Pakistan and the FATF: Evolving from “Grey” to “White” Listing

by Ozer Khalid^*

*The author is a geo-strategist, a senior management consultant, a development sector director and an international journalist. Twitter follow @ozerkhalid and e-mail [email protected]

Abstract

The views expressed herein are a collation of expert opinions, and rigorously researched and referenced analysis, and unless or otherwise stated, do not necessarily represent the views of this author nor those of Criterion Quarterly. (Pakistan`s status with the Financial Action Task Force (FATF), a global watchdog on money laundering and terrorism financing, regains relevance as their plenary session convenes in June, 2018.

After intense debate and rampant speculation following February`s Financial Action Task Force (FATF) plenary, the dust is settling and there are chances that Pakistan might officially be placed on the FATF`s “watch-list” in June.

This analysis, after furnishing contextual and historical background, endeavours to explore what exactly long-term FATF “grey and black listing” implies for Pakistan, what has been achieved by Pakistan thus far in terms of satiating FATF demands, and what more needs to be done.

This author offers recommendations that Pakistan can undertake to remain in FATF’s “good books” and diagnoses wide-ranging implications of FATF deliberations vis-à-vis Pakistan.

With the above in mind, a deeper analysis into Pakistan’s politics, legal system, counter-terrorism efforts, economy, and the far-reaching potential of this FATF event to cause further seismic shifts in the country’s geo-political, security and strategic calculus are over-viewed – Author.

FATF: A Historical Evolution

In 1989, the G-7 finance ministers established a Financial Action Task Force (FATF), with a Secretariat in Paris, tasked with the ongoing responsibility to develop a robust and coordinated approach in combating Anti-Money Laundering (AML) in their jurisdictions.

Several nation states became part and parcel of this task force. The FATF has since developed 24 standards (termed and titled Recommendations) ¹ incorporating model legislation and institutional arrangements attempting to curtail miscreants and money launderers from gaining access to global financial markets.

The table below exhibits some key imperatives, objectives and implementable courses of action the FATF seeks from member-states:

In a frenzied and paranoid post 9/11 world, an essential feature of Countering Financing for Terrorism (CFT) was also inserted, and recently addendums pertaining to the proliferation of “weapons of mass destruction” ² have also been added to the FATF`s “watch-list”.

Since then, the FATF’s “Action Plan” promulgated in February 2018, evolved a set of newer points, inter alia, including ³:

• Combatting terrorist financing, including the adoption of a new counter-terrorist financing operational plan and a statement on the actions taken under the 2016 counter-terrorist financing strategy.

• Adoption of a report to the G20 Finance Ministers and Central Bank Governors.

• Updated FATF Guidance on Counter Proliferation Financing.

• Progress reports in addressing the deficiencies identified in its mutual evaluation reports since it agreed an action plan in November 2017.

• Two public documents identifying jurisdictions that may pose a risk to the international financial system. Jurisdictions with strategic Anti-Money Laundering  and Countering the Financing of Terrorism (AML/CFT) deficiencies for which a call for action applies.

Jurisdictions with strategic AML/CFT deficiencies for which they have developed an action plan with the FATF.

• Monitoring Iran’s actions to address deficiencies in its AML/CFT system⁴.

• Revisions on information sharing to the FATF Methodology.

• Update on recent developments on de-risking.

• Improving the understanding of virtual currencies risks.

• Update on FinTech ⁵ & RegTech Initiatives.

• Improving the effectiveness of the Criminal Justice System: FATF global engagement with judges and prosecutors.

• Outcomes of the meeting of the FATF Forum of Heads of Financial Intelligence Units (FIUs), which was held in the margins of the Plenary.

• Strengthening FATF’s institutional basis.

• Further improving the identification and understanding of terrorist financing risks, both at country level and more broadly, which will have an impact on the effectiveness of international efforts to tackle terrorist financing.

• Carry forward FATF’s work to enhance information-sharing, which will build on the work that FATF has already completed on domestic inter-agency information sharing and sharing within the private sector.

• Ensure that efforts to detect terrorist financing lead to successful investigations, prosecutions and convictions including the President’s initiative on increased engagement with the criminal justice system and prosecution services.

• Ensure a better global implementation of effective counter-terrorist financing measures through closer coordination with FATF’s regional bodies and the actions they are taking.

Pakistan – AML and CFT Laws

Pakistan promulgated a comprehensive AML/CFT regime which, de jure, should more than satisfy FATF, but de facto, does not, as analysts contend that power politics are at play.

To whimsically “allege” that Pakistan is not “doing enough” to combat AML/CFT is factually incorrect. Let us now explore the evidence for this.

In today’s Pakistan, AML constitutes a comprehensive new regime of criminal liability and prosecution bearing wide-ranging application.

Pakistan encountered monumental obstacles in evolving a globally acceptable and palatable AML-CFT regime, yet it’s efforts are often met with thanklessness.

Pakistan initially enacted a 2007 Ordinance, however, the final Anti-Money Laundering Act was approved in 2010 under the nomenclature of the AML Act, and very specifically detailed under the Schedule of Predicate Offences in the AML Act, 2010.

Islamabad’s Parliament’s enacted this ‘stand alone legislation’ on Anti-Money Laundering (AML) to tackle all three stages of money laundering from “placement” (in banks and related accounts) to “layering” (moving through several banks and jurisdictions) through to “integration” into the wider financial markets (reinforced via additional transactions). The 2010 AML Act is a monumental legal milestone.

