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EFSAS Commentary

Perspicacious inquisition by the Asia-Pacific Group on Money Laundering does not bode well for Pakistan


Pakistani Finance Secretary, Mohammad Younas Dagha, led a ten-member delegation to Guangzhou, China, on 15 May to make a fretful attempt at a meeting of the Asia-Pacific Group (APG) on Money Laundering at defending Pakistan’s dismal record against money laundering and the financing of terrorism. The APG is a regional Financial Action Task Force (FATF) – style inter-governmental body mandated with ensuring adherence by the 41 APG members to international standards of action against money laundering, as well as against financing of terrorism and proliferation of weapons of mass destruction. Pakistan’s sinister record in each of these three spheres had been responsible for its placement on the FATF’s grey list in June last year, but perhaps its blatant sponsorship of terrorism was what contributed most substantially to its listing. The FATF will soon decide on whether a significant punitive downgrade to the black list was warranted for Pakistan on account of its inertness in rectifying the grave shortcomings underlined by FATF. Such a step, which does not seem unlikely considering the uncomfortable questions that were reportedly directed at the Pakistani delegation during the Guangzhou APG session, will dump further ignominy and hardship on the country that is already teetering on the verge of bankruptcy.

Prior to the Guangzhou meeting, Pakistan had submitted a report to the APG on the steps that it claimed to have taken to block the illegal flow of funds, and against proscribed organizations. At the meeting its delegation strove to impress that Pakistan had acted decisively against proscribed terrorist groups by including them in the high risk category and by freezing their assets and accounts. Inclusion of these groups in the high risk category made it obligatory for the Pakistani government to closely monitor their activities and profiles. The delegation added that following up on its crackdown on terrorist outfits such as Jaish-e-Muhammad, Jamaat-ud-Dawa, Falah-i-Insaniyat Foundation and others in March this year, the Pakistani government had earlier this month placed a further nine entities on the proscribed list, bringing the total number to 71. This figure is as astounding as the implicit acknowledgement that the Pakistani establishment, till such time as the concerted pressure by FATF began to weigh heavy, let so many terrorist groups flourish un-proscribed and unhindered.

The Pakistani delegation claimed that the country had also undertaken serious efforts to curb currency smuggling by tightening financial and corporate sector systems and beefing up the internal control mechanisms of banking and non-banking financial institutions, insurance companies and stock exchanges. It added that a specialized directorate of Cross-Border Currency Movement (CBCM) had been set up in Islamabad to maintain a database of currency seizures, and the Data and Risk Analysis Cell had been established to analyze the data so collected. These steps, the Pakistani delegation hoped, would limit the possibility of money laundering and terror financing, and enable the country to conform to the exacting stipulations enumerated in the FATF action plan well before the September deadline.

The Pakistani claims did not seem to impress the audience it was targeted at. Reports in the Pakistani media last week suggested that APG representatives at the meeting questioned Pakistan's sincerity to act against proscribed terrorist groups and its efforts to curb money laundering and terror financing. Earlier, in March, an APG delegation that had visited Pakistan to evaluate progress made by it had castigated the Pakistani government for the insufficient physical actions on the ground to curb the activities of the eight entities proscribed by the United Nations (UN) and block the flow of funds to them. The APG delegation expressed dissatisfaction over Pakistan’s inadequate compliance with global commitments and highlighted contradictory situations and poor coordination among stakeholders. It identified lack of cooperation among law enforcement agencies at different tiers of the government and expressed serious reservations over insufficient physical action to block the flow of funds to the proscribed organizations. It observed that Pakistan did “not demonstrate a proper understanding of the terror financing risks posed by the Islamic State group, AQ (Al Qaeda), JuD, FIF, LeT (Lashkar-e-Taiba), JeM, HQN (Haqqani Network), and persons affiliated with the Taliban”. The Pakistani daily Dawn quoted a senior Pakistani official as summarizing that “The crux of first two days of interactions is that they (APG) consider us very good on paper — legislation, regulation, data collection and notifications — mostly involving the federal government, but highly non-performing at provincial and district levels where such POs (proscribed organizations) and non-profit organizations (NPOs) actually operate. Their impression is that activities of POs and NPOs are still unchecked at the provincial, district and grass roots level where they can still raise funds and hold meetings and rallies… They (APG) wanted break-up of suspected transaction report against each PO and specific actions taken against each entity”.

