Pakistan and FATF

What is the issue?

Financial Action Task Force (FATF) has grey listed Pakistan for its alleged laxity in curtailing finances of terrorist groups within its soil.
The move was initiated by the U.S. and will now place Pakistan under international scrutiny to prove its compliance with FATF norms.

What is the Financial Action Task Force?

The Financial Action Task Force (FATF) was set up in 1989 by the western G7 countries, with headquarters in Paris.
FATF has 37 members that include all 5 permanent members of the Security Council, and other countries with economic influence.
Two regional organisations, the Gulf Cooperation Council (GCC) and the European Commission (EC) are also its members.
Saudi Arabia and Israel are “observer countries” (partial membership).
India became a full member in 2010.

What is the objective?

FATF acts as an ‘international watchdog’ on issues of money-laundering and financing of terrorism.
It works on a peer reviewing model.
It is empowered to curtail financing of UN-designated terrorist groups.
It can publicly sensor countries that are not abiding by its norms.
Such censors would make it difficult for the concerned countries to source financial flows internationally and thereby constrain them economically.

What is the issue with Pakistan?

Pakistan is particularly vulnerable to pressures from FATF.
This is because multiple internationally designated terrorist groups operate from its soil.
Notable among them are the Afghan Taliban, Haqqani Network, Lashkar-e-Taiba (LeT) and Jaish-e-Mohammed (JeM).
Pakistan argues that it is doing its best to prevent terrorism emanating from its soil.
But it does not recognize India focused JeM and LeT as terrorists.
These groups were publicly making calls for promoting unrest in India.
Moreover there are ample evidence for their role in the Pathankot attack and the 26/11 Mumbai attack.
Despite these, Pakistan has been claiming absence of conclusive proof.

What are the America's Concerns?

U.S. backed regime in Kabul is seeing increasing threats from the Taliban, which seems to be operating with Pakistani support.

To save the regime, the U.S. recently augmented its troops in Afghanistan and is working to strengthen the Afghan armed forces.
Additionally, the U.S. has cut defence and economic assistance to Pakistan for going soft on terrorists groups that operate from within Pakistani soil.
In line with these developments, the US initiated moves at FATF to place Pakistan on the “grey list” (which will come into effect by June).
Notably, the U.S. and its NATO allies are more focused on the groups invested in Afghanistan than the ones directed at India.

What is the way ahead?

As Pakistan has now been placed in the grey list, it will now have to provide a detailed action plan to curbing funding for UN-designated terrorist groups.
If Pakistan fails, FATF will be ‘black listing’ it, a move that could virtually cut all financial flows.
The developments at FATF have frustrated many in Pakistan.
But no political party seems capable of asking the military to end its support for terrorists.
As there seems to be a lack of a genuine effort to curtail terrorist activity, all major economies must be persuaded to boycott Pakistan.
While China might continue to aid Pakistan financially, its funding model thus far has been only increasing Pakistan’s debt burden.
Given its precarious foreign exchange position, Pakistan will inevitably have to seek a bailout from international organisations like IMF and World Bank.
Consensus needs to be strengthened for not providing concessional credits unless terror infrastructure is irrevocably dismantled.

Source: Business Line