Under the AML of 2010, a set of crimes legally labeled “predicate offenses,” carry the offense of money laundering, punishable by up to 10 years of imprisonment with a confiscation of all crime proceeds (both moveable or immovable assets).⁶

The legal onus of charging and prosecuting the offenders of “predicate offenses” resides with the bodies administering, monitoring and evaluating such laws. An effective legal portion is a layered system of “prevention” – forbidding the flow of “stained dirty money” through the sensitive valves of Pakistan`s financial arteries.

To bolster AML, Pakistan set up a Financial Monitoring Unit (FMU) under the Ministry of Finance, housed within the premises of the State Bank of Pakistan (SBP).

The FMU has been designed with the unique mandate of receiving, analyzing and disseminating Suspicious Transaction Reports (STRs) and Currency Transaction Reports (CTRs).

Applicable laws now require financial institutions (and some chartered professional organizations) to furnish full reports on suspicious transactions to an operationally independent FMU under the 2010 AML law. If the FMU has reasons to suspect that the transaction may be “proceeds from a crime”- it is filed under Suspicious Activity Reporting (SAR).

After due diligence and scrutiny, the FMU decides to share the Suspicious Transaction Report (STR) with multiple relevant agencies (intelligence, law enforcement and tax) tasked with taking cognizance of the predicate offense.

Investigative powers of AML/CFT have been conferred to four federal law enforcement agencies, notably: the National Accountability Bureau ⁷, Anti-Narcotics Force, Directorate General (Investigation and Intelligence) wing of the Federal Board of Revenue ⁸ and Federal Investigation Agency ⁹”.

These accountability, investigation and enforcement agencies subsequently perform inquiries, investigations and (when required) prosecute culpable offenders. Another report prepared by the FMU is a Currency Transaction Report (CTR), which monitors, tracks and traces the movement of cash beyond a prescribed threshold.

The 2010 AML law institutes a comprehensive architecture for the investigation and prosecution of AML offenses and stipulates on the courts of jurisdiction and other procedural norms.

Banks, financial institutions and competent authorities file STRs and CTRs wherever suspected activities are linked to the AML Act, 2010. The identity cards (CNIC) and National Tax Number (NTN) of every suspect is duly recorded and shared with competent authorities.

Gradually, the Government of Pakistan (GoP) enacted a myriad of related reforms/measures harmonizing other legislation to align with anti-money laundering and counter terrorist financing across multiple laws.

For example, the Schedule of Predicate Offences, under the AML Act, 2010 was revised to include additional offences from the following Laws/Acts:

1. Pakistan Penal Code, 1860.¹⁰
2. Prevention of Corruption Act, 1947, ¹¹
3. Foreign Exchange Regulations Act, 1947.
4. Customs Act, 1969.
5. Securities Act, 2015. ¹²
6. Sales Tax Act, 1990.
7. Federal Excise Act, 2005.
8. Income Tax Ordinance, 2001.

More recently, the Finance Bill 2018, and related legislation also helped Pakistan curb and contain money laundering under mutual assistance agreements with the OECD (a Paris based organization, inter alia, setting norms to regulate bribery and corruption) and other countries.

Pakistan`s Anti-Terrorist Act (ATA) 1997 ¹³ initially did not address the topic of financing for terrorism. However, the ATA (Second Amendment) Act, 2014 ¹⁴, bridged this gap by adding a new offense which provides financial support to culprits engaging in terrorist activities.

Pakistani President Mamnoon Hussain`s Ordinance amended the 1997 Anti-Terrorism Act and swiftly put Hafiz Saeed’s Jamaat-ud-Dawa (JuD) and Falah-i-Insaniat Foundation (FIF) (their charity wing) on the nation`s banned list – a decision that was a decade delayed and long overdue in my opinion – are essential steps in the right direction.

Implementing AML-CFT is an extraordinary undertaking requiring multiple levels of training and skill-development workshops prior to establishing an effective regime.

Those engaged in combating “white collar crimes” in Pakistan (often inadvertently and unwittingly facilitating terror financing and money laundering) , as the Panama and more recent Paradise Papers prove, are also getting their act in gear.

Obviously, for ordinary law enforcing agencies such as the local police and constabularies, the AML/CFR task remains Herculean, often due to resource deficit, but is progressing at a steady pace.

Forensically investigating a Hansel and Gretel type financial “bread-crumb trail” and nabbing culprits necessitates considerable effort, resources, wherewithal and capacity building. The financial resources needed to accomplish this task is often sorely underestimated and lacking.

In Pakistan, the FMU delivers regular training (albeit for now on a limited scale), whereby, special cells have been established in provincial IG offices to follow up the cases involving AML offenses. Several countries, most notably Australia, have offered such training facilities to Pakistan law enforcing officers.

From 2012-2015, Pakistan was placed on the FATF’s “watch list” that required microscopic monitoring. Pakistan was subsequently referred to a peer group: the Asia Pacific Group (APG) to work on improving it`s AML/CFT regime.

With the strategic assistance of APG, considerable measures were initiated by the Government of Pakistan to remove the deficiencies pointed out via a mutual evaluation methodology. These efforts were successful as Pakistan was removed from the “watch list” in 2015 ¹⁵.

In June 2015, after arduous efforts, the implementation of the FATF’s Action Plan was successfully completed and Pakistan was “de-listed” from FATF’s “grey list”.

June 2015’s “delisting and exit” was a global acknowledgment of the robustness of Pakistan’s CFT/AML regime in intimate alignment with international AML/CFT grundnorms.

