Pakistan to Stay on FATF Grey List till February 2021

News Desk

Pakistan will continue to remain on the grey list of the Financial Action Task Force (FATF) for another four months till February 2021 for six out of 27 unmet action plan targets on anti-money laundering and combating the financing of terrorism (AML/CFT).

FATF is an intergovernmental organization founded in 1989 on the initiative of the G7 to develop policies to combat money laundering. In 2001, its mandate was expanded to include terrorism financing.

Since 2000, FATF has maintained blacklist (formally called the “Call for action”) and the FATF Greylist (formally called the “Other monitored jurisdictions”)

Pakistan was placed on the grey list by the FATF in June 2018 and was given a 27-point action plan to complete it.

The FATF continuing Pakistan in the ‘Grey’ list means its downgrading by IMF, World Bank, ADB, EU and also a reduction in risk rating by Moody’s[1], S&P[2] and Fitch[3].

In October 2019 the FATF had decided to keep Pakistan on its grey list for failure to curb funding to terror groups Lashkar-e-Taiba (LeT), Jaish-e -Mohammed and others. In Feb 2020, the FATF had decided to retain Pakistan in its ‘Grey List’ and warned the country of severe consequences if it fails to prosecute and penalise those involved in terror financing.

Pakistan has made progress across all action plan items and has now largely addressed 21 of 27 action items. As all action plan deadlines have expired, the FATF strongly urges Pakistan to swiftly complete its full action plan by February 2021. According to FATF statement issued in Paris at the end of the Plenary session, on the decision to keep Pakistan in the list of “Jurisdictions under increased monitoring” or greylist.

What are the failed obligations?

Lack of action against the charitable organizations or NPOs linked to the terror groups banned by the UNSC; and delays in the prosecution of banned individuals and entities like Lashkar-e-Taiba (LeT) chief Hafiz Saeed and LeT operations chief, Zaki Ur Rahman Lakhvi, as well as Jaish-e- Mohammad chief Masood Azhar. Pakistan was found non-compliant in cracking down on terror financing through narcotics and smuggling of mining products including precious stones. The FATF process also showed concern about the 4,000 names that were on Pakistan’s Schedule-IV list under the Anti-Terrorism Act up to January, but went missing in September 2020.

At the FATF Plenary, Turkey proposed that the members should consider Pakistan’s good work and instead of waiting for completion of the remaining six of the 27 parameters, an FATF on-site team should visit Pakistan to finalize its assessment. It was not supported by even China, Malaysia and Saudi Arabia. United States, Britain, France and Germany were not satisfied with Islamabad’s commitment in taking strong action against the terror groups operating from its soil.

[1] Moody’s started in 1909 as a publishing company, issuing railroad bond guides called Moody’s Manuals. It later expanded its coverage to municipal and commercial bonds, and is now called Moody’s Investment Services. Moody’s uses the following ratings: Aaa, Aa, A, Baa, Ba, B, Caa, Ca, and C. Numbers are added for intermediate designations, such as Baa1, Baa2, etc. Investment grade is considered to be Baa and above; anything below is considered speculative, or junk.

[2] Standard and Poor’s (S&P) is a company providing financial publishing, information and media to the world’s capital markets. It is owned by the McGraw-Hill Companies. S&P also publishes stock market indices, the most well-known of which is the S&P 500. S&P’s ratings from the best quality borrowers to the lowest are: AAA, AA, A, BBB, BB, B, CCC, CC, C, and D. Investment grade is BBB and above. S&P uses plus and minus to add intermediate designations to these ratings.

[3] Owned by a French Holding Company, Fimalac SA, Fitch operates internationally and offers financial research as well as credit rating services. The smallest of the Big Three, Fitch uses the same ratings scale as S&P.