FATF: Geopolitics & Struggling Pakistan Economy
In the age of financial integration and trade liberalization Pakistan economy still struggles because of great power politics. For last two decades, it is chocked by the conditionalities of the international organizations trying to control the economy. It is quite evident that Pakistan bears great geopolitical importance, and it is a key player in ensuring stability in South and Central Asia. As Pakistan lies at the intersection of global power politics and rivalries, anything that impacts its security and stability attracts foreign intervention. Therefore, great powers have always tried to control drivers of Pakistan’s economic and political decisions for their political gains.
Since 9/11 attacks, global politics changed dramatically, and the Financial Action Task Force (FATF) became a key entity for monitoring terror financing and money laundering. It broadened its scope and authority to include nations with weak financial institutions in its assessment and asked them to adhere to an action plan. Pakistan was put into the grey-list for sluggish progress towards compliance to United Nations Security Council Resolutions for the third time in 2018. Pakistan was requested by the FATF to comply with a 27-point Action Plan in order to be removed off the grey list. Pakistan took a number of concrete steps, including amendment of the Anti-Money Laundering Act (2010), strengthening the roles of the Federal Board of Revenue (FBR), the Federal Investigation Agency (FIA), and the State Bank of Pakistan (SBP), and enacting stringent measures in the interior ministry to chock terrorist networks’ financial lifelines.
According to the FATF’s suggested measures, Pakistan has been instructed to make unprecedented efforts to uncover and prosecute all forms of terrorist activities. The 27-point agenda included eight responsibilities pertaining to tracking and curtailing terror-financing mechanisms, four commitments relating to halting currency movement across the border, and five suggestions relating to improving banking mechanisms and their oversight to make them less vulnerable to terror-financing activities. The Hawala/Hundi (Alternative Remittance System) were also targeted. The government has also been working on establishing a coordinated relationship between various investigative institutions and the Federal Bureau of Revenue (FBR) in order to stop money being laundered out of Pakistan. It has been suggested that the FBR’s participation in tax evasion investigations be expanded and encouraged.
Following its placement on the grey-list in June 2018, Pakistan took various legislative steps to comply with the FATF’s 27-point action plan. Amendments to the Anti-Terrorism Act, Limited Liability Partnership Bill, Anti-Money Laundering Bills, and other bills are examples of these legislative measures. Pakistan’s position on the Basel AML Index has improved as a result of these adjustments. The FATF’s set of 40 recommendations, as well as each country’s Mutual Evaluation Reports (MER), impact the Basel AML Index.
Pakistan currently ranks 28th out of 141 nations in the ranking, climbing five places from the previous assessment. Pakistan’s total risk score is 6.30, with 10 being the highest level of danger. In the seven-country comparison, it’s worth noting that nations like Sri Lanka (6.52), Cambodia (7.1), and Vietnam (7.04) have a greater risk score compared to Pakistan, but they’re not grey-listed or under FATF scrutiny.
When compared to nations that have exited the grey list, such as Iceland, Bangladesh, and Bhutan, (who never faced severe conditions) FATF’s inspection of Pakistan’s TF/ML assessment and prosecution was far more stringent. Pakistan’s 27-point action plan may be the FATF’s most ambitious, but in response, the country implemented major structural reforms to increase compliance with global norms. That is a success story in itself for a country with as many risks and obstacles as Pakistan.
Pakistan’s officials were confident about moving off the grey list in June 2021, but the decision disappointed experts as well. Pakistan was not only kept on the grey list by FATF, but it was also given an extra action plan. Experts argue that political motives are the driving force behind global governance procedures and legal frameworks instead of adherence to the law.
Pakistan was placed on the FATF grey list three years ago, and it has been attempting to remove itself off the list ever since. As a result of the FATF’s newest decision, the country would continue to face challenges in obtaining funds in the form of investments and assistance from international organizations such as the International Monetary Fund (IMF). Pakistan has sustained a loss of $38 billion in economic damages as a result of the FATF’s decision to place the nation on its grey list three times between 2008 and 2019.
Being on the FATF’s grey list indicates that the nation will be subjected to more stringent surveillance. Despite the fact that there are no direct economic consequences, the listing has had an impact on a number of industries. This is not the first time Pakistan has been placed on the grey list, but the monitoring process has been tightened since earlier listings did not have financial, geopolitical, or reputational consequences. Grey-listing is having an increasingly negative economic impact on foreign direct investment (FDI) and ease of doing business, while adversaries have used Pakistan’s position to harm its reputation as a responsible member of the international community.
Given the geopolitical situation of the region, it’s possible that the FATF would be used as a stick to force Pakistan to comply with political demands. FATF has been slammed for being a politically motivated forum to exert pressure on Pakistan. FATF is seen as a geopolitical instrument since it is becoming increasingly evident that Pakistan’s legal, regulatory, and financial frameworks are far more robust than those of other nations on the grey list, as well as those that aren’t on the list.
The FATF’s decision to retain Pakistan on the grey list as well as impose a new action plan for the nation last month stirred concerns, with many observers claiming that the goalposts had been moved for Pakistan despite its high level of compliance. FATF has been politicized and influenced by powerful countries who want to defeat their competitors by erecting economic hurdles. Manipulation of a significant technical forum for limited political goals against Pakistan, on the other hand, is a disgrace.
Author Info: The author is an economist & independent researcher. She can be reached at saniazeb8@gmail.com