IMF’s deputy managing director in Pakistan, Tao Zhang, asserted that the country’s grey-listing by the global watchdog FATF will have no direct consequences for its ability to borrow from the IMF.

Mr. Zhang confirmed that “any decision to list a country as a jurisdiction with strategic AML/CFT (Anti-Money Laundering/Combating the Financing of Terrorism) deficiencies is the responsibility of the FATF only. I would note that a grey-listing has no direct consequences for a member country’s ability to borrow from the IMF” ¹⁶.

However, Mr Zhang stressed that Pakistan`s structural reform agenda requires more efforts. “Pakistan completed an IMF-supported programme under the Extended Fund Facility in September 2016.

While the programme was successful in its objective of macroeconomic stabilisation, the agenda remained incomplete,” ¹⁷.

In March 2018, the IMF cautioned with concern the weakening macroeconomic realities of Pakistan, surging external and fiscal imbalances ¹⁸, a precipitous drop in foreign exchange reserves, and heightened risks to Pakistan’s economic and financial outlook and its medium term debt sustainability.

Surging imports imply a mounting current account deficit (which might reach to 4.8% of GDP) and an alarming fall in international reserves despite higher external financing.

Against the background of rising external and fiscal financing needs and declining reserves, risks to Pakistan’s medium-term capacity to repay the IMF have increased since completion of the Extended Fund Facility (EFF) arrangement in September 2016, the IMF noted ¹⁹.

In this context, Pakistani authorities cannot rest on their laurels and need to urgently further intensify a concerted effort to refocus near term fiscal and monetary policies to preserve sound macroeconomic stability. However, probing deeper, the next section of our analysis will balance such economic alarmism with other indicators that exhibit bullish financial trends.

FATF Grey-Listing – Ramifications for Pakistan

Economically, Pakistan’s FATF grey-listing may not impact Pakistan as sorely as the Cassandra doom-and-gloom pundits would have you believe, but the political shock-waves and reverberations will be more intense.

FATF grey-listing compels Pakistan to take an (even) tougher stance on countering extremism, which, over the long haul, will only benefit Pakistan and her citizens.

In May, 2018, a high-powered delegation was sent to Bangkok for briefing the FATF forum about the measures undertaken by Pakistan to counter money laundering and terror financing.

Despite showing meaningful progress, especially by cracking down on Hafiz Saeed and the three outfits linked to him, as a last-ditch effort to avoid falling into the dreaded FATF “watch-list” in June, 2018, the FATF asserted that Islamabad needed to do more and to conjure up a new “comprehensive action plan”.

FATF grey-listing will make life tougher for Pakistani expatriates and overseas citizens who send significant remittances. Any amount they currently send exceeding USD $ 100,000 will be flagged by the State Bank of Pakistan.

Post potential grey-listing even more trivial remittances would come under judgemental radar. Bureaucratic hurdles on remittances will nauseatingly amplify for many.

Some economists reasoned that the grey-listing will squash Pakistan’s economy, rendering it harder for Pakistan to meet her surging foreign financing needs and downgrading the country’s debt ratings, which, in turn, would make Pakistan less creditworthy in the eyes of international lenders, investors, borrowers, traders and speculators.

All this makes it more arduous for Pakistan to tap into the international capital and fixed income markets (as depicted in the Economic Times info graphic below) whereby, if push comes to shove, Citibank, Standard Chartered and Deutsche Bank might even eventually decide to pull out of Pakistan.

However, a deeper and more sobering analysis, both past and present, factually also proves otherwise. Pakistan was already FATF grey-listed from 2012 to 2015, yet during that time-period it`s stock market cumulatively increased 3%.

As already noted above, from 2012-2015 Pakistan efficaciously completed an IMF EFF program and raised over $5 billion from the international fixed-income markets.

During the same period Pakistan’s imports and exports performed with stability (as visualized hereunder) and, contrary to popular belief, did not raise gargantuan barriers to trade.

State Bank of Pakistan (2017) Exports and Imports of Pakistan (2012-2017).

The reaction of the bond markets to the FATF’s verdict was also subdued. Pakistan’s 10 year bonds issued in 2017, for instance, have had a modest yield drop from a surge of 7.4 percent on February 14, 2018 to slightly under 7.1 percent on February 26, 2018. This reality empirically validates assertions made by Miftah Ismail, adviser to Pakistan’s prime minister, that the economic impact of the grey-listing will be minimal.

Pakistan’s FATF grey-listing eclipses a lot of recent positive news, for instance, that the EU has extended it`s GSP+ facility offering trading relief and rebates to exports, especially in the textile sector.

FATF grey-listing impact is also reduced as Pakistan has already issued Sukuk (Islamic) bonds worth millions of dollars, secured credit and loans from the international capital markets, and successfully negotiated loans with, but not limited to, the IMF, World Bank, the Asian Development Bank, along with receiving a consistent flow of foreign remittances, especially from the Gulf region.

Pakistan`s Board of Investors, headed by Naeem Zameendar, recently secured foreign investment from Japan. Turkish corporations and Egyptian property tycoons have also heavily poured money into Pakistan’s infrastructure and real estate.

The aforementioned, by no means signals a lazy carte blanche advocating that Pakistan twiddle it`s thumbs or rest on it’s laurels. The FATF’s verdict is one of many current political storms brewing in Islamabad`s over-flowing tea-cup.

