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Department of economics

Name

Wajhullah fahim

Roll-no

1019-bh-econ-18

Subject

Terrorsim economics

Session

2018-22 (morning)

Summitted to

Sir hassam waheed

Topic

FATF and Pakistan

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Contents
FATF and Pakistan: ........................................................................................................................ 3
Introduction of FATF: ................................................................................................................. 3
Number of list ................................................................................................................................ 3
Asian Pacific Group: ....................................................................................................................... 3
History of FATF and Pakistan ........................................................................................................ 4
Under evaluation process ..................................................................................................... 4
In 2012 ................................................................................................................................. 4
In 2015 ................................................................................................................................. 4
In 2018 ................................................................................................................................. 5
FATF plenary session of January 2019 ............................................................................... 5
FATF plenary session of June 2019..................................................................................... 5
FATF announcement of October 2019 ................................................................................ 5
Virtual Session of FATF of February 2020 ......................................................................... 5
FATF Virtual Session of October 2020 ............................................................................... 5
Virtual plenary Session of FATF on February 2021 ........................................................... 6
FATF plenary session of June 2021..................................................................................... 6
FATF announcement of October 2021 ................................................................................ 6
Virtual Session of FATF on March 2022 ............................................................................ 6
Effect of FATF’s Grey-listing on Pakistan’s economy: ................................................................. 7
Measure taken by Pakistan.............................................................................................................. 8
Why Pakistan is still in the grey list? .............................................................................................. 9
Suggestion ...................................................................................................................................... 9
Conclusion .................................................................................................................................... 11
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FATF and Pakistan:

Introduction of FATF:
In 1989, the G7 summit was held in Paris and decided to form a body to control money
laundering among inter-government. This body was named as Financial Action Task Force
(FATF). Due to the increase of money laundering in the 1980s, it created pressure and threat to
the international Banking and Financing system, FATF was formed to control money laundering
so that pressure and threat over international Banking and financing can be controlled and
minimized. The headquarter of FATF is located in Paris. The current members number of FATF
is thirty-nine members.

Number of Lists
There are two types of list
I. Grey list
This list is also called a Warning list. When any country finds guilty of money laundering and
any financial help to any terrorist organization, then that country includes in the grey list.
Different tasks are presented to the grey-listed country, on the successful completion of tasks the
country will remove from the grey list. Nowadays there are twenty-four countries are in the grey
list.
II. Black list
If any country does not take the necessary steps to control money laundering and terrorist
financing or if any country fails in the completion of recommended tasks of FATF then that
country will be black-listed and different suctions will apply. Black listed country cannot trade
with other nations. North Korea and Iran are two countries which are currently black-listed by
the FATF.

Asian Pacific Group:

In FATF there are two sub-office or regional offices and one of them is the Asian Pacific group.
In 1995 a sub-office or regional office of FATF was formed in which countries of the Asian and
Pacific regions were included to check the money laundering and terrorism financing in these
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regions. This sub-office or regional office of FATF is called as APG (Asia Pacific Group) and
Pakistan is present in the APG.

History of FATF and Pakistan

In the history of Pakistan, FATF include Pakistan in the grey list two times. History between
FATF and Pakistan can be described as,

 Under evaluation process

During 2005 and 2009, Pakistan was under the evaluation process of FATF, due to a lack of
proper rules and regulations about money laundering, terrorism financing, and the absence of
financial monitoring Unit. In 2018 Pakistan has again undergone the evaluation process of
FATF.

 In 2012
First time FATF included Pakistan in the grey list was in 2012. The first reason was the
discovery of Osama bin Laden by the American government at Abbottabad which raise questions
about Pakistan’s performance against terrorists and terrorism and also international organizations
and bodies started questions about the credibility of the security level and intelligences agencies
of Pakistan. Secondly, United Nations also recommended FATF to put Pakistan in the grey list
because according to United Nations, Pakistan was not following UN security resolutions of
1267 and 1373. The UN security resolutions of 1267 and 1373, every member of the United
Nation will not allow any militant groups to operate within their boundary and at that time
different militants group such as Lashkar-e- Taiba, TTP, and Jamait-ud-Daawah were fully
operating in Pakistan. On the basis of these points, Pakistan was included in the grey list and
ordered to work on forty parameters to be whitelisted.

