Pakistan and the FATF’s sword of damocles

The Financial Action Task Force’s decision-making body, the FATF Plenary, decided to keep Pakistan on the list of ‘Jurisdictions with Strategic [Anti-Money Laundering and Combating the Financing of Terrorism or AML/CFT] Deficiencies’ – or the so-called ‘Grey List’.

Whereas the plenary acknowledged the progress Pakistan made “towards improving its AML/CFT regime”, especially noting the “development of its ML/TF risk assessment”, it warned that the deadlines towards implementing the 27-points action plan “have now expired”. It stated that if Pakistan was unable to demonstrate “significant and sustainable progress” by the time the next plenary is held in February 2020, the FATF could call on its members and other jurisdictions to advise their financial institutions to monitor business relations and transactions with Pakistan more closely.

Over the course of more than a year since Pakistan has been placed on the FATF Grey List, much has been written on the implications of a potential blacklisting by FATF. It has been correctly stated that enhanced monitoring of financial transactions can result in discouraging investment and hamper the flow of money into the country. What has not drawn the same amounts of scholarly attention is the related issue that arguably provides greater insight into Pakistan’s troubles at the FATF – the political nature of the proceedings at the FATF.

Like most multilateral forums, the FATF’s agenda is driven by the interests of its members. Although it should be noted that these forums sometimes amplify the voices of smaller members, there is no denying that the formative intent of these forums most often is to consolidate the existing power relationships. And every so often, when constrained by state sovereignty and by questions surrounding the legitimacy of unilateral action, influential states use multilateral forums for forwarding a narrower agenda.

The FATF pressure, therefore, is best understood when seen in two interrelated contexts: the US policy demanding that Pakistan should do more to combat terrorism originating inside its boundaries and the growing closeness of US and India’s positions on fighting terrorism. And although the resolution of the technical issues outlined in the FATF Plan of Action are important, Pakistan will remain under US pressure bilaterally, through the FATF or other platforms until Pakistan’s overall counterterrorism policies reflect what the United States views as “tangible action” against groups designated by the UN under UNSC Resolutions 1267 and 1373.

It is worth pointing out that Pakistan is not the only country on the FATF Grey List. During the latest plenary meeting, three countries were removed from the list and three more were added. However, Pakistan, on account of the US perceptions regarding its counterterrorism policies, is scrutinized differently than other states on the list. For instance, Iceland, which is one of the states placed on the Grey List last week, will certainly undergo much less scrutiny for the progress demanded by the FATF.

The difference in evaluation between the FATF and other, arguably less political, institutions also highlights the more political and less technical determination of the FATF’s approach to listing. The independent not-for-profit Basel Institute on Governance (also an associated institute of the University of Basel) publishes the AML Index that ranks countries on anti-money laundering and counter-financing of terrorism risks.

In the 2019 Basel Institute Index, Pakistan was ranked 23rd out of 125 countries. Interestingly, Pakistan was ranked better than countries such as China (19th) and Argentina (22nd). And although the Basel Institute includes the FATF’s Mutual Evaluation Reports (MERs) in the ranking and assigns it the highest weightage (35 percent) of the 14 indicators, Pakistan still performs good enough on other indicators to score better than the abovementioned states. It clearly demonstrates that if not for the FATF’s largely negative evaluation, Pakistan would potentially receive better ranking on the Basel Index.

In 2017, when Pakistan had not reentered the FATF Grey List, it was ranked 46 out of 146 countries ranked in the Basel Institute. The Basel Institute Index rankings hardly paint a flattering picture for Pakistan. However, it does illustrate that Pakistan’s woes at the FATF are hardly explained by the weakness of Pakistan’s AML/CFT framework alone.

The FATF’s attitude towards Pakistan is also explained by the growing understanding between the current US-India leadership on combating what they refer to as “the threat of radical Islamist terrorism.” The US and India have recently sparred on issues such as trade, extent and nature of involvement in Afghanistan and the growing Indian discontent with the treatment of skilled Indian workers in America, particularly those on the H-1B visas. However, the Trump administration appears to, often unjustly, subscribe to India’s characterization of resistance in Kashmir as part of the larger Islamist threat.

The long-term solution for Pakistan’s troubles at the FATF is, therefore, as much political as it is technical. As evidenced by the last FATF Plenary, diplomatically aligning Pakistan with countries that are members of the FATF, such as China, Malaysia and Turkey, is important. However, at a broader level, there is a need to rethink ways in which resistance in Indian Occupied Kashmir could be dissociated from being seen as a radical religious movement.

The writer is an assistant professor of Political Science at the University of Peshawar.