Since warming the seats at the White House, Trump’s administration has undertaken every concerted effort to coerce Pakistan into ending links with non-state extremists such as the inflammatory and infamous Haqqani Network. Initially, Islamabad might have, mistakenly, reacted nonchalantly to this shift in policy and perilously released Hafiz Saeed from house arrest. Saeed is the infamous leader of the Laskhar-e-Taiba (LeT) that New Delhi holds responsible for the 2008 Mumbai terror attacks.

The Mumbai attacks have toxically gained renewed relevance in light of former deposed Prime Minister, Nawaz Sharif’s interview with Dawn journalist Cyril Almeida. Mr Sharif, openly admitting that Pakistan supported militant non-state actors, despite authoritative books by scholars such as Elias Davidson and leaks in the Indian press itself, proving that the Mumbai attacks were a “false-flag operation” orchestrated by RAW and Indian officials themselves.

Donald Trump responded to the controversial release of Hafiz Saeed via Twitter sensationally claiming that Pakistan has given the United States “nothing but lies & deceit.”

The United States subsequently squeezed Pakistan’s funds: Trump`s administration ended financial assistance of over $1 billion, which strategically included military assistance and the release of Coalition Support Funds (CSF), money which Washington owes Pakistan for meaningful military operations against extremists.

A high-powered Pakistani delegation sent to the FATF plenary session, spearheaded a last-ditch attempt to secure support from traditional partners, including China, Turkey and Saudi Arabia.

To nurture Saudi support, Pakistan even agreed to send an additional 1,000 troops to Saudi Arabia; a troop deployment Islamabad had previously refused in 2015 to refrain from getting involved in the never-ending Yemen war.

Yet, all of this proved to be “too little too late” as only Turkey, Pakistan’s genuine time-tested ever-green ally, supported Pakistan at the FATF plenary till the bitter end.

The major strategic paradigm shift that transpired during the current FATF talks was that previous allies, China and Saudi Arabia, strategic partners that mostly backed Islamabad, have patently indicated that they will “not” stand unconditionally by Pakistan.

Therefore, ever-changing diplomatic paradigm shifts should be expected. For instance, Islamabad’s rapprochement with the Kremlin, Tehran and the Central Asian Republics (CAR`s) can be witnessed. Moscow has it’s eyes peeled on certain key assets in Pakistan, including Bank al Falah, and is reportedly “in the market” for deep-seated acquisition sprees.

Despite what Washington opines, Pakistan’s security establishment, especially after the APS tragedy and meaningful counter-terrorism campaigns and IBO’s such as Sirat al Mustaqeem, Zarb-e-Azb and Radd-ul-Fassad, encouragingly re-calibrated strategic imperatives, and no longer take “outsized risks” with militants.

Especially after the FATF machinations, a debate among some Pakistani analysts deepens on questioning the country’s security and foreign policy, whilst acknowledging a more “transactional” relation between Islamabad and Washington based on “calculated and pre-meditated” interests.

For instance, certain Senators are now wary of Washington. They urge the government that it is time to look inward and do more for a respectable standing in the comity of nations. Senator Shahi Syed said Pakistan got a bad name for fighting “the CIA-sponsored Jihad”. He said it was incumbent on Ulema- e-Haq (the true learned scholars) to confess that a mistake had been committed in this connection.

Other politicians and parliamentarians, however, acknowledge that “strategic depth” paradigms anchored in the pre-9/11 mindsets needlessly create increased international isolation for Islamabad. ²⁰

For instance, Senator Jehanzeb Jamaldini said “Pakistan committed mistakes one after the other in the first and second round of the war in Afghanistan”. He said “no proscribed organisation should be allowed to work with a different name. We are still in a state of denial; not ready to identify the mistakes. We term the banned outfits as Jihadi organisations,” he stated ²¹.

Pakistan and the FATF: the Current Debacle

Pakistan will submit it’s comprehensive “action plan” on AML/CFT to the FATF global terror financing watchdog between June 8 and 11. Pakistan’s new action plan would be discussed at the Paris Secretariat on June 23, 2018.

Many believe that Modi’s regime conspired and lobbied the USA and subsequently the UK and France to place Pakistan on the dreded FATF “watch-list” ²².

Under FATF regulations one country’s opposition was insufficient to prevent a motion from being successful. Therefore France, Britain and Germany followed suit by backing New Delhi`s and Trump`s stance.

The US and UK jointly submitted a letter to the FATF nominating Pakistan for placement in the “grey list”. This further strains an already dwindling bilateral relation between Pakistan and the USA – already in flames after Trump’s inflammatory tweets in early 2018, Washington’s strategic re-orientation and pivot towards New Delhi, mutual restrictions on diplomatic movements, etc.

The government’s action plan dated April 25 in response to FATF’s warning to put Pakistan on the grey-list in February this year, was, in the words of the Secretariat “insufficient”.

If Pakistan’s updated and revised action plan on fighting terrorism financing “does not deliver” during the June 23 Paris meeting, Pakistan may be put on FATF’s “black-list” which would unnerve the country’s economy.

Islamabad’s high-octane delegation sent to Bangkok for briefing the FATF forum regarding measures initiated by Islamabad against money laundering and terror financing was deemed lacking.

This strikes a few policy-makers as an odd diplomatic coup against Islamabad given Pakistan’s amended Anti-Terror Act 1997, beefed up Finance Bill 2018, FMU, AML 2010, and a plethora of complementary regulations assisting the country to critically curb money laundering under mutual assistance agreement with the OECD and other bilateral countries.

