Pakistan fails to get out of FATF’s grey list

The Financial Action Task Force (FATF) on Friday retained Pakistan in its “grey list” for failing to adequately investigate and prosecute leaders of UN-designated terror groups, and asked the country to implement a new action plan to tackle serious money laundering risks.

The decision was announced at the end of the multilateral watchdog’s five-day virtual plenary meeting under the German presidency of Marcus Pleyer. FATF noted Pakistan had completed all but one of the 27 items in an old action plan that was drawn up to tackle both money laundering and terror financing when the country was placed in the list of nations under increased monitoring or the grey list in June 2018.

FATF president Pleyer said the multilateral watchdog’s members could consider removing Pakistan from the grey list only after conducting two separate on-site inspections following the completion of the old and new action plans. The inspections would have to demonstrate that improvements made by Pakistan are sustainable, he told a virtual news briefing.

Experts said FATF’s decision meant that Pakistan is likely to remain in the grey list for at least one more year as it was unlikely that the country would be able to complete both action plans before the watchdog’s next plenary meeting in October.

An outcome statement issued at the end of the meeting referred to the remaining item in the old action plan and said: “The FATF encourages Pakistan to continue to make progress to address as soon as possible the one remaining CFT (counterterrorist financing)-related item by demonstrating that TF (terrorist financing) investigations and prosecutions target senior leaders and commanders of UN-designated terrorist groups.”

Experts pointed out the sole remaining item in the old action plan was significant as Pakistan has given few indications that it intends to investigate and prosecute leaders and commanders of all the eight terror groups that were named by FATF in the past – the Afghan Taliban, Haqqani Network, Lashkar-e-Taiba (LeT), Jaish-e-Mohammed (JeM), Jamaat-ud-Dawah (JuD), Falah-e-Insaniyat Foundation, al Qaeda and Islamic State.

So far, Pakistani authorities have only prosecuted senior leaders of LeT and JuD, including LeT founder Hafiz Saeed and several of his senior aides. Saeed and some of his aides are currently serving sentences given to them after they were found guilty in a string of terror financing cases last year.

However, no action has been taken against leaders of JeM, such as its chief Masood Azhar, despite the group being linked to several high-profile terror attacks in recent years, or the Afghan Taliban, which has stepped up fund raising on Pakistani soil in recent weeks against the backdrop of the withdrawal of US and NATO forces from Afghanistan.

Also read | Pakistan asked to target senior terror leaders: FATF action explained in 10 points

Pleyer said the new action plan to tackle money laundering was drawn up after FATF’s regional partner, the Asia Pacific Group, identified a “number of serious issues” during an assessment in 2019. The outcome statement said Pakistan had committed itself to the new action plan this month to address “strategic deficiencies”.

The new action plan includes six items, including enhancing international cooperation by amending Pakistan’s mutual legal assistance law, and seeking help from foreign countries to implement counterterror designations under UN Security Council Resolution 1373.

Pakistan must also show that supervisors are conducting on-site and off-site supervision commensurate with specific risks associated with designated non-financial businesses and professions (DNFBPs), including applying appropriate sanctions, and that “proportionate and dissuasive sanctions are applied consistently to all legal persons and legal arrangements for non-compliance with beneficial ownership requirements”.

FATF said Pakistan must also demonstrate an “increase in ML (money laundering) investigations and prosecutions and that proceeds of crime continue to be restrained and confiscated in line with Pakistan’s risk profile, including working with foreign counterparts to trace, freeze, and confiscate assets”, and that DNFBPs are monitored for compliance with proliferation financing requirements.

However, the watchdog noted that “Pakistan’s continued political commitment has led to significant progress across a comprehensive CFT action plan”. It noted that since February, Pakistan has made progress in imposing effective, proportionate and dissuasive sanctions for terror financing convictions and that a “targeted financial sanctions regime was being used effectively” to target terrorist assets.

Pleyer said that while Pakistan has made some improvements in tackling money laundering risks, the country “is still failing to effectively implement the global FATF standards across a number of areas”. He added: “This means the risks of money laundering remain high, which in turn can fuel corruption and organised crime.”

He described the two action plans as separate processes. Once the old action plan is “largely addressed”, FATF’s members will decide whether to conduct an on-site inspection. “Usually, once an on-site has been successfully completed, membership can decide on delisting a country,” he said.

“But in this case, we have a parallel action plan with all the action items...and then Pakistan must also largely complete all the items on this action plan. It will be a separate on-site to decide on this action plan. So the delisting will not occur before both action plans are completed and two on-sites have been granted and successfully completed, and have shown that the improvements are sustainable before the FATF members decide on delisting,” Pleyer said.

Sameer Patil, fellow for international security studies at Gateway House, said Pakistan will have to take significant action to complete the old action plan.

“Acting on the last agenda item for which Pakistan has been retained on FATF’s grey list will require the Pakistani establishment to sever its umbilical cord with the anti-India and Afghanistan-centric terror groups. Such an action will have its own consequences for Pakistan. We have seen in the past that what it projected as severe crackdowns on terror groups were a mere sham. So, it will be interesting to see how Pakistan acts on this count this time,” he said.