FATF assessment

The matter of the FATF grey list has moved a step forward after Pakistan finally dispatched a Terror Financing Risk Assessment Report to the international financial watchdog. A 12-member team has also been sent to attend a three-day FATF meeting in Sydney, where various Pakistani agencies are set to explain their action plan to representatives of the Paris-based watchdog. We will now learn whether the SBP, NACTA, FIA, FBR and Financial Monitoring Unit are doing enough to place curbs on terrorist finance and money laundering in the country. The delegation has to address a list of questions and observations by FAFT officials on the basis of the risk assessment report sent to the agency. One must also wonder why those questions have not already been addressed, especially since curbing terrorist finance was a crucial part of our own National Action Plan (NAP). The failure to meet international obligations is less serious than the failure to secure the life and security of Pakistan’s own citizens, who have borne the brunt of the security situation in the country.

One would need to undertake a more detailed examination of the report to understand whether the report admits serious regulatory failures or relies merely on scapegoating. Much of the talk in the report about the Pak-Afghan and Pak-Iran borders feels like raising false flags. This would suggest that the bulk of terrorist finance relates to the physical transport of cash across borders, which can’t be more than a minor part of networks that fund terrorist activities in Pakistan. The report mentions a total of 4,643 suspect transactions, which have been blocked since 2015. The blocked transactions are usually those that occur through official banking channels, which is also considered a minor source of terrorist finance. The real issue has always been informal cash flows, through hawala and hundi as well as purely domestic channels.

The report also seems to pin blame for much of the terrorist financing on ‘NGOs’ and ‘foreign agencies.’. The trouble is that such a narrative might float in Pakistan, but is unlikely to find currency with FATF officials, who already suspect that Pakistan is finding excuses not to clean up its own house. The government has also decided not to amend anti-terrorism laws, under the logic that the existing legislation has enough room to take the action required. This is a good decision so as not to create more time delays, but the real task is to show that authorities are taking the appropriate action. Numerous organisations placed on the terrorist list by the UN Security Council remain active and thrive inside Pakistan, with their funding networks more or less known to all. The issue is that there is still a feeling Pakistan is not doing enough.

We have to recognise the risk we may be taking. If the FATF fails to clear Pakistan from its grey list by September this year, it could move the country into the black list, which could lead to serious financial sanctions. The government needs to undertake a wide investigation into terror financing activities in Pakistan, including calls for donations and fund collection. In a positive, this could mobilise the government to finally act seriously on the matter of terrorist financing.