This all began in Paris in February, 2018, when the FATF developed a “watch-list” which included, Pakistan, Ethiopia ²³, Iraq ²⁴, Serbia, Sri Lanka ²⁵, Syria, Trinidad and Tobago, Tunisia ²⁶, Vanuatu and Yemen ²⁷.

Source: Global terrorist-financing watchlist (2018) Reuters, Feb 14, 2018

Pakistan, once more alarmingly dangles (again) on the FATF`s “grey-list”. This implies that many states in the international community feel that Pakistan needs to arduously ramp up efforts related to Anti -Money Laundering (AML) and Combating Financing for Terrorism (CFT), and Islamabad still has to “do more” before the meeting in June, 2018 to avoid the blemished banner of being “black-listed”.

Pakistan’s Foreign Office spokesperson, Dr Mohammed Faisal, and Finance Minister, Mr Miftah Ismail, stated that Pakistan had agreed to implement the “Action Plan”.

The FATF requires Islamabad to be harsher on Lashkar-e-Taiba (LeT), the JuD and the FIF entities which were on the United Nations Security Council’s (UNSC) sanction list as per resolution number 1267 ²⁸ (a terrorist linked listing and information sharing process) ²⁹.

In lieu of the United Nations Security Council’s (UNSC) sanction list resolution number 1267, Pakistan amended it`s Anti-Terrorism Act (ATA), in order to decisively take firmer action vis-à-vis the unsavoury Lashkar-e-Taiba (LeT), the JuD, the FIF and Jaish Muhammed Hizbul Mujahideen.

Pakistan has ensured the implementation of UNSC’s resolutions putting LeT, JuD, FIF, ISIS, al-Qaeda and other groups on the terror watch-list.

In key consultation with a multitude of stakeholders, a checklist was prepared by the Government of Pakistan, to place tougher tabs on LeT, JuD and FIF. Tough questions have also been asked of Senator Chaudhry Tanvir Khan and a few others who were funding these highly questionable organisations. ^30,31

Regarding anti-terror crackdown, Pakistan has substantively achieved a lot. Dubious characters linked with LeT, JuD and FIF have officially been declared as “proscribed offenders” under the terror laws, pursuant to section 11-EE of the Anti-Terrorism Act 1997. They include the notorious Hafiz Muhammad Saeed ³², Abdullah Ubaid, Malik Zafar Iqbal Shahbaz, Abdul Rehman Abid, and Qazi Kashif Husain.

All the properties belonging to Jamaat-ud-Dawa (JuD) and its charity arm, the Falah-e-Insaniat Foundation (FIF), have been confiscated in Azad Jammu and Kashmir (AJK) and Gilgit-Baltistan (G-B), and its` 148 properties/assets (including immovable asssets, hospitals, dispensaries ³³) were also confiscated in Islamabad and Punjab during the ongoing crackdown against the twin organisations ³⁴.

The confiscated assets of JuD and FIF constitute a tidy sum of Pak Rs 96 million. Authorities also froze the bank accounts of the JuD and FIF freezing exactly 121 bank accounts under the UNSC Resolution-1267, containing deposits worth $100 million.

The above includes “69 bank accounts containing Rs10.97 million of JuD, LeT and FIF of concerns (19 accounts) and associated individuals (50 accounts)”. Pakistani banks vamped up their “Know Your Customer” (KYC) policies, especially for “Politically Exposed People” (PEPs).

Among them, 65 cases were registered against individuals associated with the JuD and FIF. Over 18 kiosks, camps, donation boxes and booths of FIF were dismantled and destroyed. Pakistan also has frozen accounts of proscribed individuals listed to the 4th Schedule of ATA, 1997 in accordance with section 11-O of this law. Under this action, 5,094 bank accounts having Rs157.235 million have been frozen ³⁵.

Pakistan created Counter Financing of Terrorism Units (CFTUs) to keep tabs on the “financial” aspect of the investigation as key in money laundering, terrorist financing, assets tracing and other necessary skills. Pakistan’s authorities also initiated strict action to prevent collection of hides by such entities, via registering 438 cases against individuals throughout the country in 2018.

With their assets sealed, bank accounts frozen, passports of suspected JuD, FIF, LeT militants cancelled and their weapons’ licenses revoked by the Interior Ministry, they have crucially been restricted from raising funds and spreading cross-border terror.

The cyber presence of all these terror outfits remains a menace and were highlighted to Pakistan at the FATF Bangkok summit. To tackle this head-on, Pakistan`s Telecommunication Authority (PTA) developed an e-portal system to file complaints against the misuse of the internet for the purposes of terrorism and it`s financing.

Initially, 41 URLs associated with LeT, JuD and FIF have been blocked within Pakistan thus preventing the entities of concern from raising funds online. Islamabad has requested France and USA to block these websites “at source” in their jurisdictions ³⁶ however, action from their end is still awaited. Support from social media behemoths will also be needed in the ongoing challenge of online cyber security and surveillance.

However, crucial delays in notifying anti-money laundering authorities related to certain amounts of tax evaded money is a piercing thorn that needs to be solved. In this regard, a Statutory Regulatory Order SRO 611 was published on June 9^th, 2016 which entitled the Directorate General Intelligence and Investigation (DG I&I) of the Federal Board of Revenue to commence action against individuals who might be implicated in laundering tax-evaded money.

The Lahore High Court in January alarmingly, in 2018, struck down this notification on the request of the federal cabinet which has since forwarded this issue for legal review. The Federal Cabinet’s delaying the implementation of SRO 611 on prosecuting tax evaded money is hampering the government`s remaining corpus of robust anti-money laundering framework. Such delay tactics do the Government no favours as the FATF will now micro-analyze every issue.

