The grey zone

When will Pakistan’s FATF (Financial Action Task Force) blues be over? It’s a question that many serious-minded economic observers have had on their minds for quite some time. It is now three years since the country was put under ‘enhanced supervision’ (also known as ‘grey list’) by the global AML (anti-money laundering) / CFT (combating financing of terrorism) watchdog. It might stay there for a while.

Thankfully, Pakistan has thus far avoided a downgrade to the dreaded ‘black list’, as a result of gradual progress on technical issues amid sustained high-level political commitment. But the country, which is under two separate oversight mechanisms (ICRG and APG), remains stuck in the grey zone. This week, a virtual FATF plenary gets underway, and one awaits official word on how far along Pakistan has come.

Under the first plan, Pakistan was required to satisfy a 27-point action plan provided by FATF’s high-risk-jurisdiction-monitoring body called the International Co-operation Review Group (ICRG). FATF had declared back in February 2021 that while Pakistan had “largely addressed” 24 out of the 27 agenda items, the country needed to effectively investigate, prosecute and penalize UNSC-designated terrorists, entities and their collaborators for terrorism financing (TF). This issue may take time to show progress.

The second plan was provided by the Asia-Pacific Group (APG), which is FATF’s regional chapter responsible for AML monitoring. It is a bundle of 40 “recommendations” that Pakistan has to implement. The APG’s latest Mutual Evaluation Report, which was released last month and evaluated Pakistan’s progress as of October 2020, showed that the country was either compliant or largely compliant on 31 out of 40 recommendations. That’s nearly four-fifth of the to-do-list satisfactorily achieved until late last year.

Just 2 of APG’s 40 recommendations are now in the non-compliant category, and they deal with Mutual Legal Assistance (MLA) regime. The APG has found fault with recent legal changes that allow subject of an MLA request to be informed that there is an MLA request issued about them. This is a significant deficiency that breaches MLA framework’s confidentiality and effectiveness, as per the APG. There is also deficiency in having MLA treaties with other countries and improving institutional capacity to process MLA requests.

While Pakistan has been able to make much progress over the past three years, the remainder of the deficiencies under both the ICRG and the APG action plans may take some time to resolve, as they deal with difficult, structural issues. For instance, the prosecutorial and judicial system will need a lot of capacity-building to result in effective TF sanctions, and that requires time. Similarly, deficiencies in MLA implementation regime need more time to root out. It’s more a technical than a political matter.

Pakistan’s gradual, sustained progress shows that it is committed to stay on the right side of global AML/CFT standards. Therefore, FATF’s platform, no matter how geo-political it may get due to purported push from adversaries, will be unable to penalize Pakistan further with a downgrade. There is a need to do more, it will take time, but that time will be served on the grey list, it appears. International partners like the EU, which are appreciative of Pakistan’s FATF progress, must provide more technical support.