In Detail: Financial Action Task Force puts Pakistan on ‘grey list’

Jun 28, 2018 12:30 IST
FATF puts Pakistan on 'grey list'

The Financial Action Task Force (FATF) on June 27, 2018 added Pakistan to its ‘grey list’ of countries involved in providing monetary assistance to terrorism and related causes. The decision was taken during FATF meeting on Money Laundering in Paris.

At the FATF talks in Paris, a delegation led by Dr. Shamshad Akhtar, Pakistani Interim Minister for Finance and Planning, apprised the FATF of steps taken by Pakistan to curb terror financing and money laundering, pleading removal of Pakistan's name from FATF grey list.

Pakistan had earlier been included in the ‘grey list’ from 2012 to 2015.

Case presented by Shamshad Akhtar-led Pakistani delegation

• Dr Shamshad Akhtar, who reached Paris on June 24, 2018 alongside officials of the financial monitoring unit to fight the country’s case, had requested the FATF to remove Pakistan from its grey list.

• During the crucial meeting, the Pakistani delegation talked about Islamabad's efforts against the banned outfits and various terrorist groups.

• The Pakistani delegation's case indicated that the country has been working to curb financial assistance for terrorists, made existing laws better and ensured implementation of the these improved regulations.

• In compliance with the FATF's recommendations, the Securities and Exchange Commission of Pakistan (SECP), on June 20, 2018 issued the Anti Money Laundering and Countering Financing of Terrorism Regulations, 2018.

• Prior to that, on June 8, 2018, the National Security Committee (NSC) of Pakistan had reaffirmed its commitment to cooperate with FATF in achieving common goals and shared objectives.

Decision taken during FATF Plenary meeting in February 2018

• FATF had earlier taken the decision to place Pakistan on its grey list during a plenary meeting in February 2018.

• At that time, China, Turkey and Saudi Arabia, leading the six-nation Gulf Cooperation Council (GCC) that votes as one bloc, were against Pakistan being put in the grey list.

• The grey list puts countries under the scanner for not implementing the objectives of the task force.

• As per FATF rules, three votes from the FATF's members are needed for not putting a country in the grey list.

Note

It was believed that Pakistan was likely to be granted more time to implement necessary measures to be compliant with the FATF's anti-money laundering and terrorist financing regulations to avoid its entry into the grey list again.

However, as per the sources, FATF was under pressure from the United States and India to put Pakistan on the grey list, both the countries also compelled Turkey, Saudi Arabia, and China to agree on the same.

 

How ‘Grey Listing’ would impact Pakistan?

The grey list puts countries under the scanner for not implementing the objectives of the task force. Here are the ways grey listing would impact Pakistan and its economy:

Intense scrutiny: With its entry into the grey list, Pakistan will be on intense scrutiny by FATF and its members. It’s a major setback for the country that has been trying to improve its image globally.

It could dent the Pakistan's economy: Being included in the FATF watchlist could give a blow to Pakistan's economy as it would make it harder for foreign investors and companies to do business in the country that is blamed for funding terror activites.

Harder and expensive borrowing: Economists fear that being put on FATF list could make borrowing from international debt markets harder and costlier for Pakistan. It might reduce Pakistan’s credibility in the international market.

Block the way for foreign banks to deal with Pakistani counterparts: The grey listing would not only amplify Pakistan's risk profile, but could also make it difficult for foreign banks and financial institutions to deal with Pakistani banks and counterparties. Foreign banks could also pull out of Pakistan.

Widen Pakistan's CAD: In case, if grey listing leads to a decline in foreign transactions and if it blows off Pakistan’s economy, it will directly lead to widening of Pakistan's Current Account Deficit (CAD), which has already been very huge.

Lessen investors' confidence: The grey listing would lessen the investors’ confidence in the country. Some may cut short their investments, while others may pull out their investments completely. However, a large part of foreign investment in Pakistan is sourced from friendly nations like China and Saudi Arabia.

Impact Pakistan’s imports and exports: Pakistan's export of rice, cotton, marble, clothes, onions and other items will suffer a lot, causing huge loss to producers. Moreover, accessing funds and goods from international market would become tougher.

Financial Action Task Force (FATF)

• The Financial Action Task Force (FATF) is an inter-governmental body established in 1989 by the Ministers of its Member jurisdictions.

• Established during the G7 Summit in Paris (France), the organisation aims to establish international standards for combating money laundering and terrorist financing and seeks to combat the growing problem of money laundering.

• FATF Secretariat is housed at the headquarters of the Organisation for Economic Co-operation and Development (OECD) in Paris.

• FATF's decision making body is the 'FATF Plenary'. The FATF plenary sessions are held in February, June and October every year.

• It consists of over 39 member countries including India. Currently, China is the Vice President of the FATF.

 

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