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March 9, 2018

Some more on the FATF


March 9, 2018

A G-7 Financial Action Task Force was created in 1989 and tasked to develop international mechanisms against ‘money laundering’. In 2001, with the 9/11 attack, interdicting ‘terror financing’ was added to its portfolio. UNSCR 1267 detailed groups and actions against them through such legislation which signatories to this combined international effort on the war against terror were required to enact through their governmental processes. These lists of actions have been updated, added to and expanded to create comprehensive mechanisms to prohibit money laundering and terror financing through a nation’s money channels – public, private or individual.

Pakistan is a signatory to this process and has fully subscribed to this list of actions and agreements. A Paris-based international group of FATF representatives frequently visits different countries, especially those which exist on the edge of loose legislation and implementation to urge a more resolute action. As told, an FATF group visited Pakistan as late as November 2017 and exhorted plugging holes. For reasons which Pakistan will now explain to the world, the country has been slow to close the loop and some legislation was left unattended. As a consequence, Pakistan has been placed on the watch-list for a final action on it in June to either blacklist or find better conformance from it.

There are hosts of reasons why Pakistan was found ‘slow’ on comprehensive legislation and full implementation. Some of it may have had to do with a weak legislative process under the two previous governments which were far more overwhelmed with unstable internal political dynamics which had seen prime ministers removed amid an ensuing agitation. Some of it may be recent, but governments before then too were lackadaisical towards fulfilling essential global undertakings. Most was done, some wasn’t. And that forced world powers, some as friendly as China, to bring Pakistan into the spotlight for repeated erring on an essential requirement.

Money laundering, which was the initial focus, has been of particular interest in Pakistan – but in another way. A restrictive foreign exchange regime of 1947 was amended in 1992 under the Protection of Economic Reforms Act, further liberated in 2003 by Musharraf. This opened the playfield for both inward and outward remittances through all channels. Back in 1979 it meant significant Saudi money coming in to enable the CIA-ISI mujahideen to effectively counter the Soviets in Afghanistan. The Saudis doubled their gains by inducting like-minded Deobandi ulema to forward their strain of Islam by diverting funds into their coffers. The strict code meant excising those not prescribing to it, which meant most, but it became the harshest in its treatment of the Shia strain. Islam in Pakistan was soon embroiled along sectarian lines. Geopolitically, Pakistan had to now balance an imposed Saudi-isation with its relations with Iran, equally sensitive to its Shia interests.

It was such freedom of movement of money which was intended to be curtailed by the FATF. Inherent laxity in governance is also an unfortunate tradition in Pakistan which rarely sees focused leadership in policy formulation and implementation. Two, an unfortunate recourse of the elites to use legal statutes to their personal and familial advantage, such as the liberal foreign exchange regulation, has been the most popular means of moving money abroad. This then parks itself in foreign banks and assets which remain hidden from declaratory mechanisms in the country. This misuse has rendered Pakistan’s domestic politics to injurious reverberations while degrading the general credibility of political leadership as a class. Democracy as a political system still survives but is held in very poor assessment. That impacts the global credibility of the political leadership.

Two possible events stand out with wide manifestations in domestic politics. Nawaz Sharif, Pakistan’s three-time prime minister, was found to have erred sufficiently in his conduct in that position, as disclosed by the Panama leaks, causing him to be indicted and removed. Pakistan, already buffeted by regional strife seeping into its territories, now stands supplanted by internal instability. The country seems direction-less and dysfunctional, and the FATF has only formalised the state of internal and external paralysis by its declaration of Pakistan’s dismalness as a state.

There are strong perceptions that the elites of this country have forsaken international obligations at the altar of tribal interest. Properties and assets belonging to noted Pakistan dot selected spots of Europe, the Middle East and the US. Whether such laxity was also desired by certain state elements to retain flexibility to fund and enable armed groups to serve the state’s interests is not entirely outside the domain of possibilities, given that this has been the most popular recourse for most nations in the region in an intense interplay of regional geodynamics.

This opened Pakistan up to numerous allegations, especially by India to pin all militant activities in Indian-held Kashmir on Pakistani groups, adding yet another complexity to Pakistan’s beleaguered foreign policy. Afghanistan makes similar noises as does the US in Afghanistan now. It may be aimed at isolating Pakistan in the regional matrix but how much is Pakistan complicit in making such framing possible is what we will need to introspect over. This remains Pakistan’s foremost predicament.

To escape this dragnet, three clear steps will have to be taken. Resurrect NAP (National Action Plan) and begin work on it in earnest point by point, making sure each point of action has a full scheme of implementable plans to implement, and that compliance is complete in all respects. Two, complete all legislative formalities and implementation mechanisms flowing out of UNSCR 1267 and regardless of who these impinge upon, enact those in letter and spirit. There is no escape from this, for any consideration and without exception. This is an international obligation. Statecraft will need to find alternative tools of engagement in pursuit of national interests.

On the groups which irk India, and have thus found American support to corner Pakistan as an errant state, other than full implementation of the financial actions all matters of legal and institutional nature will need Pakistan to explain its position to the international community, especially where national statutes are at variance. For India to be satisfied it will have to engage with Pakistan in a sustained dialogue to understand better the future management of these groups.

Religious extremism and militancy are indeed Pakistan’s Achilles heel and need to be addressed in a wholesome undertaking with all stakeholders. Like prevalent global trends among states, Pakistani society too has moved significantly to the Right on the ideology spectrum; to move it back to the middle will need a gradual weaning away with a better sense of understanding among friends and foes alike. Otherwise we must all be ready to suffer even more under increased polarisation, domestically and regionally.

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