Pakistan’s FATF Conundrum

Salman Ali Ibrahim

Abstract

Since 2008, Pakistan has been actively trying to comply with the Financial
Action Task Force (FATF) standards on money laundering and terrorism
financing. In this respect, Pakistan is on a quest to transform its legal,
regulatory, and enforcement frameworks to curb all kinds of financial
crimes. Pakistan has been grey-listed thrice by the FATF due to strategic
deficiencies in its frameworks to fight money laundering and terrorism
financing. However, it has been argued that pressure from the FATF is a
result of the political influence that global powers have over the workings
of the global watchdog. This paper studies the origin and evolution of the
FATF and Pakistan’s history with the FATF – its instances of falling prey
to the grey list and the reasons behind being placed in this list. It further
tries to address the question of the extent to which the FATF is politicized
and how that has affected Pakistan's case. This paper also analyses the
domestic political developments in Pakistan which have further
complicated Pakistan’s removal from the grey list.

Keywords: Financial Action Task Force, money laundering, terrorism

financing, AML, CFT.

Introduction

Pakistan has had a troubled history with the Financial Action Task Force
(FATF). It was first placed in the list of jurisdictions under increased
monitoring of FATF in 2008. As a result, Pakistan gave high-level
commitments to the global watchdog to legislate on the existing loopholes
regarding money laundering and terrorism financing. In 2012, again,
Pakistan was placed on the grey list for structural deficiencies in its Anti-
Money Laundering (AML) and Combatting Financing of Terrorism (CFT)
regime. However, after a series of legislative and administrative
measures, Pakistan was removed from the list in 2015.

Most recently, it was in June 2018 when Pakistan was once again
placed in the ‘jurisdictions under increased monitoring.’ Since then,
Pakistan has been undergoing a drastic overhaul in its AML regime,
under the 27-point Action Plan for Pakistan, given by the FATF along

Salman Ali Ibrahim is Research Officer at The Pakistan Institute of

International Affairs.
164 PAKISTAN HORIZON

with a strict timeframe. It is said to be the most comprehensive and

rigorous action plan that the FATF has ever designed for any state.1
Besides, Pakistan is also being assessed by a FATF mandated regional
body, Asia Pacific Group (APG) on the effectiveness of its AML/CFT
frameworks.

Such strict monitoring has raised the question of whether Pakistan is

particularly scrutinized due to political pressures by the United States
and India. The FATF has often been criticized for being biased about its
lists of high-risk jurisdictions and jurisdictions under increased
monitoring. Nonetheless, Pakistan has taken a series of measures
ranging from the enactment of laws, capacity building of law enforcement
officials, enhancing interdepartmental coordination, and demonstrating
commitment through effective prosecutions leading to convictions. These
measures will eventually steer Pakistan’s economy in a positive direction,
and will also help in curbing illicit activities within its jurisdiction.

In 2019, the FATF mentioned that illicit drug trafficking, smuggling,

human trafficking, tax evasion, corruption, and other organized crimes
are major grounds for Pakistan’s money laundering problem, which is
facilitated by the hawala networks of informal money transfers. The
report also indicated that the key risk associated with Pakistan is
terrorism financing, which is not merely because of the deficiencies in its
legal framework, but also due to its proximity to Afghanistan and Iran.2

Since 1979, Afghanistan and Iran have been undergoing a process of

change, with regional implications. As a result of international sanctions
on Iran and continued security and political turmoil in Afghanistan, there
has been a progression of the black market and out-of-the-system cash
flows along the western border of Pakistan. This financing in the
underbelly of the financial system has created a parallel economy in this
region. Smuggling of all kinds of goods and commodities coming in and
out of Iran and Afghanistan has also weakened Pakistan’s AML/CFT
regime and rendered structural loopholes in the overall financial system.

