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Pakistan, FATF and the Grey List- An Analysis
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Harsh Upadhayay | Date:26 Mar , 2018 0 Comments
Harsh Upadhayay
is Research Intern at CLAWS.

The Financial Action Task Force (FATF) is an inter-governmental body established in 1989 and is headquartered at Paris. It was the outcome of the G-7 Summit which was held at Paris in 1989. With the initial objective to counter the use financial system by criminals[1], FATF went on to develop mechanisms and standards to fight terrorist financing in 2001. The Task Force was assigned with the responsibility of examining and investigating money laundering techniques and trends, reviewing previous actions already taken at a national or international level,[2]and suggesting recommendations to combat money laundering. At present it has 37 members. India became its member in 2010.

Pakistan and its track record with FATF

In 2009, FATF made a statement concerning the money laundering and finance of terrorism (ML/FT) risks posed by Pakistan.[3] The FATF at that point in time strongly urged Pakistan to implement a permanent Anti Money Laundering and Counter Finance of Terrorism (AML/CFT) framework before the expiration of the Pakistan’s Anti-Money Laundering Ordinance and strongly encouraged Pakistan to establish a comprehensive AML/CFT framework.[4] Failing concrete progress, the FATF made a public statement on 16 February 2012 that “Pakistan has not made sufficient progress in fully implementing its action plan, and certain key Counter Finance of Terrorism (CFT) deficiencies remain.[5] The statement also went on to point out the need for enacting a legislation to ensure that it meets the FATF standards regarding theterrorist financing offence (Special Recommendation II) and the ability to identify, freeze, and confiscate terrorist assets (Special Recommendation III).[6] Subsequently, Pakistan was “grey listed” from 2012-2015.

Now, in February 2018, a proposal to put Pakistan on the “grey list” was floated by four countries, the U.S., the U.K., Germany and France.[7] Initially, the proposal was objected by countries like Turkey, China, Saudi Arabia and the Gulf Cooperation Council (GCC) countries. Thereafter, the U.S. lobbied to bring Saudi Arabia on board, Germany worked on the GCC and India convinced Russia to withdraw their support for Pakistan. China wanted to secure its position as head of the FATF board, and for doing so, American and Indian support is required. The Chinese informed Islamabad that they were opting out as they did not want to “lose face by supporting a move that’s doomed to fail”[8].

Probable reasons for Pakistan being grey-listed?

Pakistan is home to number of terrorist organisations like Lashkar-e-Taiba, Jaish-e-Mohhamad, Hizbul-Mujahideen, Pakistani Taliban, Lashkar-i-Jhangvi, Jamat-ul-Ahrar and the list could go on. Pakistan has also been accused by the United States for not acting against the terror outfits and for extending its tacit support to Haqqani Network.

In November 2012, at the Buenos Aires plenary of the FATF, Pakistan was asked to give an action taken the report on Lashker-e-Taiba, Jammat-ud-Dawa and Falah-i-Insaniyat Foundation[9], which it failed. All these organisations are headed by Hafiz Saaed, a UN designated terrorist who masterminded 26/11 Mumbai attacks.

In the due course, Pakistan orchestrated a crack down on JuD and Hafiz Saaed by putting him under house arrest, freezing and seizure of assets belonging to the Jamaat-ud-Dawa (JuD) as well as of its charity organisation Falah-e-Insaniat Foundation (FIF)[10], which is basically the fund raising arm of the Lashker-e-Taiba. But all these steps of crackdown turned out to be a hogwash, as few days after the crackdown, JuD appeared with a new name the: Tehreek Azadi Jammu and Kashmir (TAJK – Movement for Freedom of Kashmir) and its leader, Hafiz Saeed, a UN designated terrorist went on to deliver fulminating speech, spewing venom against India and the US at the organizations headquarter in Muridke, near Lahore.

Renaming of terrorist organization has been an age old tactics which Pakistani establishment has employed to hoodwink international community to evade any sanction. To substantiate, the United States in early 1990’s mounted pressure on Pakistan that it would be declared a “state sponsor of terrorism”, if it did not act against the Jihadis who were responsible for 1994 and 1995 Kidnappings of western tourists including Americans in Jammu and Kashmir.[11]Pakistan responded by banning Harkat-ul-Ansar (HuA), the group responsible for abducting the tourists. The moment, the U.S. threat of designating Pakistan as the ‘state sponsor of terrorism’ was withdrawn, leaders of HuA resurfaced as leaders of a new group called Harkat-ul-Mujahideen (HuM), which transformed into Jaish-e-Muhammad (JeM) after HuM’s involvement in the 1999 hijacking of an Indian Airlines plane to Taliban-controlled Afghanistan.[12]

