As expected, Pakistan was formally placed on the grey list by the Financial Action Task Force (FATF) after it failed to use its three-month grace period to control money laundering and terror financing. A smaller group of the FATF had earlier given Pakistan enough indication that this could happen, and three months later, the matter was decided at the plenary meeting of the task force.
In the run up to the plenary, Pakistan had hurriedly taken a set of actions that it hoped would avert this listing. On paper, these were all very good measures. This included: First, a change in its terrorism legislation to bring it in line with that required by the United Nations. Thus, the Anti Terrorism Act 1997 was amended through a presidential ordinance that simply added the words "listed under the United Nations Security Council Act (1948)" into the section which provides the legal basis for proscriptions.
Secondly, the State closed down a few institutions of the Lashkar-e-Taiba, and its affiliate, the Falah-e-Insaniyat Foundation, and also declared that it was taking over the central facility at Muridke. But this was hardly an earth-shaking announcement; earlier in 2009, the Punjab state government had also ordered such a takeover with no particular results.
And thirdly, a more concrete proposal was put through by the Securities and Exchange Commission of Pakistan (SECP) which brought out anti-money laundering and countering terrorism regulations, 2018, that would affect the workings of securities brokers, insurance companies, non-banking finance companies and modarabas. The provisions tightened the requirements in vetting high-risk customers, required banks and other institutions to carry out their own risk assessments, and loosened annoying restrictions on low-risk customers like pensioners.
All this was very well. However, alongside, the government also took a series of other measures that seemed puzzling, since it was so obviously against this new-found determination to deal with money laundering. First, despite being a designated terrorist on a UN list, Hafeez Saeed vowed to bring his group into politics in December 2017, and five months later, was seen formally opening a party office in Islamabad.
In addition to that, he also announced the entry of not only his son Talha Saeed but also several other persons from a US-designated terrorist list into the fray. The group announced that it would field at least 256 candidates in the upcoming Pakistan general elections. All of this made a mockery of the amendments to the Anti-Terrorism Act, since by its provisions, neither Saeed nor the JuD should have been active at all, in any sphere, leave alone the elections.
Moreover, as Indian political parties will admit, electioneering requires money, and a lot of it. Clearly therefore, Pakistan had done nothing to implement the terror financing clause that's part of its existing legislation.
To add to this, the government also saw fit to remove restrictions on one of the most sadistic and violent groups in Pakistan, the Ahle Sunnat Wal Jamaat (ASWJ) led by Ahmed Ludhianvi. The notification was issued by Pakistan's nodal body, the National Counter-Terrorism Authority (NACTA), on the instance of the Punjab government. This is pure politics. The Punjab government under Shahbaz Sharif has long had more than just a nodding acquaintance with extremist groups.
Ludhianvi's support has been crucial in earlier elections as well, and is likely to prove even more vital as the religious vote in the province is getting divided between a plethora of candidates who all have strong local connections. The PML(N) leadership clearly knows its priorities: Win the elections first, and think about minor issues like FATF later.
Then, of course, was the uncovering of evidence that clearly indicated that the plan to assassinate Kashmiri journalist Shujaat Bukhari was hatched in Pakistan. And this was not a vague allegation; the charges had specific names and messages that showed that this was indeed the case. These were the major issues, apart from continuing evidence that an even more vicious campaign by the Taliban in Afghanistan had its financial roots (among others) in Pakistan itself.
The FATF as befits a body that bases itself on close financial scrutiny, is somewhat opaque in its actions. The "gray listing" will mean that Pakistan may find it harder to access funds from international financial institutions like the International Monetary Fund simply because such loans will require Islamabad to take a series of steps first. It is also widely known that the country was only waiting for the end of elections to negotiate a new IMF package. The previous one was for $6 billion.
The gray listing comes at a time when the economy is already staggering under severe external debt caused by heavy imports for the CPEC (China Pakistan Economic Corridor). In April, Beijing announced a $1 billion loan to cover a severe balance of payments crisis.
And in May, media reports announced that Pakistan was about to ask China for more loans to offset continuing difficulties. Though the Pakistan economy is on the upswing, investors are also likely to fight shy in putting their funds down in a country which may, at some time, go into a "black" listing.
There is a second aspect to the FATF. A team of experts are likely to quietly descend on Pakistan. The remit of such a group will be based on getting a thorough understanding of all the financial institutions, including not only banks but also any other entities which engage in financial activities of any kind. These are designated under the rubric DNFB (Designated Non-Financial Businesses or professions). This means that an FATF team will have eventually have as thorough an understanding of the country's financial dark side as it is possible to get.
It is as well to note also that the remit of the FATF is not just terrorist financing, but also money laundering. Various dubious business entities, including the Sharif empire, should be getting slightly jittery, even though the body has normally scant interest in what comes under "just about legal" dealings. However, there may be elements within the establishment which may be generous in providing such data to the experts. A third mandate of the FATF is to also assess any financial irregularities linked to proliferation of weapons of mass destruction. If Pakistan has indeed financed the North Korean nuclear weapons expansion (and warhead testing), as has been long been suspected, this might be a good time to stamp it out.
Overall, Pakistan will be assessed across the 40 recommendations of the FATF. That's a lot of cleaning up to do. Its true that Pakistan survived an earlier listing (2012 – 2015) without undue mishap. But this time, it seems that this listing is part of President Trump's promise that it would use all instruments available to bring Pakistan to heel on terrorism. Though this is directed primarily at Pakistan's actions in Afghanistan, Islamabad may also be persuaded to end its carefully balanced interference in Kashmir. It may also be persuaded to push Hafiz Saeed and his cronies into a cell and forget the key.
A lot of this depends on US pressure and Chinese action. Beijing has far from abandoned Pakistan, despite it withdrawing its support during the February meeting of the FATF. China may well provide Pakistan with additional loans, but at a price. No freebies can be expected from Beijing.
A day earlier, the Pakistan foreign office had already begun making the right diplomatic noises of undying friendship with the US. As FATF listing comes into force, Islamabad may opt more for a balancing act, rather than fall limply into Chinese arms. No one said it was going to be easy.
Updated Date: Jun 29, 2018 16:50 PM