Paying More than Lip Service: Pakistan's Addition to the FATF Grey List

In a decision considered by many to be a foregone conclusion, Pakistan has officially been placed on the Financial Action Task Force’s “Grey List,” at the financial watchdog’s meeting in Paris at the end of last month. Although Pakistan narrowly avoided addition the Grey List during an earlier meeting in February 2018, a second motion added to the agenda of the June meeting was successful in placing the country alongside Ethiopia, Serbia, Sri Lanka, Syria, Trinidad and Tobago, Tunisia and Yemen as countries designated as at high risk of terror financing and money laundering. The FATF’s move comes despite the Pakistani government’s submission of an action plan to curb state funding of terrorist activities in a last-ditch effort to avoid addition to the list. Notwithstanding the temptation to view the decision as a consequence of the USA’s successful persuasion of China and Saudi Arabia to withdraw their support for Pakistan, leaving Turkey as the sole member state opposing the motion, the addition of Pakistan to the Grey List offers its government with no choice but to join the international community in frankly examining and rectifying its pattern of financial behavior. 


In response to its placement on the Grey List, Pakistan’s government has initiated preparation of a plan to incorporate the 26-point agenda recommended by the FATF in order to be removed from the Grey List as soon as possible. Implementation of these measures will require co-ordination between federal and provincial administrations to investigate money laundering and terror financing activities engaged in at all levels. To do so, Pakistan’s central bank announced that it will begin to monitor the movement of both foreign currency and the Pakistani rupee as part of efforts to strengthen regulations and documentation of financial transactions. Meanwhile, top officials are attempting to present a façade of calm, organized resolve, with the Foreign Office quick to rule out any possibility of Pakistan being added to the Blacklist (which currently includes Iran and North Korea), and Pakistan’s Ambassador to the United States, Ali Jehangir Siddiqui, minimizing the economic effects of grey-listing and issuing a statement committing to a 15-month time frame by which to enact the FATF’s recommendations. 


However, statements to play off the economic ramifications of addition to the Grey List have done little to assuage the legitimate concerns regarding the effects of Pakistan’s position on its economy, with the Pakistan Stock Exchange dropping by 4.7% in the week following the FATF’s announcement. There are also worries that a position on the Grey List could make it harder for Pakistan to borrow from international lenders such as the IMF and World Bank, or receive foreign investment, especially if its credit rating is lowered; grey-listing may also complicate the process by which Pakistani overseas citizens send remittances. Moreover, an inability to access Western credit lenders could have a rippling effect of enabling Pakistan to turn to China and its Asian Infrastructure Investment Bank for funding sources, furthering its entanglement and dependence on Chinese investment.  


The potential negative consequences of grey-listing on the economy and the increased scrutiny from FATF members should not, however, be used by Pakistan to assume a position of victimization or as an impetus to implement surface-level measures in an effort to scramble for removal from the Grey List.  It is worth noting that this is not the first time Pakistan’s financial behavior has faced international scrutiny, having spent three years on the Grey List between 2012 and 2015. Pakistan’s return to the list highlights the structural roots of unacceptable financial behavior, and suggests that previous efforts to eliminate terror financing and money laundering did not go far or deep enough to eradicate such practices.  


But state support for terror goes beyond shady financing dealings: equally insidious is the acceptance of hardline ideology into the political mainstream. In a shocking move, the Pakistani government lifted a ban on the Sunni radical leader Muhammed Ahmed Ludhianvi, removed him from a terror watch list, and unfroze the assets of his sectarian group, Ahl-e-Sunnat Wal Jamaat (ASWJ) – all on the very same day as Pakistan’s grey-listing was announced by the FATF. Ludhianvi and his ASWJ group (whose offshoot, Lashkar-e-Jhangvi, has been responsible for attacks against the Shi’a minority) are now free to contest seats in the upcoming July 25 elections, with ASWJ candidates openly standing for office. This brazen enabling of individuals and organizations with known terrorist links constitutes not only an example of masterfully poor timing, but ironically exposes the hypocrisy of the Pakistani government in pledging to curb terror financing in one breath while giving terrorist leaders financial and political carte blanche in the next. Even where hardline organizations have been barred from contesting elections by the Election Commission, members of radical groups such as Milli Muslim League (headed by the alleged mastermind of the 2008 Mumbai attacks, Hafiz Saeed), are still permitted to contest seats by masquerading as independents or representatives of other parties.  


It is thus clear that elimination of state ties to terrorist organizations is larger than a question of more efficient controlling of the government’s purse strings. If Pakistan hopes not only to be removed from the Grey List, but also to eliminate the structural support, financial and political, for terrorist organizations, it must acknowledge that its placement on the list is the legitimate response of the international community to its financial behavior over a period of years. It must treat grey-listing not merely as an obstacle of classification to be overcome, but as wake-up call.