There are conflicting reports going around in the media regarding the outcome of the recently concluded meeting held in Canberra, Australia, of The Asia-Pacific Group (APG), a regional affiliate of the Financial Action Task Force (FATF). While Pakistan maintains that its presented report was in general well received by the APG, whereby with the only exception that the monitoring cum evaluation frequency henceforth will tend to be on a quarterly basis rather than a six monthly basis, naturally the forces opposed to Pakistan - who leave no opportunity (no matter how small) go a begging to undermine, malign or pressurize Pakistan – claim otherwise. Implying that in fact by relegating it to a quarterly review, the APG in effect has placed Pakistan in the “Enhanced Expedited Follow Up List (Blacklist)” for its failure to meet its standards and that in its meeting in Canberra, the APG found that Pakistan was non-compliant on 32 of the 40 compliance parameters of terror financing and money laundering. Notwithstanding the fact that at this stage the APG’s assessment report can only indirectly impact Pakistan’s position to move out of the grey list and for a moment keeping the global politics and sheer propaganda aside, let’s try and analyze to put into proper perspective what the present situation actually entails, its implications on Pakistan and on what next.

Backdrop: Pakistan was included in the grey list for the first time in 2012 and remained in it till 2015. On 29 June 2018 FATF Grey listed Pakistan for the second time. The process began in February 2018 when FATF approved the nomination of Pakistan for monitoring under its International Cooperation Review Group (ICRG) commonly known as ‘grey list’. At the time, on 11 effectiveness parameters Pakistan was adjudged to be low on 10. In order to get its name removed from this grey list, Pakistan submitted a compliance report on its 27-point action plan to the FATF -- the global watchdog for terror financing and money laundering — since as per the procedure, three separate evaluations would ultimately determine the country’s possible exit from the grey list by October 2019 - APG’s evaluation being one of these three. The FATF identifies jurisdictions with weak measures to combat money laundering and terrorist financing (AML/CFT) in the two FATF public documents that are issued three times a year. The FATF’s process to publicly list countries with weak AML/CFT regimes has proved effective. As of October 2018, the FATF has reviewed over 80 countries and publicly identified 68 of them. Of these 68, 55 have since made the necessary reforms to address their AML/CFT weaknesses and have been removed from the process. Needless to say that inclusion in this list is not good for any country, especially a country like Pakistan whose reputation is continuously targeted by countries like, India and its close allies. However, regardless of political hostility it faces being the sole Muslim nuclear power, Pakistan’s inclusion in the terror financing list portrays a negative image and compromises its growth potential. Also, it conveys an impression that the country’s financial system is weak and effective measures aren’t being taken to halt money laundering or financing groups that have been banned for indulging in terrorist activities.

So what really transpired in the APG meeting that took place? Over 520 senior delegates from 46 jurisdictions and 13 international organizations came together in Canberra, Australia during the week of August 18-23 to convene the APG’s 22nd annual meeting and annual technical assistance forum. The event was chaired by Deputy Commissioner Leanne Close of the Australian Federal Police and Abu Hena Mohd Razee Hassan, head of the Bangladesh Financial Intelligence Unit. While the exact details will only come out once the detailed report is received, one is informed by the Pakistani contingent that our efforts were by and large well received with emphasis on expediting work to remove all remaining major lacunas by the upcoming Paris moot. To counter all the negative news being spread against Pakistan from various platforms, one only needs to know that this Canberra August 2019 meeting was by no means a conclusive meeting, since here the Asia-Pacific Group was not working on a single specific agenda of ‘ error financing and money laundering’, but instead practically conducting its pre-planned five-year evaluation of Pakistan’s progress on upgrading its systems in all areas of financial and insurance services and related sectors. These areas in addition to covering safeguards against money laundering and terror financing by banned outfits and non-government entities through banking and non-banking jurisdictions, also include, capital markets, corporate and non-corporate sectors like chartered accountancy, financial advisory services, cost and management accountancy firms, jewelers and similar related services. As mentioned above, this APG meeting will now be followed by another round of mutual evaluations starting September 5 in Bangkok (Thailand), which would become a key basis for final review of Pakistan by the FATF at its plenary and working group meetings scheduled for October 13-18, 2019 in Paris.

