Pakistan again under the “grey list” of FATF

Pakistan has remained a major center of support for terrorism around the world.  Its neighboring countries such as India, Afghanistan, Bangladesh and Nepal are constantly suffered for many years. Terrorism has long been the main instrument of Pakistan's foreign policy.

And Pakistan's army and government have been its chief sponsors and financiers. Along with this, many business houses and financial institutions of Pakistan also not only sympathizers to these dreadful organization but also provide financial and strategic help to them. And as an attempt to break the same financial link of terrorism, the FATF put Pakistan under its grey list.

Pakistan’s Foreign Office confirmed on February 28 that in June the country is set to be added to ‘grey list’ of the Financial Action Task Force (FATF), the watch list of countries where banned militant outfits have allegedly been raising funds.

The 37-nation FATF plenary held its first meeting on Pakistan on February 20 where China, Turkey and Saudi Arabia, which was representing the Gulf Cooperation Council (GCC), opposed the US-led move to place Pakistan on the watch list. But the US pushed for an unprecedented second discussion on Pakistan, held on February 22.

Pakistan was first put on the FATF grey list in 2012 but was removed in 2015, after the FATF certified that Islamabad had done enough to counter terror financing.

The Financial Action Task Force (on Money Laundering) (FATF), also known by its French name, Groupe d'action financière (GAFI), is an intergovernmental organization founded in 1989 on the initiative of the G7 to develop policies to combat money laundering. In 2001 its mandate expanded to include terrorism financing. It monitors progress in implementing the FATF Recommendations through "peer reviews" ("mutual evaluations") of member countries. The FATF Secretariat is housed at the OECD headquarters in Paris.

What is FATF blacklist?

The FATF blacklist was the common shorthand description for the Financial Action Task Force list of "Non-Cooperative Countries or Territories" (NCCTs) issued since 2000, which it perceived to be non-cooperative in the global fight against money laundering and terrorist financing.

China and Saudi Arabia, which had been resisting the American pressure, later deserted Pakistan over the issue. India had reportedly also negotiated with China to convince it to withdraw its support for Islamabad.

Financial implications to Pakistan

As a result, the Pakistani stock market is expected to fall significantly and China is likely to take advantage of the economic situation by expanding its investment footprint.

After this accessing funds from international markets, for instance, would become tougher for Islamabad.   

This listing not any certain kind of ban but a country’s listing can have an impact on its international transactions, as it would come under greater scrutiny and also enhance the cost of transactions.

A decline in foreign transactions and foreign currency inflows could lead to further widening of Pakistan’s already large current account deficit (CAD).

The financial sector might take a hit as many international banks in Pakistan, which mostly deal with corporate clients --might decide to pull out. The level of due diligence by banks is already high in countries such as Pakistan, but after the listing, banks may have to reassess the risk-reward scenario.
The decision is a blow to Pakistan’s blatant violation of its obligations to crack down on groups banned by the Security Council 1267 sanctions committee that monitors groups affiliated to the Taliban (which originally included al-Qaeda affiliated groups), such as the Lashkar-e-Taiba, Jaish-e-Mohammed and the Haqqani network.