FATF - financial politics

"Money is the mother of all politics", Jesse. M. Unruh. A statement that has been debated but not disputed. This is visible in the classification of the world into the first world, third world or the developed Vs LDCs - less developed countries. The classification is based on macroeconomic variables like GDP growths, per capita etc. Money is needed to educate people, provide health, basic amenities, develop systems and industries. Money is also needed to fund direct and indirect wars. As in the case of individuals, money gets you membership of the most exclusive and expensive clubs, forums and associations. Nations also manage to secure posts in the top international bodies that make, change or amend rules of politics and economics in the world.

Aside from the World Bank and the IMF, etc., which are the main money lending institutions many other institutions or forums have been developed to monitor where the money is going and coming from. These forums have been developed due to the major issues of black, grey or illicit money being used for illicit purposes in the world. In 1987 G-7 Paris Summit in response to mounting concern over money laundering, the Financial Action Task Force on Money Laundering (FATF) was formed. FATF was in recognition of the threat posed to the banking system and to financial institutions by illicit money transfers across border. G-7 Heads of State or Government and President of the European Commission convened the Task Force from the G-7 member States, the European Commission and eight other countries.The Task Force was given the responsibility of examining money laundering techniques and trends, reviewing the action which had already been taken at a national or international level, and setting out the measures that still needed to be taken to combat money laundering.

FATF agenda was specific to money laundering initially. In April 1990, less than one year after its creation, the FATF issued a report containing a set of Forty Recommendations, which were intended to provide a comprehensive plan of action needed to fight against money laundering. However, after 9/11 terrorism made FATF adopt twin objectives. In 2001, the development of standards in the fight against terrorist financing was added to the mission of the FATF. In October 2001, the FATF issued the Eight Special Recommendations to deal with the issue of terrorist financing. As terrorism grew in the world FATF started becoming a forum to reckon with, especially for Pakistan.

Pakistan was first placed on the black list in 2012 and then on the grey list in 2018. The global body took the decision on the basis of a monitoring report of the International Cooperation Review Group (ICRG). Pakistan was placed among the jurisdictions (states) with strategic deficiencies along with Ethiopia, Serbia, Sri Lanka, Syria, Trinidad and Tobago, Tunisia and Yemen. The reasons why Pakistan was placed on this list were to combat: 1. Identification, assessment and supervision of risk of terrorist financing.

2. Demonstrating the remedial actions taken in the cases of Anti Money Laundering and Countering Financial Terrorism violations. 3. Enforcement actions taken against illegal money or value transfer services. 4. Controls on movement of cash carriers being used for terrorist financing.

FATF listing has and will affect Pakistan adversely. Firstly, Pakistan's banking channel is inevitably linked with the international financial system. The impact on Pakistan's economy has been relatively wide, touching imports, exports, remittances and access to international lending as seen in the current account deficits by 2018. Foreign financial institutions do carry out enhanced checking of transactions with Pakistan to avoid risk of violations pertaining to money laundering and financing of terrorism increasing cost of doing business and risk perceptions.

Like most multinational and multilateral forums, politics plays a role that many times overlooks economics, ethics or even laws. FATF is a forum that had become a place for India to pressurize Pakistan. Modi had successfully made the US an ally in branding Pakistan as a terror exporter, and, till 2018 both Trump and Modi were in unison in their "Do more" chant to Pakistan. However, come 2019 and the winds of politics changed in Pakistan and so did the relationship between the US and Pakistan. The Prime Minister of Pakistan, who at one time was at the receiving end of being pro-Taliban, because he propagated that dialogue not war will solve Afghanistan's problem, became Trump's main ally in his exit Afghanistan strategy. This shift in the political strategy combined with Modi's Kashmir lockdown and Citizenship Amendment Act, turned the tables on India. In the most recent meeting of FATF Indian ploy to pressurize Pakistan did not work. While in June 2018, except for Turkey, not even China and Saudi Arabia supported Pakistan at FATF, in January 2020 meeting USA and most European countries acknowledged that Pakistan had made considerable progress on the 27 areas where Pakistan was given the task to implement actions.

While the recent meeting may indicate a softening of stance by other members, Pakistan must not assume that exiting Grey list will just be a matter of time. Instead Pakistan must do the following;

1. Speed Up action on all remaining Grey Areas that need to be whitened- This is not just for FATF but also for the country's goal of curbing money laundering and terrorism. Under the FATF guise the country can take tough actions on all elements that are controversial as public support for these actions will be there considering that FATF is recognized as a priority by the general public.

2. Accelerate FATF Lobbying- It is important to divide the FATF members in 3 categories. Facilitator countries are those who will stand by us and need to be engaged more. Neutrals are those who can be swayed by India and thus need to be persuaded directly or through other common friends in the members. Thirdly, blockers are those who will be working aggressively to build up a case of non-compliance and those objections should be anticipated and answers prepared to build up the case.

3. Continue Leveraging Strategic Advantage- The Afghan dialogue is a key leverage and facilitation overt or covert should be done that should send the quid pro quo signals of a friend in need to the US and the relevant quarters.

Politics and economics are interwoven. India, for too long, has leveraged its economy strategically and diplomatically to mould international politics to its agenda. FATF is not just a threat but also an opportunity for Pakistan. This is a chance to put its act not on just dealing with money laundering and terror financing but on developing systems that strengthen the country economically, geo politically and socially to become a key player in the league of nations.

(The writer can be reached at [email protected])