 In 2015
After three years in February 2015, Pakistan was removed from the grey list and included in the
white list due to some serious steps taken by the government of Pakistan. The first step was the
Anti-terrorism act amendment 2013 in which the government of Pakistan allowed the army
forces to crackdown on all terrorist groups. The second step was the formation of the National
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Internal Security Policy 2014 in which the government of Pakistan banned all the extremist and
militant groups which were operating in Pakistan.
 In 2018
In 2018, Pakistan was again grey-listed by FATF, due to a controversial decision of the Lahore
High Court. The Lahore High Court allowed the ameer of Jamaat-ud- Dawah Mr. Hafiz Saeed to
carry out his daily and political activities which FATF considered as deficiencies in policy
implementation regarding Money laundering and terrorist financing due to this reason Pakistan
was again included in the grey list. FATF recommended Pakistan to work on different twenty-
seven parameters and later included other six parameters for removal from the grey list.
 FATF plenary session of January 2019
In the plenary session of FATF in January 2019, FATF evaluated Pakistan’s performance on the
action plan and concluded out of twenty-seven parameters, only one parameter was successfully
implemented, one was partially implemented and twenty-five parameters were not addressed by
the government of Pakistan that why Pakistan was kept in the grey list.
 FATF plenary session of June 2019
In the plenary session of FATF which was held in June 2019 in this session FATF confirmed out
of twenty-seven parameters, two parameters were successfully implemented by the government
of Pakistan, twelve parameters were partially implemented and twelve parameters were not
addressed.
 FATF announcement of October 2019
On 16th October 2019, FATF released a statement in which it was decided to keep Pakistan in the
Grey list up till February 2020 and ordered the government of Pakistan to take more measures
against money laundering and terrorism financing.
 Virtual Session of FATF of February 2020
From 19th to 21st February 2020, FATF plenary session was held and decided Pakistan would
remain the grey list.

 FATF Virtual Session of October 2020

After three days of the plenary session of FATF, on 20th October 2020, it was decided Pakistan
would remain in the grey list. According to the statement released by FATF, the government of
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Pakistan needed to work more on investigations and prosecutions of money laundering and
terrorism financing.

 Virtual plenary Session of FATF on February 2021

After four days of the virtual meeting of FATF officials, the president of FATF announced
Pakistan would remain in the grey list up till to June 2012. FATF officials admired the efforts of
Pakistan to control terrorism financing and money laundering and twenty-four points of FATF
out of twenty-seven were fully addressed.

 FATF plenary session of June 2021

From 20th June to 25th June, five days meeting of FATF was held and decided Pakistan would
remain in the grey list and stressed to the government of Pakistan to increase its implementation
measures on terrorism financing and money laundering policies.

 FATF announcement of October 2021

On 21st October 2021, FATF announced Pakistan would remain in the grey list for another four
months. According to this announcement Pakistan successfully implemented twenty-six
parameters out of twenty-seven on terrorism financing and four out of seven on money
laundering.

 Virtual Session of FATF on March 2022

From 1st March to 4th March 2022 virtual session of FATF about Pakistan was held in Paris in
which the report of the Asia- Pacific group was evaluated and conformed Pakistan successfully
implemented twenty-six parameters out of twenty-seven. In this session, it was decided that
Pakistan would remain in the grey list.
Diagramtic discussion

2018, Pakistan again

2012 , Pakistan in the 2015, Pakistan removed
grey-listed
grey list from the grey list

2022, Pakistan implemented 26/27 parameters but

still in the grey list
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Effect of FATF’s Grey-listing on Pakistan’s economy:

Following are some effects of FATF’s grey-listing on Pakistan’s economy
 Effect on Banking System of Pakistan
As the Banking system of Pakistan is linked with a different international financial system like
IMF, and World Bank, and these institutions also link with FATF, so it can create problems for
the banking system of Pakistan.

 Effect of foreign and international financial institutions

The government of Pakistan usually deals with foreign and different international financial
institutions for loan programs. The foreign and international financial institutions hesitate to deal
with FATF grey listed economies. So in this way, Pakistan’s economy can also affect.