A Roadmap for the Future – Recommendations

It is worthwhile to remember that FATF`s grey-listing is not only due to terror financing, as full conformity with FATF also requires meaningful compliance with the OECD’s Base Erosion and Profit Shifting (BEPS) standards, which endeavor to curb tax avoidance strategies that exploit gaps and mismatches in tax rules to artificially shift profits to low or no-tax shelters, as was witnessed during the Paradise Leaks.

Under the OECD’s BEPS inclusive framework, over 100 countries and jurisdictions are collaborating. In this regard Pakistan`s Federal Board of Revenue (FBR) can truly play a vividly instrumental role.

Islamabad can further integrate systems and processes to strategically align with the OECD’s new global standard on Automatic Exchange of Information (AEOI) which reduces the potential for tax evasion. It provides for the exchange of cross-border “non-resident financial account information” with the tax authorities in the account holders’ country of residence.

Participating jurisdictions that implement AEOI send and receive pre-agreed annual information, without having to send a specific request. AEOI ingeniously enables the discovery of previously undetected tax evasion, unearths concealed assets and prompt voluntary disclosures.

It can enable the FBR to recover essential tax revenue lost to errant non-compliant taxpayers, and will boost global initiatives pertaining to transparency, cooperation, and accountability. As new information reveals itself the OECD’s existing protocol of Exchange of Information on Request (EOIR) will also amplify.

Pakistan’s FBR can also play a transformative role to clamp down on transfer pricing (another tax evasion technique) and tax havens ³⁷.

Irrespective of the FATF outcome, Pakistan should seek technical compliance re-rating from FATF Paris, to keep abreast of their latest requirements, Key Performance Indicators (KPI`s) and a scorecard of how Pakistan is improving.

Islamabad can regularize a routine reporting to the FATF Forum of Heads of Financial Intelligence Units (FIUs) (which hold the margins of the Plenary) with (at least) quarterly updates, including the latest intelligence debriefs with AML and CFT regulatory updates and appraise FIU’s with de-risking, and emerging fintech and regtech developments in our ever-evolving knowledge-based digital economy – including crypto-currencies and the perils and potential of virtual currency risks.

For instance, recently Pakistan has been at the very forefront of such legislation, banning the trading of major crypto-currencies such as Bitcoin, deeming them too “risky”. Bitcoin and other currencies are currently deployed by terrorists to finance their operations on the sinister deep and dark web.

Pakistan’s SBP, FBR, FIA, NAB and Finance Ministry can collectively information-share, develop innovations for de-risking and de-leveraging and co-create working papers submitting “deficiencies identified and lessons learnt in AML, CFT and KYC” to the FATF.

Given Pakistan’s recent judicial activism, witnessed under it’s current Chief Justice, legal bodies and the law ministry may bolster the effectiveness of an ever-evolving Criminal Justice System, whereby our Judges and Prosecutors can routinely outreach and engage with relevant FATF personnel. This will safeguard and streamline aligned initiatives to detect terrorist financing culminating in forensically detailed investigations and result in a higher rate of successful prosecutions and convictions.

Pakistan can more frequently and consistently depute senior bureaucrats, financial stakeholders, compliance personnel and bankers to actively partake in FATF workshops, especially at the FATF Training and Research Institute in Busan, Korea. This would further enhance the ability to identify and comprehend emerging terrorist financing risks at national, regional and international levels and refine the efficiency of global initiatives to combat ominous terrorist financing.

Concluding remarks

The empirical evidence furnished in this analysis amply demonstrates that, despite what naysayers believe, Pakistan is taking both it`s international and internal obligations very seriously.

The FATF “grey-listing” thorn piques ever more piercingly in these tumultuous times catalyzed by change, chaos, shifting regional and global alliances characterized by fluid, transient, transactional international relations.

Pakistan will not and cannot give up and must fight its way out of this imposed FATF crisis. This is a historic opportunity for Pakistan to crack down, unabashedly, unreservedly on extremists, of all hues, sects and stripes, and make a comeback.

Should the FATF verdict “go south” for Pakistan, and Islamabad`s “Action Plan” remain insufficient for the International Country Risk Guide (ICRG) index, Pakistan`s Finance Ministry, Board of Investment (BoI) and relevant authorities can and will explore credit terms from alternative (perhaps non-Western lenders) such as the Asian Infrastructure Investment Banks and China`s International Capital Corporation.

However, such loans would have high interest rates and so they should never naively be mistaken for gifts. Quid pro quo is an enduring mantra in the strategic game of an ever-evolving international political economy.

FATF grey-listing would only add more volatility to an already turbulent Pakistani market and society, given the uncertainty of general elections hovering over the horizon.

Alarmingly, the Lahore High Court`s release of JuD’s notorious Hafiz Saeed, along with a small but growing influence of ISIS Khorasan (South Asian chapter), a surge in popularity for Khadim Rizvi – another loud-mouth out-of-control controversial cleric – who recently held a well-attended protest in Lahore, and unsavoury misfits like Maulana Sami-ul-Haq who openly claim that the “Taliban were like his children” ³⁸ and whose religious seminary, the controversial Darul Uloom Haqqania, was gifted two grants of 300 million and 270 million Pakistani rupees by the K-P government, all give cause for concern.

