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EFSAS Commentary

The Asia-Pacific Group’s scathing evaluation report limits Pakistan’s options in Jammu & Kashmir


The statements and vibes emanating from the Pakistani leadership, both civil and military, over the last few days reflect the aura of disbelief, disquiet, vexation and helplessness that pervades over the country in the aftermath of New Delhi’s impetuous 5 August moves on Jammu & Kashmir (J&K). Pakistan’s abject failure at physically influencing the situation in Indian Administered J&K due to the watertight hold that Indian security forces have maintained incessantly in the State since 4 August, as also at getting its point of view on the matter acknowledged, let alone accepted, by the international community, are what is rankling the Pakistani leadership the most. The leadership’s shrill rails over the past week have included hollow allusions by Prime Minister Imran Khan to a nuclear war with India, a claim by one of Khan’s ministers that a self-defeating ban on over-flight over Pakistani territory and overland trade through it were in the offing as Pakistan’s enlightened strategy to bring India to its knees, and the military spokesman asking a famous Indian film personality to act against his own country by highlighting the “atrocities in Jammu and Kashmir”. Railway Minister Sheikh Rashid Ahmed stole the thunder, though, by making the brash, brainless and reckless prediction on 28 August that a full-blown war between Pakistan and India will erupt in October or November this year, which would not only be “Kashmir's final freedom struggle” but also Pakistan’s “last” war with India.

Pakistan’s desperation stems from its impotence in getting any country barring China, and to some extent Turkey, to take up the cudgels on its behalf on J&K. Pakistan would do well to introspect upon why things have panned out the way they have to degenerate into a situation where it is today a near-bankrupt country that has squandered away the tremendous leverages that its geostrategic positioning had afforded it over the decades. It did so by being shifty, untruthful and unreliable, excessively greedy for easy greenbacks, and most of all through its indiscriminate use of terrorism as a policy of State.

The Indian government, as could only be expected in this milieu, has promptly pounced on the opportunity presented by these provocative Pakistani statements and actions, which included a test of a Pakistani missile in the midst of the heightened tension with India. The spokesman of India’s Ministry of External Affairs (MEA) retorted on 29 August, “We strongly condemn the recent statements by Pakistani leadership on matters internal to India. These are very irresponsible statements. The provocative statements from Pakistan include call for jihad and inciting violence in India”. The Indian spokesman also made it a point to highlight Pakistan’s sponsorship of terrorism against India, and to remind the Pakistani leadership of its responsibilities as an immediate neighbour. He said, “We have been saying for years that Pakistan has been using terrorism as an instrument of State policy. Pakistan has an obligation to act firmly against terrorism emanating from its territory… It is important for them (Pakistan) to now start behaving like a normal neighbour. What do normal neighbours do? You don’t push terrorists into a neighbouring country. You do normal talk, normal trade. This is not something which is happening from Pakistan”.

India was not alone in being constrained this week to call out Pakistan’s sponsorship of terrorism and demand firm and verifiable action against it. The findings of the Asia-Pacific Group (APG) of the global terror finance and money laundering watchdog Financial Action Task Force (FATF), which were revealed during the 22nd Annual Meeting of the APG held in Canberra from 18-23 August, also underlined this. As brought out in EFSAS Commentary of 24-05-2019, Pakistan had failed to impress APG officials during the earlier meeting in Guangzhou, China, on 15 May, and an APG delegation that visited Pakistan in March this year had made scathing observations on the callous attitude of the Pakistani State towards terror financing. The theme at Canberra was no different.

Pakistan has been under the FATF’s scanner since June 2018 when, after an assessment of its financial system and law enforcement mechanisms, it had been put on the grey-list for terror financing and money laundering risks. Pakistan had at that time given a high-level political commitment to work with the FATF and APG to strengthen its Anti-Money Laundering (AML) and Combating Financing of Terrorism (CFT) regimes, and to address its strategic counter-terrorism financing-related deficiencies. Pakistan and the FATF had agreed on the monitoring of 27 indicators under a 10-point action plan, with specific deadlines, based on the results of which Pakistan could be removed from the grey-list, retained on the same list, or relegated to the blacklist in September/October 2019.

The Annual Meeting of the APG in Canberra adopted Pakistan’s 3rd Mutual Evaluation Report as per the APG’s Third Round Mutual Evaluation Procedures. In the Mutual Evaluation Report, the APG noted that the effectiveness of Pakistan’s AML and CFT regimes were of a low level. Of the 11 ‘effectiveness parameters’ of terror financing and money laundering, Pakistan was adjudged low on as many as 10. The APG also found Pakistan non-compliant on 32 of the 40 ‘compliance parameters’ of terror financing and money laundering. As a consequence, the APG decided to place Pakistan on its Enhanced Expedited Follow Up List, which borders on blacklisting, on account of its failure to live up to its commitments and adhere to the APG’s suggestions. Pursuant to this listing, which amounts to a stinging slap on the face for Pakistan, the country would, starting from 1 February 2020, also be required to submit quarterly progress reports, instead of biannual, to the APG to show improvements in its action on AML/CFT. This adverse listing by the APG is likely to have a deleterious impact on Pakistan’s prospects of evading blacklisting at the next plenary meeting of the FATF that is scheduled to be held in Paris on 13-18 October. This FATF plenary will be preceded by another round of mutual evaluations by the APG in Bangkok from 5 September.