 Effect on Real GDP

According to research agency Tabadlab, since 2018 Pakistan has lost of $38 billion worth of real
GDP due to being grey-listed by FATF.
 Decrease of FDI
FDI is very important for the development of the economy. Due to terrorism, the inflow of FDI
in Pakistan is already very low and due to inclusion in the grey list the rate of FDI flow is
decreasing further because the foreign investors hesitate to invest in Pakistan because of the
grey-list.
 Include in the black list
The biggest problem for grey-listed countries is to push in the black list, like other grey-listed
Countries Pakistan is also facing the threat of inclusion in the Black list
 Effect on stock market
As foreign investors hesitate to invest in Pakistan, the stock market performance is inversely
affecting
 Currency devaluation
The Pakistani currency is continuously facing devaluation. As the foreign transactions are also
decreasing due to grey-listing, the rupees can further devalue which leads to an increase in the
foreign debt of Pakistan.
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 High rate of inflation

If FATF, pushes Pakistan in the black list then Pakistan can face a high rate of inflation and civil
war like in 2011 Syria faced such problems when it was black-listed.

 Boycott by international community

If we take example of North Korea and Iran, after black-listed by FATF,international
communitites boycotted them. In the current situation if international communities start
boycotting to Pakistan then the it will create serious problems to already sinking economy of
Pakistan.

Measures taken by Pakistan

Since 2018, when Pakistan was included in the grey list, the government of Pakistan has taken
too many measures to control money laundering and terrorist financing. The government of
Pakistan introduced the Anti-terrorism Act, the UN Security Council Act, and an amendment to
the Anti-Money Laundering Act. Along with this, the government of Pakistan has done major
developments in many organizations such as the State Bank of Pakistan, Pakistan Security
Exchange Commission, and Pakistan National Counter Terrorism Authority. Pakistan has also
signed MoU with different countries to control money laundering and terrorist financing. On
The recommendation of the United Nations Security Council (UNSC), the government of
Pakistan has frozen many bank accounts which were suspected as financial helpers of different
terrorist organizations. Using technology in the banking system of Pakistan also reduces money
laundering and terrorist financing in Pakistan. On the order of the State Bank of Pakistan, now all
the banks in Pakistan use Customer Due Diligence (CDD) technology which helps in reducing
money laundering and terrorist financing in Pakistan.
After the APS Peshawar attack, on January 2015, the introduction of the National Action Plan
was also one of the major step taken by Pakistan to counter-terrorism. In which the government
of Pakistan decided to crackdown against all the extremist groups and also freeze their bank
accounts. In 2018, the government of Pakistan conducted a conference named as Paigham-e-
Pakistan in which scholars from all sects were invited and released a fatwa for counter-terrorism.
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Why Pakistan is still in the Grey list?

Pakistan has successfully implemented twenty-six parameters out of twenty-seven which are
recommended by FATF but still in the grey list. The American and Indian lobbying in FATF is
considered as the main reason to keep Pakistan in the grey list. The US government wants
Pakistan to involve in the Afghanistan peace process in such a way that they can get benefits but
Pakistan did not agree to this. According to the Indian perspective Jamaat-ud-dawaah, Jaish-e-
Muhammad, and Falah-e-Insaninat like militant groups are responsible for terrorism in India.
The government of Pakistan is supporting and backing these groups. In Pakistan, there are many
NGOs that have foreign financial support. Due to the absence of an auditing system in NGOs, it
becomes a good source of money laundering and terrorist financing in Pakistan. Saudi Arabia
and Iran are two countries that provide financial help to the madrassah of their respective sects.
Many reports have identified many terrorist organizations also get financial help from Saudi
Arabia and Iran. European countries are considered as the safer place for money laundering from
Pakistan because Pakistan has not any bilateral agreement or MoU with the European countries
to control money laundering. Political leaders are always involved in money laundering but in
Pakistan, there is no accountability for the political leaders which increases money laundering in
Pakistan. Many militants and extremist groups have their political wings as well as social welfare
wings which gather funds from the public and use them for different activities. So these are some
possible factors that cause money laundering and terrorist financing in Pakistan and also the
possible reasons why Pakistan is still in the grey list of the FATF even though Pakistan has
completed twenty-six points out of twenty-seven points. The government of Pakistan should take
the necessary steps to solve the above-mentioned problems.

