Pakistan has been placed on the Grey List of the Financial Action Task Force. This will have a huge impact on its financial system and black economy.
Being placed in the ‘Grey List’ by 37 nations of the Financial Action Task Force (FATF) for inadequate measures to counter the funding of terror and money laundering should not hold much fear for Pakistan. After all, Pakistan was on this list from 2012- 2015 but, according to its officials, successfully emerged out of it after fulfilling FATF’s globally accepted recommendations to counter money laundering and terror funding. The circumstances in which Pakistan has re-emerged in this ‘Grey List’ is puzzling, as nearly all the allegations that have been now made against Islamabad for supporting terror outfits are the same as those used against them in 2012: funding terror and money-laundering that led to violent attacks on India in November 2008.
Putting Pakistan on the ‘Grey List’ then and now can be traced back to the nefarious activities of the likes of Hafiz Sayeed, who was the mastermind of the Mumbai terror attacks of 2008, and was designated as a terrorist by the UN Security Council. Then there is also Masood Azhar, who brings a fair share of infamy and disrepute to Pakistan–but the country’s deep state finds such miscreants useful enough to sustain them. Hundreds of other Islamic militants, too, carry on with the ordinary business of their lives, raising funds to spew hate and violence, unencumbered by the laws of the land or Pakistan routinely figuring in the ‘Grey List’ of FATF.
Ideally, Pakistan should have been transformed after spending three years in FATF’s Grey List. It seems there was either a gap between promise and delivery on the ground or there is merit in Islamabad’s accusation that their presence on the list is politically-motivated. Pakistan’s Express Tribune does not buy the government view,
The UK’s National Crimes Agency’s National Strategic Assessment of Serious and Organised Crime in 2018 found out that Pakistan was one of the five countries with most persistent impact across most of money laundering threats in the UK. Also the International Narcotics Control Strategy Report in 2014 also noted that the black market economy in Pakistan was generating substantial demand for money laundering and illicit financing.
What is highlighted by the writer as a shortcoming is seen by many economists as a proof of the country’s resilience. Conservative estimates of Pakistan’s black economy ranges from 20%-30% of its total GDP of $300 billion, which largely comes from drug trafficking and is laundered to enter the system.
Pakistan’s English-language media has been unsparing in their criticism of the country’s government and how it has been lackadaisical about taking firm steps to control these militant organisations from funding their unlawful activities. What has riled them the most is the manner in which Sayeed is being mainstreamed by the ‘establishment,’ which is a euphemism for the omnipotent Pakistan army. Sayeed has floated his own party and has been allowed to contest the forthcoming elections.
Two days before the Task Force announced Pakistan’s place on the list, Islamabad had announced 26 points on how they would bring in integrity to their financial system. FATF was not impressed by their pleadings and the Task Force wanted the Pakistan government to implement its policy directives within two years and the first phase to be completed by January 2019.
What will be the impact of the grey-listing on Pakistani politics and economy? First, a few disclaimers: Pakistan has not yet been black-listed and it still has some time before it falls off the precipice. However, this does not mean that private companies would find it easy to raise funds for their projects. Life would get trickier for them as their proposals will be subject to serious due diligence. The government, which is on the threshold of a serious debt-repayment crisis, will find it impossible to convince multilateral bodies like the International Monetary Fund (IMF), the Asian Development Bank (ADB) and the World Bank (WB), to extend Islamabad any credit lines. Besides being grey-listed, Pakistan is facing problems after it received copious funds from China to build the China-Pakistan Economic Corridor (CPEC). The IMF and WB, before lending a penny, would like to know how Pakistan had increased its debt by executing China-sponsored infrastructure projects. Neither China nor Pakistan would be keen to release these details.
Perhaps the worst impact of being grey-listed is going to be that Pakistan could get into a tighter embrace of China. For many Pakistanis, the growing reliance on China is deeply distressing as they fear that their country could turn into a colony of their neighbour and they would lose their strategic autonomy. China, to its credit, has been pressuring Pakistan to reign in its strategic assets like Azhar and Sayeed. In the past, China had vetoed US attempts to designate Azhar as a terrorist, but they may not help any further. The Pakistani media has taken notice of how their allies, China and Turkey, did not come to their rescue when the US and India were lobbying for its grey-listing. There is fear of global isolation if Pakistan doesn’t clean up its act.
On the other hand, this writer, during a recent trip to Pakistan, had found a touch of schizophrenia amongst the intelligentsia in Islamabad who still believe that China will not allow Islamabad to sink into a massive debt. They believed that it was too deeply invested in Pakistan and its infrastructure to allow any harm to visit them. Expectedly, the Chinese have extended a loan to Pakistan of a billion dollars to tide over its financial problems in the short term. Pakistan’s financial system could be asphyxiated if FATF’s policy regime is implemented.
In a lot of ways, figuring in the FATF is a big letdown for the Pakistani army. For the past few years, they have assiduously built an image of taking on the terrorists. Pakistan’s non-political citizenry believes in the narrative that peace has returned to their country due to anti-terrorist operations of the army. They are willing to overlook the severe collateral damage that this operation has caused in the FATA area — driving out its natives to all parts of the country. As the media is tightly controlled by the army, there is little reporting on Pashtun protests that are taking place in different parts of the country. The so-called fight against terror has hurt the Pakistani society grievously, and now by following the FATF recommendations, it could find its strength — black economy — eroding further.