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EXPLAINED: The 3 Incomplete Tasks That Have Kept Pakistan In The FATF's Grey List And What It Means For India

By: Kenneth Mohanty


Last Updated: July 01, 2021, 09:40 IST

Pakistan Prime Minister  Imran Khan

Pakistan Prime Minister Imran Khan

Pakistan wants to assure the money laundering watchdog that it has done enough to prevent terrorists from accessing funds. But it is not simple as that

Will it, won’t it? The anxiety among Pakistan officials was palpable ahead of another review by the Financial Action Task Force (FATF) as they hoped that the watchdog would remove the country from its ‘grey list’. Handed a long to-do list to improve the way its financial mechanisms function, Islamabad has repeatedly stumbled on the issue of reining in terrorists operating from Pakistani soil and cutting off their sources of financing.

What Is The FATF Grey List?

What FATF is concerned with is the robustness of the mechanisms governing a country’s financial system so that they are not used for such activities as money laundering and terror financing. The so-called ‘grey list’ actually comprises countries that FATF thinks should be under “increased monitoring" even as they engage with FATF “to address strategic deficiencies in their regimes to counter money laundering, terrorist financing, and proliferation financing".

The ‘grey list’ can be seen as a sort of warning note for any country on it, but such designation also means that “it has committed to resolve swiftly the identified strategic deficiencies within agreed timeframes".

The ‘grey list’ is updated periodically and among the 19 countries it contains after the previous FATF meeting, in February this year, are Myanmar, Mauritius, Cambodia, Panama, Barbados, Cayman Islands, Syria. Pakistan has continued on this list since June 2018. Some of these countries are known tax havens while others have faced trouble with terrorism. In all cases, they are on the ‘grey list’ because it is deemed that their financial structures are susceptible to being exploited for prohibited dealings.

As to the actual implications, being on the ‘grey list’ could make it more difficult to raise money or loans in foreign markets while the flow of overseas investments into these countries may suffer as well. What suffers is also the perception regarding such a country among the international community.

Why Is Pakistan On The ‘Grey List’?

Two words: terror financing. This is not the first time that the country has been on this list though. Between 2012 and 2015, too, the country had been subject to ‘grey list’ monitoring before it was taken out after showing “significant progress in improving its (anti-money laundering and combating of terror financing) regime". At that time, FATF had said it “notes that Pakistan has established the legal and regulatory framework to meet its commitments in its action plan regarding the strategic deficiencies".

Cut to June 2018, the country was again put on the ‘grey list’ as FATF flagged its “strategic counter-terrorist financing-related deficiencies". Pakistan was handed a list of 27 action points with which it had to comply before FATF again took it out of the ‘grey list’.

Subsequent meetings of the body noted Pakistan’s progress on the action points although the country was kept on the list even after the last review in February as FATF found that there were three areas in which the country had yet to make satisfactory progress.

The three red flags that FATF concluded still needed work were: “(1) demonstrating that terrorist financing investigations and prosecutions target persons and entities acting on behalf or at the direction of the designated persons or entities; (2) demonstrating that terrorist financing prosecutions result in effective, proportionate and dissuasive sanctions; and (3) demonstrating effective implementation of targeted financial sanctions against all 1,267 and 1,373 designated terrorists, specifically those acting for or on their behalf."

At the February meeting, FATF had noted that while Islamabad had made “significant progress”, there are nonetheless “serious deficiencies” in mechanisms to check terror financing.

Ahead of the latest FATF meeting — the international financial watchdog set up by the G7 countries in 1989 meets thrice a year in Paris, where it is based — Pakistani officials have said that they have now fulfilled 26 of the 27 checklist points provided by FATF. In fact, Pakistan foreign minister Shah Mahmood Qureshi was quoted by the country’s Dawn newspaper as saying that now “there is no justification to keep Pakistan on the grey list". Targeting India, which has sought action against Pakistan for being a terror haven at different international forums, Qureshi said that “India wanted to use the forum for ‘political purposes’ but should not be allowed to do so".

So, What Is Pakistan’s Recent Track Record On Terror?

According to the US’ Pakistan Country Report on Terrorism for 2019, the latest available, the country has some ways to go still in dismantling terror groups operating from its soil.

“Pakistan continued to serve as a safe haven for certain regionally focused terrorist groups. It allowed groups targeting Afghanistan, including the Afghan Taliban and affiliated HQN, as well as groups targeting India, including LeT and its affiliated front organizations, and JeM, to operate from its territory," the report said.

The report did note that the country took “modest steps in 2019 to counter terror financing and to restrain some India-focused militant groups" but has “yet to take decisive actions against Indian- and Afghanistan-focused militants".

A 2016 US Institute of Peace report says, “conviction rates in Pakistan continue to be extremely low" in terror-related cases despite the passage of the Anti-Terrorism Act (ATA) in 1997. While more stringent legislation has been passed against terror activities, “little attention has been paid to court administration and case management", the report notes, adding that “procedural errors and antiquated practices plague the investigation and prosecution of terrorism cases".

What Is India’s Stand On Pakistan’s ‘Grey List’ Status?

The US terror report said that progress by Islamabad “remains unfulfilled" on “the most difficult aspects of its 2015 National Action Plan to counter terrorism". The report specifically notes that while Pakistan has indicted Lashkar-e Toiba (LeT) co-founder Hafiz Saeed and some of his associates, “they have made no effort to use domestic authorities to prosecute other terrorist leaders such as JeM founder Masood Azhar and Sajid Mir, the mastermind of LeT’s 2008 Mumbai attacks".

Ahead of the February 2021 FATF meeting FATF, Pakistan had rushed to register cases against Azhar, Mir and Rauf Asgar, part of the top leadership of JeM, and even carried out raids to arrest them, “but only Azhar’s wife and a few aides were found at that residence". India had at the time said “it has become routine for Pakistan to come up with such farcical actions prior to important meetings". It is understandable, then, that New Delhi has deep misgivings about Pakistan’s commitment to discourage terror actors from using its territory to launch attacks in India even as it is widely believed that terrorist groups have access to support at the official level inside the country.

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first published:June 25, 2021, 13:49 IST
last updated:July 01, 2021, 09:40 IST
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