Suggestions
Pakistan has taken some serious steps to stop money laundering and terrorist financing. One of
the reasons for money laundering and terrorist financing in Pakistan is the presence of many
unregistered NGOs which are being run by the different militants and extremist groups, proper
legislation regarding the registration of NGOs should be introduced so that the government can
watch the daily activities and financial transactions of the NGOs. NGOs involved in alleged
transactions should be banned. Some members of FATF blame the religious institutions
(madrassahs) are sources of terrorist financing in Pakistan. Religious scholars are running the
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madrassahs, the government of Pakistan should take control of the financial matters of the
madrassahs so that the world does not blame madrassahs for the terrorist financing and if any
madrassahs find involve in terrorist financing then the government should close them. Actions
should be taken without considering the sects. In different courts of Pakistan, there are many
cases of money laundering still pending. So, the investigation organ of the country and the higher
authorities must resolve such cases on priority bases. So that a country can easily be removed
from the FATF grey list. In recent few years, it was found lack of proper checking and security
system at airports is also the reason for money laundering from Pakistan. In 2015 model, Ayyan
Ali was arrested at Benazir Bhutto International airport Islamabad was an example of money
laundering from the airports. So checking systems at airports should be improved and also
increase authorities of Pakistan Custom at airports. Pakistan has border security problems with
Afghanistan and Iran due to which money laundering and terrorist financing is increased. The
government of Pakistan should increase the border security with these countries and also
immediately complete the border fencing project so that money laundering and terrorist
financing from Iran and Afghanistan can be controlled.
In many cases, it is witnessed that there is no proper accessibility for the international watchdog
to discuss and provide the right to decide money laundering cases according to international law.
So, an accountability-centric reform should be amended. In Pakistan usually, the different anti-
money authorities and accountability authorities carry out politically biased activities.
Constitutional reforms related to anti-money authorities and accountability authorities should be
introduced and implemented so that they can carry out their activities without any political
pressure. Pakistan should sign more MoU with friend countries so that they can also help
Pakistan in the FATF plenary sessions and can also form a strong lobby in FATF that can
support Pakistan’s efforts against Money laundering and terrorist financing. In such a way
Pakistan can be white-listed. By signing MoUs with different countries we can also neutralize
the American and Indian lobbying in the FATF and the American and Indian lobbying is the
main reason for keeping Pakistan in the grey list.

Conclusion
According to FATF Pakistan has successfully implemented twenty-six parameters out of
twenty-seven but FATF still keeps Pakistan in the grey list. Beside the twenty-seven
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recommended parameters of the FATF the Government of Pakistan should also consider some
other necessary steps.The government of Pakistan should revise its foreign policies so that we
can take clear stances at FATF with the collerbation of friend countries in this way we can
expose the double standards of the FATF. Without exposing the double standards of FATF, it is
very difficult to remove Pakistan from the grey list. To expose the double standards of FATF, we
take advantage of the western elite class, western banks, and the BCCI cases. In the Panama
papers, the money laundering of the western elite class and the western bank was exposed and
BCCI was also found in drug money laundering but FATF does not take any action against them
similarly for no actions are taken against the CIA as the CIA is involved in money laundering
and terrorist financing in Iran. The government of Pakistan has also evidence of the Indian
involvement in terrorist financing in Pakistan, those evidence should be public and also present
at FATF so that India's stance on Pakistan for terrorist financing becomes weak and Pakistan can
be white-listed.
Pakistan has also introduced many reforms and bills to anti-money laundering and terrorist
financing but every year our accountability index and law and corruption index are increasing
which means there is some shortage in implementation of anti-money laundering reforms and
bills, strict measures should take so that our indices are improved in this way we can improve our
global image and easily remove from the FATF grey list. The government of Pakistan now
should think to take the above-mentioned steps, without which Pakistan may push to the black
list. If Pakistan is black-listed, then the economic conditions of Pakistan become worst, and it
may lead Pakistan to bankruptcy.