Can Pakistan Stay Off FATF’s Grey List?

At its June 2022 plenary, the Financial Action Task Force (FATF), a global money laundering and terror financing watchdog, announced that Pakistan had completed its two action plans containing 34 items. The forum announced that the completion of the action plans “warrants an on-site visit to verify that the implementation of Pakistan’s Anti-Money Laundering (AML) and Combating the Financing of Terrorism (CFT) reforms has begun and is being sustained, and that the necessary political commitment remains in place to sustain implementation and improvement in the future.”

“The FATF will continue to monitor the COVID-19 situation and conduct an on-site visit at the earliest possible date,” the announcement noted.

Pakistan is expected to be removed from the grey list in the coming months, as the on-site visit is considered a customary practice after the FATF action plans are completed.

Already, Pakistan’s government has termed the accomplishment the result of a years-long civil-military cooperation. Days after the FATF’s announcement that Pakistan had completed its action plans, Prime Minister Shehbaz Sharif telephoned Chief of Army Staff (COAS) General Qamar Javed Bajwa to appreciate the work of a “core cell” established by the military to oversee the implementation of the policy. “I applaud the civil and military leadership that worked with the cell,” Shehbaz said.

While the country celebrates the completion of the FATF action plans, it is important to remember why Pakistan ended up on the financing watchdog’s grey list in the first place and consider if it can stay off the watchlist in the long run.

Pakistan’s powerful military is known for calling the shots on almost all important policy decisions, particularly national security policy. The international community, particularly the United States, India, and others, have long accused the military of supporting Islamic extremists domestically and regionally. These countries have tried different approaches to hold Pakistan’s military accountable, including sanctions and other means. However, nothing has been as effective as the FATF’s pressure. The forum’s pressure coupled with Pakistan’s weak economy has done wonders for the international stakeholders trying to force Islamabad into giving up its support for militant groups as part of the national security policy.

Pakistan first figured in a FATF statement in 2008, when the body urged international financial institutions to remain attentive to Islamabad’s weak anti-money laundering rules and support for extremist groups. In 2010, Pakistan gave a “high level political” commitment to work with the FATF to address its regulatory deficiencies. But after the 2010 commitment, Pakistan failed to adequately address FATF’s concerns for two years.

In its 2012 plenary, the forum listed Islamabad among nations that need to “enact legislation to ensure that it meets the FATF standards regarding the terrorist financing offence (SR II) and the ability to identify, freeze, and confiscate terrorist assets.” After 2012’s wakeup call, Pakistan made an effort to address FATF’s concerns. In 2012, the FATF’s demands were not as expansive as they later became and Islamabad was able to cover the basic defects in its financial and regulatory system.

In its June 2015 plenary, FATF declared that Pakistan would no longer be “subject to the FATF’s monitoring process under its on-going global AML/CFT compliance process” as the country had made significant progress in addressing the identified deficiencies. After 2015, however, the country not only ignored the commitments it had made with the FATF but also went back to supporting extremist groups, undermining the interests of the global community.

In 2018, Pakistan was again placed on FATF’s grey list due to the “strategic counter-terrorist financing-related deficiencies.”

For the last four years, Pakistan has again worked to implement the FATF’s latest action plans. The expected on-site visit means that Pakistan’s removal from the grey list is only a matter of time. However, it doesn’t mean that the country will not land back on the FATF’s watch list again in the future.

Unfortunately, Pakistan’s political parties and civilian leadership have not been able to hold the military accountable for its malicious national security policy. In fact, in the past, the military has punished civilian governments for merely questioning the security policies that brought Pakistan under the FATF’s scrutiny in the first place. The incident covered in the 2016 Dawn Leaks was one one such instance where the civilian government of then-Prime Minister Nawaz Sharif (the older brother of the current prime minister) tried to warn the generals of impending international isolation if the country failed to change its approach of supporting Islamist extremists.

In a report published by Dawn newspaper on October 6, 2016, Pakistani journalist Cyril Almeida wrote that “in a blunt, orchestrated and unprecedented warning, the civilian government has informed the military leadership of a growing international isolation of Pakistan and sought consensus on several key actions by the state.”

“The message: military-led intelligence agencies are not to interfere if law enforcement acts against militant groups that are banned or until now considered off-limits for civilian action," he added.

Had Pakistan not landed back on the FATF grey list in 2018, the military’s support for militants would have continued with the same zeal that was evident during the previous few decades.

Anticipating that the economy might tremble, the military has done enough to not only contain militant groups targeting interests of neighboring countries but also put a check on the money laundering operations of other transnational extremist groups as well.

It’s clear from this chain of events that Pakistan’s civilian governments can effectively govern and deliver on major policy issues – if allowed to work and offered support by the military.

At this stage, however, the important question is this: Has the Pakistani military learned its lesson? Will the country again loosen its grip on extremist groups after Pakistan comes off of the grey list? Will Pakistan be able to sustain the gains made over the last few years with regards to the FATF action plans?

Policymakers in Islamabad and Rawalpindi, the military’s headquarters, should understand that Pakistan’s opponents will continue lobbying to put the country back on the grey list. Moreover, Pakistan’s friends, particularly China, should not be expected to continue lobbying on Islamabad’s behalf to keep it off the list if Pakistan reverts back to supporting militants. China, on several occasions, has asked Pakistan to reign in militant groups as the policy threatens Beijing’s economic interests in the region.

For Pakistan, the completion of the FATF action plans doesn’t mean that the country has crossed the finish line. This is the starting line, where Pakistan has committed to resolving the identified strategic deficiencies in the long run and in a sustainable way.

Pakistan may indeed come off the FATF’s grey list in the coming months, but the country will continue to remain under a spotlight. Pakistan needs to do a lot more to convince the international community that it no longer supports extremists.

In this regard, the military needs to make a strategic course correction if Pakistan is to function like a normal state. Pakistan can no longer afford to be in bed with militants. The sooner this reality is recognized, the better for Pakistan’s future.