FATF watchlist: Grey or black, no amount of coercion will succeed in forcing Pakistan to change its behaviour

A new act is unfolding in Pakistan’s theatre of the absurd. The rogue state has been put in a state of suspended animation by the Paris-based Financial Action Task Force (FATF), a global money-laundering and terror financing watchdog. The manner in which Pakistan was reinstated in the ‘list of shame’ reinforces the belief that the world has reached a point of exasperation over the failed state and is running out of ideas.

File photo of Hafeez Saeed. AP

File photo of Hafeez Saeed. AP

The FATF’s proceedings at plenary sessions are private. After three days of intense negotiations, official documents carried no mention of Pakistan’s name in the “grey list” that included the names of countries such as Ethiopia, Iraq, Serbia, Sri Lanka, Syria, Trinidad and Tobago, Tunisia, Vanuatu and Yemen.

As Pakistan-based Dawn has since pointed out, “Pakistan's name was also absent from a public statement issued by the regulator following the meeting. Similarly, Pakistan was not mentioned in a statement mentioning the outcomes of the FATF's plenary meeting.”

And yet, international news agencies and newspapers such as Reuters, Wall Street Journal, and New York Times have quoted officials and diplomats involved in the process to report that Pakistan has been placed on the watchlist and an official confirmation will be released during the next meeting in June. In the interim, Pakistan’s actions on curbing terror financing and money laundering would be closely monitored by the International Co-operation Review Group (ICRG).

This apparent discrepancy sends a message that all 37 members of the secretive group were not on the same page while taking action against Pakistan. In fact, reports indicate that decision which finally turned out to be near unanimous was arrived at through hectic lobbying and back-channel negotiations with the US as the aggressor and Pakistan the defender.

While Saudi Arabia, Turkey, Russia and China voted down a US and UK-led proposal to send Pakistan back into the watchlist where it had been placed for three years (2012-15), a second proposal moved by Washington did the trick. Trump administration found an opening to press the issue because Pakistan’s foreign minister had jumped the gun and announced on Wednesday, two days before the end of the plenary session, that Pakistan has been given a reprieve by the FATF and ended up breaching the group’s confidentiality clauses.

According to WSJ, “US officials confronted Riyadh’s representatives to remind them of the extensive partnership the two countries share. After Saudi Arabia subsequently dropped support Pakistan, China abandoned the challenge, according to officials representing the task-force membership.”

In Times of India, Indrani Bagchi reported on the behind-the-scenes deal where India played a prominent part. “The US persuaded (Saudi-led) Gulf Cooperation Council to lift their opposition. Russia was also tilting towards Pakistan but were persuaded by India. As for China, it was a tough call, given its ties with Pakistan. But China is lobbying for a top position in the FATF and will need support from the sponsor countries. India and US pledged support to China in return for China's neutrality on Pakistan.”

Pranab Dhal Samanta provides further clarification in The Print: “While the US worked on Saudi Arabia and Turkey, India dealt with China alone... Eventually, the Indian delegation, acting on instructions from New Delhi, struck a deal with the Chinese team that related to support for a greater FATF role for Beijing in the future.”

Pakistan now must submit an action plan to the ICRG. If approved, it will be placed formally in the “grey list” and its future actions will determine the length of its stay. Interestingly, Pakistan media has been speculating that if Islamabad’s compliance report is unsatisfactory, the FATF might put it in a “black list”.

This has also been reported by Pakistan-based Express Tribune, which writes: “FATF would require Pakistan to submit an Action Plan in May in order to be removed from the list in the coming months or years. Once the FATF approves this Action Plan in June, there will be a formal announcement from FATF about placing Pakistan on the Grey List. If Pakistan fails to submit a plan, the FATF has the option of placing the country on its Black List, which carries adverse implications.”

No one in their right mind seriously believes that the FATF action will force Pakistan to change its behaviour. The rogue nation took some recent steps to appear as a “responsible stakeholder” by seizing some Hafiz Saeed properties, established a financial monitoring unit and introduced new rules to curb money laundering but most of these moves were tokenisms aimed at escaping the FATF censure and at best superficial.

Saeed, the UN-designated terror mastermind behind the Mumbai attacks recently walked out of house arrest and has again started raising funds for his so-called charitable institution which is a front for his terror outfit Lashkar-e-Taiba. Last year, Saeed, who carries a $10 million US government bounty on his head, floated a party called Mili Muslim League, betraying an attempt to mainstream his operations.

Though the Trump administration has signalled a change in its Pakistan policy by employing more sticks than carrots, Islamabad has found it convenient to stave off US pressure by playing out its growing dependence on China and many variations of the “too dangerous to fail” argument. The US withheld security aid worth $1.3 billion but it had little effect.

It has also given scant regard to the FATF directive in 2015 (when Islamabad was taken off the watchlist) that the country still needs to show intent and ability to “fully implementing UNSC Resolution 1267” on UN-designated terrorists.

It is unclear, therefore, why Pakistan has been allowed a breathing space till June before it is re-inducted into the hall of shame.

After all, though the “grey list” does not invite legal or penal procedures, it may still cripple Pakistan’s banking sector, force foreign banks to reconsider operations on its soil and intensify the nation’s global isolation. Watchlisted nations (especially economically weak ones) find it difficult to raise funds, pay debts and access global markets. Pakistan’s stock market had undergone a significant correction as soon as news emerged on its inclusion in terror watchlist.

Pakistan has been blustering away as usual. Miftah Ismail, prime minister Shahid Abbasi’s financial adviser, told Geo News that “grey list” isn’t such a big issue after all and nothing really will happen to Pakistan. He claimed that Pakistan’s macroeconomic fundamentals are “strong” and the stock market had risen by three percent even during 2015.

It is imperative that Pakistan’s ruling dispensation keeps up the facade because elections are due in about six months and it won’t be a great publicity for the ruling party for people to realise that “grey list” will involve increased scrutiny from watchdogs, regulators and financial institutions that may turn adverse the climate for trade and investment. Overall there could be a deleterious effect on Pakistan’s already precarious current account deficit. Credit rating agencies may issue further downgrades.

As Reuters points out in a report, “A decline in foreign transactions and a drop in foreign currency inflows could further widen Pakistan’s large current account deficit, the Achilles heel of an economy that required an IMF bailout in 2013 following a balance of payments crisis.” The report also flags a situation where foreign banks such as Standard Chartered or Citibank may have to pull out.”

One reason why Pakistan’s name has been kept off the “grey list” till June could be to offer the beleaguered nation a ‘transitional zone’ of sorts and monitor its behaviour. Trouble is, FATF “grey list” is itself a ‘transitional zone’ where rogue nations are expected to either comply with rules or end up in the more adverse “black list”.

To deviate from its own rules and create a ‘light grey list’, as it were, by threatening to “but not yet putting Pakistan in grey” is an indication that FATF wants Pakistan to comply with the rules and regulations more than Islamabad is willing to, or has the ability to do so. If Pakistan fails again, the rules may be further tweaked to create a “dark grey” zone before it is pushed into “black”.

Either way, regardless of the step that FATF has taken or has promised to take, there is very little chance that Pakistan will change its policy on terror. Ideological, existential or realpolitik impulses that drive it are far more powerful than the pressure the world can collectively put on it.

Published Date: Feb 24, 2018 21:55 PM | Updated Date: Feb 24, 2018 21:58 PM

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