

The first document is the FATF’s “public statement” that identifies two sets of countries. The first category groups countries into what is roughly equivalent to a ‘black list’ and is for “countries or jurisdictions with such serious strategic deficiencies that the FATF calls on its members and non-members to apply counter-measures”.

The second category constitutes countries for which “FATF calls on its members to apply enhanced due diligence measures proportionate to the risks arising from the deficiencies associated with the country”. While North Korea is listed in the first category, Iran falls in the second.

Also read: After Erdogan Supports Pakistan on Kashmir, India Asks Turkey Not to Interfere

Pakistan was, however, not identified in the public statement. Rather, in June 2018, Pakistan was the new country listed in the second document issued after a plenary meeting. This second document was called “Improving Global AML/CFT Compliance: On-Going Process”.

This is what is known, colloquially, as the ‘grey list’.

These countries have “strategic weakness” in their regime to prevent money laundering and terror financing, but they will get a second chance as they have “provided a high-level commitment to an action plan developed with the FATF”. If a country does not make “timely progress” in the action plan, FATF can put further pressure by “moving it to the Public Statement,” as per its guidelines.

The FATF plenary session in progress. Photo: Twitter/@FATFNews

Why was Pakistan put on the FATF ‘grey list’?

Pakistan had first figured in a FATF statement after the plenary of February 2008. At that time, FATF had noted Pakistan’s recent progress in adopting anti-money laundering legislation but urged financial institutions to be aware of the “remaining deficiencies” that could constitute a vulnerability in the international financial system.

Pakistan gave a “high level” commitment in June 2010 that it would work with FATF and Asia Pacific Group, the regional FATF-like body, to sort out these differences. But, it continued to not demonstrate enough progress to be taken out of the grey list even in October 2011.

The FATF public statement of February 2012 listed Pakistan among countries who have “Jurisdictions with strategic AML/CFT deficiencies that have not made sufficient progress in addressing the deficiencies or have not committed to an action plan developed with the FATF to address the deficiencies”.

The FATF’s main concern was that Pakistan did not have appropriate legislation to identify terror financing, as well as, confiscate terrorist assets. Pakistan went out of the Public Statement to the second statement of “Improving public compliance” from June 2014, which noted that the country had made “significant progress”.

Within nine months, Pakistan was “no longer subject to the FATF’s monitoring process under its on-going global AML/CFT compliance process”.

Also read: Pakistan’s Army Continues to Mollycoddle Terrorists and Hound its Critics

After three years, Pakistan was back on the ‘grey list’ in June 2018. The FATF press release indicated that the ‘action plan’ should largely look at plugging the holes in terror financing and activities of UN-designated terrorists.

The action plan submitted by Pakistan has 26 points, including demonstrating that targeted financial sanctions against all UN-designated terrorists have been implemented.

Was there politics behind Pakistan going back on the ‘grey list’ in June 2018?

The US had spearheaded the move that led to the FATF plenary to first propose that Pakistan be assigned to the ‘grey list’ in three months.

In the run-up to the June 2018 plenary, Pakistan did take some steps like amending the anti-terrorism act and clamping down on affiliates of Jamaat-ud-Dawa, a UN-designated terror group.

At the same time, JUD leader Hafiz Saeed, who is the key mastermind of the 2008 Mumbai terror attacks, was allowed to enter the political mainstream, with his political wing contesting seats in the parliamentary elections.

While foreign ministries insist that the FATF is a technical body, geo-politics does play a role, with countries using the money laundering watchdog as diplomatic leverage.

“Bottom line is that FATF’s grey listing of Pakistan should not be looked at in isolation but placed in the larger picture of US-Pakistan relations that have had many ups and downs,” asserted an article in Pakistani newspaper Dawn.

In the run-up to the February 2008 decision, the US had weaned Saudi Arabia away, leaving only China and Turkey supporting Pakistan. China eventually withdrew its objection. A few days later, India publicly congratulated China for its election as vice president of FATF, lending credence to the suspicion that a deal had been reached behind closed doors.

What has happened since Pakistan was put on the ‘grey list’?

Since June 2018, all the FATF plenaries have retained Pakistan on the grey list. However, it was not enough to be brought out of the ‘grey list’. But, it was sufficient that Pakistan could not be bumped up to the FATF public statement which, with China, Turkey and Malaysia backing Islamabad.

Also read: FATF Arm Finds ‘Critical Gaps’ in Pakistan’s Actions Against Terror Groups

Pakistan raised the pitch that the FATF had been politicised, with Pakistani Prime Minister Imran Khan stating that India wanted to destroy Pakistani economy. China has also stated that there were “political designs” behind “some countries which want to include Pakistan in the blacklist”.

Pakistan PM Imran Khan addresses the 74th session of the United Nations General Assembly in New York, US, September 27, 2019. Photo: Reuters/Lucas Jackson

Ahead of the FATF’s October plenary, the Asia/Pacific Group on Money Laundering, after considering Pakistan’s Mutual Evaluation Report, found critical gaps in Islamabad’s reforms to curb the flow of funds to proscribed terror groups like Jamaat-ud-Dawa and Lashkar-e-Toiba.

Indian defence minister Rajnath Singh had claimed that the FATF would “blacklist Pakistan anytime” – which was seized on by Pakistan’s foreign minister as an example of the politicisation of the body. Since then, statements by Indian political leaders about FATF have been relatively rare.

Why does Pakistan remain on the grey list? Will it ever be ‘blacklisted’?

It is highly unlikely that Pakistan would ever join North Korea and Iran in the FATF public statement. As evident from the composition of the ‘black list’, the US would have to show a strong push to put Pakistan in the top tier of countries whose financial regimes face isolation from the international system.

Two days before the FATF plenary began, the US Principal Assistant Secretary of State for South and Central Asia, Alice G. Wells had praised Pakistan for convicting Hafiz Saeed and his associate as an important step “in meeting its international commitments to combat terrorist financing”. India had, however, termed the conviction of Saeed as an ‘eyewash’.

With the US currently in the midst of the final leg of a peace deal with the Taliban, Washington may not have been too eager to push Islamabad, especially since Pakistan’s economy was already in deep doldrums.

However, Pakistan, despite support from countries like Turkey, Malaysia and China, had not made enough progress to also exit the grey list, as per various technical evaluations. This means that the only diplomatic consensus possible was the status-quo, till diplomatic wranglings begin again before the next plenary.