Washington also remains concerned that not enough has been done to contain the Haqqani Network, its enablers, funders and facilitators. It is, simultaneously, of course, vital for Islamabad to keep mounting diplomatic pressure that RAW and NDS activities also be short-circuited, especially in Balochistan and more recently in KP-FATA. As Pakistan’s civil society continues to be targeted.

Were the FATF verdict to be unfavourable for Islamabad, Pakistan will become increasingly isolated, yet even more dependent on CPEC and China. Islamabad in that case would (understandably) hedge it`s political and economic bets by increasingly getting involved and investing in CPEC, SCO, ECO, CASA TAPI trade opportunities.

Pakistan should pursue the above opportunities irrespective of FATF’s impact, as she stands at a geo-strategic vantage point to re-assert her role in South and Central Asia and the Caucuses.

An increasing reliance on the Yuan as a currency for transactions may also ensue (as is happening in Iran), leading to a decisive “Eastward” shift in Pakistan’s strategic posture. Pakistan, therefore, has many options available to it and the US would be ill advised to lose such a time-tested ally.

The cost of being isolated internationally via FATF grey-listing cannot be “wished away”, and both Washington DC and Islamabad, well versed in the art of realpolitik, know this very well.

Islamabad, on multiple occasions, has categorically conveyed to the US that this bilateral relationship can move forward only in a milieu of mutual trust and respect.

Pakistan has to borrow globally to reduce it’s ballooning current account deficit and by the same token the USA needs Pakistan’s support to further her foreign policy interests in South Asia, especially as China tightens her friendlier grip on the sub-continent. It is key for both Islamabad and Washington to rebuilt trust equity.

It is for the above reasons that now, more than ever before, it is essential that Washington not be blind-sided by Modi and Doval’s pernicious and divisive doctrines. It is imperative, now more than ever before, that Pakistan be dealt a fair, meritocratic and even-hand, not just by the FATF but by a comity of nations, on a multiple range of pending issues.

Pakistan and the US must leverage “back-door” diplomacy to salvage a long-lasting relationship and find ‘common ground’ in their bilateral relations, which might understandably need to occur away from the public glare.

Bibliography

Khalid, Ozer “A Nation`s Soul with Sabika (2018), Express Tribune available at https://tribune.com.pk/story/1716392/6-nations-soul-sabika/ published 23 May, 2018.

Khalid, Ozer (2017) “Trouble in Paradise”, Express Tribune, November 21, 2017.

Global terrorist-financing watchlist (2018) Reuters, Feb 14, 2018

Khan, Waqar Masood (2018) Anti-Money Laundering and terrorist financing, Pakistan Today, February 17, 2018.

Outcomes of the FATF Plenary, 21-23 February (2018), Paris, France.

Hanif, C.M., (1996) The Pakistan Penal Code 1860, (Act no. XLV of 1860) : up-to-date and exhaustive latest commentary, Lahore : Lahore Law Times Publications, 1996, 2 volumes, p 1639.;

Ahmed, N (2013) ‘The Dark Side of Authority: A Critical Analysis of Anti-Corruption Framework in Pakistan’ 2013 (2) Law Social Justice and Global Development Journal (LGD).

Anti-Terrorism Act (1997) (No. XXVII of 1997

Anti-terrorism (Second Amendment) Act, 2014 (VII of 2014)

Anti-terrorism (Amendment) Act, 2014 (VI of 2014) and the

Express Tribune (2018), Grey-listing by FATF does not affect Pakistan’s ability to borrow money: IMF deputy director, March 11, 2018.

Hindustan Times (2018) Grey listing over terror financing won’t affect Pakistan’s ability to borrow from IMF, Wadhington, March 11, 2018,

Younus, Uzair (2018) “How will being on the FATF grey-list actually impact Pakistan”, The Diplomat, The Pulse, March 01, 2018.

Tanoli, Qadeer (2018) FATF grey list: 148 properties of JuD, FIF confiscated in Punjab, Express Tribune, Islamabad, March 8, 2018.

Gishkori, Zahid (2018) FATF asks Pakistan to come up with new action plan by June 8, The News, Jang Group, 26 May, 2018.

Notes of the meeting held at the Pakistan Institute for Parliamentary Services (PIPS) Hall, in May, 2018.

Monitoring Report (2018) Govt holds-up in notifying anti-money laundering powers, Prrofit section in Pakistan Today, May 7, 2018.

Müller Sebastian R. (2006) Hawala – An Informal Payment System and Its Use to Finance Terrorism by Müller, December 2006.

«Counter-Terrorism, «Policy Laundering,» and the FATF: Legalizing Surveillance, Regulating Civil Society» (2015) The International Journal of Not-for-Profit Law. The International Journal of Not-for-Profit Law.

Robert Mazur (2010) «Banking on Terror». Huffington Post. November 4, 2010.

David Bagley, Phillipp von Türk (2011) “The Wolfsberg Group Comment Letter on FATF Standards Review January 2011”, January 6, 2011.

FATF Grey Listing (2018) A Direct and Immediate Impact, The Economic Times.