At the Paris plenary in October, Pakistan would be required to demonstrate compliance with both the APG’s mutual evaluation and the FATF-mandated action plan. It would need the votes of at least 15 of the FATF’s 36 voting members to get out of the grey-list. That appears highly unlikely at present. The more realistic target for Pakistan would be to try to somehow get the required three votes to avoid blacklisting. With China, Pakistan’s ‘all weather’ savior, having taken over the presidency of the FATF from the United States (US) on 1 July, and with friendly Islamic countries like Turkey and Malaysia figuring among the voting nations, Pakistan will make all efforts to somehow scrape through to avoid blacklisting. That it will succeed is not a foregone conclusion though, and Pakistan’s placement on the APG’s Enhanced Expedited Follow Up List could have a major impact on the final decision of the FATF.

Analysts have underlined the severe economic consequences for Pakistan in the increasingly likely eventuality of it being blacklisted by FATF. The country is in the throes of an economic crisis and is heavily dependent on external borrowing for even its day-to-day sustenance. This reliance on funds begged and borrowed from abroad is only expected to increase in the months and years ahead, with no silver lining visible on the edges of the dark clouds that have enveloped Pakistan’s dysfunctional State structures. In this precarious financial situation, blacklisting by FATF would without doubt hit Pakistan hard. Pakistan’s $6 billion loan agreement with the International Monetary Fund (IMF) would come under threat, as the IMF has asked Pakistan to ensure compliance with FATF’s action plan and to demonstrate commitment against money laundering and terror financing. Even retention on the FATF’s grey-list would be disastrous for Pakistan, as it would lead to downgrading of the country by the IMF, the World Bank, the Asian Development Bank, and the European Union, among others, as well as a reduction in risk rating by credit rating agencies such as Moody’s, Standard & Poor’s, and Fitch. In purely monetary terms, economists have assessed that Pakistan faces an estimated annual loss of $10 billion even if it just remains on the grey-list. If blacklisted, the damage would be infinitely more acute.

It was not surprising, therefore, that immediately after the jolt Pakistan received at the APG’s Canberra meeting, PM Imran Khan rushed to set up a 12-member National Financial Action Task Force Coordination Committee that was “mandated to steer the national effort on FATF” and ensure the execution of FATF’s action plan. Led by Pakistan’s Minister for Economic Affairs Hammad Azhar, the committee comprises the federal secretaries of finance, foreign affairs and interior, as well as the heads of all the institutions and regulators concerned with money laundering and terror financing.

As pressing as the challenges posed by the incisive scrutiny by FATF are for Pakistan’s economy, they assume even more criticality in view of the changed circumstances in J&K. Pakistan’s age old rhetoric of waging a thousand years war with India to wrest the part of J&K that India administers is being belied with each passing day, and pledges by Prime Minister Khan and his cronies to go to any extent to reverse India’s 5 August decision are ringing hallow. Unable to make any meaningful impact through its vain efforts at internationalizing the J&K-issue, and bereft of the military might to take on India in an all-out confrontation, the one remaining option that Pakistan has relied upon over decades has been to bleed India through Pakistan’s carefully nurtured terrorist proxies. The timing of the wrap on the knuckles by the APG means that this option is also taken off the table. The Pakistani military establishment, given its track record, would be itching to unleash militants of the Lashkar-e-Taiba (LeT), Jaish-e-Muhammed (JeM), Hizbul Mujahideen (HM) and others to wreak havoc in J&K and the rest of India, even more so because sections of the Pakistani population have been calling for such a course of action. However, recourse to this route will not only force the FATF’s hand to blacklist Pakistan, and cause the IMF to withdraw bailout packages, but would also give an action-inclined Indian government the justification to hit back hard both diplomatically and militarily. As Pakistani security analyst Amir Rana put it, any fresh militant attack on India at this delicate moment “will have severe implications for Pakistan”. Analyst Khalid Ahmed felt that “Any jihadist activity in Kashmir will cause huge damage to Pakistan both diplomatically and economically”.

The Pakistani establishment today finds itself in the proverbial horns of dilemma. It is itching to do what it does best – export terror, but is also mindful of the potentially debilitating consequences that such a line of action would spew, with both the FATF and an India backed by the bulk of the international community not in the mood for condonation or liberality. On the flip side, if the Pakistani establishment is unable to live up to the tall and misleading expectations on J&K that it itself has bred and encouraged amongst generation after generation of its citizens, and if it chooses instead to go down with a whimper, its own standing within Pakistan would become very vulnerable and shaky.

The hard reality, though, is that it is none other than the establishment that has pushed itself into this corner.