What does it really mean to be put in the Grey List or the “Enhanced Expedited Follow up list”?

As already indicated above that being placed in the Grey or the Enhanced Expedited Follow up List creates a negative perception, which in general is bad for business and hence bad for the economy. When a country comes in the Grey list, it faces many problems like;

1. Economic sanctions from international institutions (IMF, World Bank, ADB etc.) and countries

2. Problem in getting loans from international institutions (IMF, World Bank, ADB etc.) and countries

3. Overall Reduction in its international trade

4. Possible International boycott

Most importantly though: It is bad for a country’s economy in general. Countries placed on these lists see a decrease in foreign investment and foreign companies hesitate to invest considering the potential ties to terrorist activities, because it would be bad for the reputation of those companies as well. No company wants to be doing business with a country that can have possible ties with terrorist funding activities or lacks a process that prevents such activities. Apart from this, it will be difficult for Pakistan to get foreign loans from the IMF, World Bank or Asian Development Bank etc. Also, it could also prove hard to raise debts from international markets. Another fallout could be the exit or activity curtailment by the remaining big foreign banks (like Standard Chartered), which then could have a cascading effect, in-turn adversely affecting both, the financial sector and the foreign investors in Pakistan.

Additionally, the transactions from the blacklisted economy involve enhanced levels of scrutiny. As a result, the foreign remittance in that country can decrease, since the financial institutions simply start avoiding transactions in global currencies like the USD, Euro, etc., which in-turn can run the risk of further currency devaluations, since a decrease in foreign currency transactions, will make the country’s economy heavily dependent upon its local currency thereby putting further pressure on the domestic currency’s parity with the international currencies. With reduced global connectivity, as the foreign investors start pulling out in increasing numbers, the Pakistan stock market could also see a further fall, in-turn eroding the country’s capital. Last but not least, all this economic mayhem could spike inflation, which as we know has already entered double digits. Meaning one thing is very clear that remaining on the grey list or being relegated to the black list is simply not an option and we must make every possible endeavor to ensure that we clear our name from the FATF Grey List.

So What Next?

* Well, the first thing is to remain focused and there is no need to lose heart. By all accounts our team, headed by the Governor State Bank of Pakistan, Reza Baqir, accompanied by personnel from the National Counter Terrorism Authority, the Federal Board of Revenue, the Securities and Exchange Commission of Pakistan, the Federal Investigation Agency and the Financial Monitoring Unit did very well at the Canberra APG moot and finally set things in the right direction. Years of negligence and lack of proper preparation could not possibly have been reversed in one showing. Hopefully if we can continue to approach the issue in a professional way, as we did in Canberra, then InshAllah we should be able to come out of the current listing.

  • Second, it is very clear that the battle to clear us from the FATF is as much about international relations as of mere compliance. We will have to make it very clear to the powers that need our help in the region that in-turn they will have to support us in October at the Paris Plenary Meeting.And third, we will need to look inwards to address any remaining weaknesses, both from the perspectives of: a) Legislation, internal commitment to take difficult decisions at home and in achieving tangible compliance through transparent implementation and b) To not only prepare our next report for Paris in a bottle tight manner, but to also present it in an articulate cum professional manner that strikes a chord with the voting members. A cursory look at the composition of our current team shows a weakness in the sense that one cannot pinpoint a team member who has actually dealt with live precarious situations, as if his economic future depended on it. Perhaps, to add that cutting edge, meticulous professionalism, attention to detail and the element of pre-empting in report preparation, we need to also take a member from the private sector with the requisite experience and competence in international dealings. Only someone who has actually performed convincingly in real life situations to win over negotiations can truly advise on the very nature of the comprehensive homework that needs to be done in preparing a foolproof presentation.
  • The writer is an entrepreneur and economic analyst.kamal.monnoo@gmail.com
  • What does it really mean to be put in the Grey List or the “Enhanced Expedited Follow up list”?