The scathing criticism by the APG delegation, the punctiliousness displayed by it, and the serious consequences that this could potentially escalate to, led to serious consternation within both the Pakistani government and the military establishment. Faced with a two-month window to show tangible progress, the government called urgent meetings of all relevant officials and emphasized the importance of addressing the deficiencies pointed out by the APG delegation on a war footing so that a report that was acceptable to the APG could be presented to it before the Guangzhou meeting. Finance Minister Asad Umar and Finance Secretary Dagha were entrusted the responsibility of according top priority to the “problem areas” of the various Pakistani agencies, and of plugging the deficiencies.

Judging by the feedback reported by the Pakistani media on the Guangzhou meeting, the Pakistani government’s hastily and frantically prepared report fell short of meeting the APG’s rigorous standards. The APG is now required to submit to the FATF its assessment on the compliance report presented by Pakistan and the progress made by the country since the APG’s on-site inspection in Islamabad and Karachi in March. The APG will submit its findings at the FATF Plenary and Working Group meetings in Orlando, Florida on 16-21 June, and this would form the basis for Pakistan’s continued inclusion in the FATF grey list, its exclusion from the list, or its down-gradation to the blacklist which would have even more serious economic implications for the country. A formal announcement on the matter would be made at the next FATF plenary due in Paris on 18-23 October.

Reading the writing on the wall, Pakistan has decided to embark on a diplomatic campaign aimed at winning over constituents of the 36-member FATF prior to the Orlando meetings. Reports indicate that Pakistan would require at least 15 votes to exit the grey list and 3 to avoid being black listed. At the time when Pakistan was placed on the grey list in June 2018, it could not secure the minimum requirement of 3 votes to avoid listing. Turkey was the only FATF member to have sided with Pakistan at that meeting. The message to Pakistan was clear – the international community would no longer tolerate its unashamed sponsorship of terrorism. Pakistan has violated its international commitments often enough for its diplomatic interlocutors to take anything it says with a pinch of salt. However, it remains to be seen whether Pakistan’s delivery of the Taliban onto the negotiating table in Doha could yet again yield concessions for it from the United States (US) beyond the International Monetary Fund (IMF) bailout that was recently agreed upon.

While blacklisting by FATF would deal a body blow to Pakistan’s faltering economy, whose already precarious state has taken yet another turn for the worse after the announcement of the IMF’s bailout package that resulted in a precipitously weakening of its currency and spiralling inflation, even a decision to retain it on the grey list will have an adverse economic impact.

The reality is that Pakistan has brought this situation upon itself. The overwhelming powers wrested by the country’s military establishment and the incessant machinations that it indulges in have meant that no elected Prime Minister has had the gumption to undertake an earnest anti-terror drive in the country. It appears that it will be no different this time around. As per some reports, the FATF issue has led to strains in the relationship between Prime Minister Imran Khan, who owes his high office to strong backing by the military establishment, and Army Chief General Qamar Bajwa, who is under pressure from the establishment to stop the government’s proposed decimation of painstakingly nurtured terrorist assets. Bajwa’s dominant position in the power equation could force Khan to relent to yet another eyewash attempt to outfox the FATF through being “very good on paper”.

Unless Pakistan acts sincerely and demonstrably against all the terrorist outfits on its territory, including those that its military establishment has set up over the years and used as strategic assets, international pressure on the country using all possible leverages ought to be forceful and unrelenting.