Reference

1. Khan, Waqar Masood (2018) Anti-Money Laundering and terrorist financing, Pakistan Today, February 17, 2018.
2. A term which gained credence during 2003`s botched and bungled up invasion of Iraq.
3. Outcomes of the FATF Plenary, 21-23 February (2018), Paris, France.
4. Iran`s status also importantly regains relevance, given the recent U.S. revocation of the JCPOA and a potential new spate of sanctions. In light of the Trump administration`s recent revocation, Tehran officially stated that it will continue pursuing “uranium enhancement”.
5. “Fintech” is a discipline at the cutting-edge intersection of finance and technology.
6. Khan, Waqar Masood (2018) Anti-Money Laundering and terrorist financing, Pakistan Today, February 17, 2018.
7. Also known as the “Ehtesab” Committee.
8. A Federal tax collecting institution.
9. Including, for cyber or more recently crypto currency crime, it`s renowned cyber security wing.
10. Hanif, C.M., (1996) The Pakistan Penal Code 1860, (Act no. XLV of 1860) : up-to-date and exhaustive latest commentary, Lahore : Lahore Law Times Publications, 1996, 2 volumes, 1639 p.;
11. Ahmed, N (2013) ‘The Dark Side of Authority: A Critical Analysis of Anti-Corruption Framework in Pakistan’ 2013(2) Law Social Justice and Global Development Journal (LGD).
12. The Securities Act (2015) which replaces the 1969 Securities and Exchange Ordinance.
13. Anti-Terrorism Act (1997) (No. XXVII of 1997
14. Anti-terrorism (Second Amendment) Act, 2014 (VII of 2014) see also the Anti-terrorism (Amendment) Act, 2014 (VI of 2014) and the
15. Khan, Waqar Masood (2018) Anti-Money Laundering and terrorist financing, Pakistan Today, February 17, 2018.
16. Express Tribune (2018), Grey-listing by FATF does not affect Pakistan’s ability to borrow money: IMF deputy director, March 11, 2018.
17. Ibid.,
18. Following significant fiscal slippages in 2017, the fiscal deficit is expected at 5.5% of GDP in 2018.
19. Hindustan Times (2018) Grey listing over terror financing won’t affect Pakistan’s ability to borrow from IMF, Wadhington, March 11, 2018,
20. Younus, Uzair (2018) “How will being on the FATF grey-list actually impact Pakistan”, The Diplomat, The Pulse, March 01, 2018.
21. Tanoli, Qadeer (2018) FATF grey list: 148 properties of JuD, FIF confiscated in Punjab, Express Tribune, Islamabad, March 8, 2018.
22. On India`s involvement, Foreign Minister, Khurram Dastgir Khan tweeted: “We have officially complained to FATF on Indian media speculations which they claim are on basis of information provided by top Indian government sources.” Source: Mr. Dastgir Khan`s Twitter timeline.
23. The terrorist group Al-Shabaab, although hedonistically head quartered based in Somalia, poses a menace across the entire East African region. Ethiopia, reeling from wars with Eritrea, in 2017 witnessed explosions at the Florida International Hotel in Gondar from a grenade assault and two separate explosions at hotels in Gondar and Bahir Dar.
24. Iraq is still not out of the dangerous woods, wrought by weak governments such as those of Maliki, remains infested with the vestiges of ISIS.
25. Terrorism bedeviling Sri Lanka is vastly typified as “ethno-nationalist terrorism” with militants such as the Liberation Tigers of Tamil Eelam (LTTE) and Janatha Vimukthi Peramuna (JVP) which are mainly wreaking havoc on Sri Lanka`s largely tourism dependent economy.
26. Tunisia is often targeted by ISIS due to their tolerant “secular” Al-Nahda government. The infamous Bardo attacks also killing foreigners springs to mind.
27. Yemen`s Ambassador to Islamabad told this author that every few minutes a child is killed or dies from malnutrition in Yemen, beset by one of the worst humanitarian crisis to date.
28. The Sanctions List at present has the names of 257 individuals and 82 entities and was last updated on 9 May 2018, which supersedes all previous versions. The sanctions list mostly includes ISIL (Da’esh) & Al-Qaida names. The UN Committee co-operates with INTERPOL to conjure up an INTERPOL-United Nations Security Council Special Notices for listed individuals, groups, undertakings and entities. These notices promote information sharing and implementation of anti-terrorism measures among and between Member States.
29. Tanoli, Qadeer (2018) FATF grey list: 148 properties of JuD, FIF confiscated in Punjab, Express Tribune, Islamabad, March 8, 2018.
30. Tanoli, Qadeer (2018) FATF grey list: 148 properties of JuD, FIF confiscated in Punjab, Express Tribune, Islamabad, March 8, 2018.
31. Gishkori, Zahid (2018) FATF asks Pakistan to come up with new action plan by June 8, The News, Jang Group, 26 May, 2018.
32. Recently released by a Lahore High Court verdict.
33. Pakistan`s Red Crescent had been directed to take over seven ambulances associated with the Falah-e-Insaniat Foundation (FIF).
34. As confirmed to a Senate panel by Pakistan`s interior secretary, Arshad Mirza, during a meeting held at the Pakistan Institute for Parliamentary Services (PIPS) Hall, in May, 2018. The meeting was chaired by Senator Rehman Malik.
35. As reported by Gishkori, Zahid (2018) FATF asks Pakistan to come up with new action plan by June 8, The News, Jang Group, 26 May, 2018 as well as other documents disclosed by GEO TV.
36. Gishkori, Zahid (2018) FATF asks Pakistan to come up with new action plan by June 8, The News, Jang Group, 26 May, 2018.
37. For a deeply comprehensive take on Pakistan with relation to transfer pricing, BEPS and other OECD regulatory requirements consult: Khalid, Ozer “Trouble in Paradise”, Express Tribune, November 21, 2017.
38. As reported by Tanoli, Qadeer (2018) FATF grey list: 148 properties of JuD, FIF confiscated in Punjab, Express Tribune, Islamabad, March 8, 2018.