The seizure and the crackdown by Pakistani establishment at JuD camps and its facilities was mere eyewash as the camps in Uggi, Battagram, Mansehra and Baffa and the Chela Bandi camp in POK are still operational with the JuD cadres on ground.[13] More astonishing is the fact that only a single administrator with two policemen has been deployed to take-over the sprawling JuD headquarters of 156 acres, which houses a Madrassa, a hospital, a market, a large residential area for ‘Islamic scholars’ and faculty members with armed guards to protect the whole compound. How will a squad of three deal with all these people at JuD headquarters? And why Pakistan is not giving any detail about the whereabouts of Zaki-ur-Rehman Lakhvi, a terrorist and the operational commander of LeT?

All these frantic steps taken by Pakistan were not aimed at shutting the terror outfit and checking the terror finance but to evade the immediate pressure mounted by US and the FATF. So, one can easily conclude that Pakistan to its credit has mastered the art of chicanery when it comes to protecting terrorists and so grey-listing was warranted.

Implications and effects on Pakistan

IMF in its recent Post Programme Monitoring (PPM) report extended warning to Pakistan about its eroding macroeconomic stability amid widening fiscal and external deficits. The International Monetary Fund (IMF) has highlighted that Pakistan’s Net International Reserves (NIR) have declined from $7.476 billion in September 2016 to negative $0.724 billion till mid Feb 2018, posing serious risks to the country’s ability to repay its external debt and liabilities.[14] Owing to the above mentioned fact-finding, it is compelling to evaluate the implications which Pakistan will face after being grey-listed in June-2018.

This will mean that Pakistan’s financial system will be designated as posing a risk to the international financial system over “strategic deficiencies” in its capability to curb financing of terrorist organisations and money laundering.

Being put back on the Grey-list would heighten Pakistan’s risk profile and many financial institutions would be wary of transacting with Pakistani banks and counterparties.[15]

Pakistan might face a downgrade by credit –rating agencies which might further compromise Pakistan’s ability to raise debts in international markets. And it would definitely reduce the credibility of the Pakistani financial system which would eventually result into poor FDI’s and business in Pakistan.

In recent years banks all across the world have been retreating from volatile zones and high risk countries. With already high level of scrutiny which Pakistan faces, grey-listing would further make things more complicated resulting in reassessment of risk –reward scenariosby the international investing community. [16]


With Trump administration tightening its leash on Pakistan by suspending aids and now campaigning against Pakistan at FATF, things might get even worse in days to come, if Pakistan fails to act on terror outfits like Haqqani Network, Taliban and other terror safe heavens. Pakistan for long has bluffed the international community in one way or the other, but all the tactics which Pakistan has been employing stands exposed and will not attain its desired results for long.


[1] For Details see FATF-GAFI Archives,  Accessed on 15 Mar, 2018.

[2] Ibid

[3]For Details See: FATF Statement concerning Iran, Uzbekistan, Turkmenistan, Pakistan and São Tomé and Príncipe – 26 June 2009,  Accessed on, 15 Mar,2018.

[4] Ibid

[5]For Details See: FATF Public Statement – 16 February 2012, Accessed on: 15 Mar, 2018

[6] For Details see: FATF Public Statement – 16 February 2012, Accessed on 16 Mar, 2018.

[7]  Suhasini Haider(2018), “Pakistan on watchlist for terror financing”, Accessed on 16 Mar, 2018.



[8] Imtiaz Ahmad, “ China did not want to ‘lose face’ by backing Pakistan on FATF blacklist: Report”, Accessed on 18 March,2018, URL:



[9] Muhammad Irfan (2018), “How India convinced China to vote against Pakistan in FATF”, Accessed on 17Mar,2018 , URL:


[10]Mubashir Zaidi(2018), “A half-hearted crackdown on Saeed networks”, Accessed on:18 March 2018.

[11] Hussain Haqqani (2018), “Under global pressure, Pakistan is scrambling to hide its terror group — but it’s short-lived”, [], URL:


[12] Ibid

[13] URL:

[14] For Details see : “Pakistan : First Post-Program Monitoring Discussions-Press Release; Staff Report; and Statement by the Executive Director for Pakistan”, dated 14 March,2018, Accessed on 19 March 2018.

[15] Drazen Jorgic, Michelle Price, Sumeet Chatterjee (2018), “Pakistan could face economic pain from return to terrorist financing gray list”,Accessed on 19 March 2018.

[16] URL: Pakistan’s entry into terror grey list could snap its global banking links, (, Accessed on 20 March 2018.

Courtesy: First published on

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