1 Statement by Hammad Azhar, Federal Minister of Energy, on Pakistan’s

compliance with FATF Action Plan, as reported on Twitter, 25 February 2021,
https://twitter.com/Hammad_Azhar/status/1364982667297619970/
2 Kateryna Bogusalvka, ‘AML risks in Pakistan: consequences of the latest FATF
report,’ Basel Institute of Governance, 21 October 2019, https://basel
governance.org/blog/aml-risks-pakistan-consequences-latest-fatf-report,
accessed 22 April 2021.
PAKISTAN'S FATF CONUNDRUM 165

The Financial Action Task Force (FATF)

The FATF is the global watchdog that is mandated to set international

standards to curb money laundering and terrorism financing. It is also
called by its French name, Groupe d'action financière (GAFI). The core
function of the FATF is to develop recommendations or standards to
enforce an international mechanism against the use of the financial
system for crime and terrorism.

The FATF strives to generate political will among the states to adopt
legislative and regulatory frameworks and align them with international
standards to fight against money laundering and terrorism financing.3
The FATF monitors states and jurisdictions to check whether they
comply with its standards in letter and spirit, and holds countries
accountable if they fall into high-risk jurisdictions. Currently, the FATF
consists of 37 member countries and two regional organizations. More
than 200 countries and jurisdictions have committed to enforce the
AML/CFT standards set by the FATF.

The FATF identifies states with ineffective or weak AML/CFT regimes

in two publicly available documents, which are issued three times a year,
after each plenary meeting in February, June, and October.4 Based on the
results of the review by the International Cooperation Review Group, the
FATF identifies jurisdictions with strategic AML and CFT deficiencies.
These jurisdictions are classified into two categories: High-Risk
Jurisdictions Subject to a Call for Action, generally referred to as the
‘black list’, and Jurisdictions under Increased Monitoring, notoriously
called the ‘grey list.’5

As of February 2021, only two countries, the Democratic People’s

Republic of Korea (DPRK) and Iran are on the FATF’s blacklist, due to
significant strategic deficiencies in their regimes to counter money
laundering, terrorism financing, and proliferation financing. The FATF
calls on all its members and jurisdictions to exercise enhanced due
diligence, and in serious cases, also urges them to take countermeasures
against such black-listed states to protect the integrity of the

3 FATF, ‘Who we are, ’https://www.fatf-gafi.org/about/whoweare/, accessed 22

April 2021.
4 FATF, ‘High-risk and other monitored jurisdictions,’ https://www.fatf-
gafi.org/publications/high-riskandnon-cooperativejurisdictions/more/more-on-
high-risk-and-non-cooperative-
jurisdictions.html?hf=10&b=0&s=desc(fatf_releasedate), accessed 22 April
2021.
5 Ibid.
166 PAKISTAN HORIZON

international financial system.6 Whereas, in the case of the grey list, the
FATF puts jurisdictions under increased monitoring so that they can
actively and swiftly address the deficiencies in their AML/CFT
frameworks, within the agreed timeframe. Currently, 18 countries,7
including Pakistan, are placed among the jurisdictions under increased
monitoring.8

Origin

The roots of the modern AML approach lie in the late 1980s when the
major concern of developed nations was to curtail the growing menace of
the illicit drug trade and the finances flowing in and out of it. Therefore,
concerted efforts were undertaken at the highest level of international
cooperation. In 1988, the United Nations agreed on the Convention
Against Illicit Traffic in Narcotic Drugs and Psychotropic Substances.
The following year, the Group of Seven9 met in Paris along with the
President of the European Commission and agreed to set up the FATF to
combat money laundering originating from the illicit drug trade.10
Besides G-7, eight other countries also participated in the 1989 summit to
share their experience and enhance the expertise base of the FATF
regarding money laundering.

Three working groups were created by the FATF to achieve its initial
objectives: (i) to analyse how criminals launder their finances, (ii) to
identify international programmes and instruments to combat money

6 FATF, ‘High-Risk Jurisdictions subject to a Call for Action - February 2021,’

https://www.fatf-gafi.org/publications/high-risk-and-other-monitored-
jurisdictions/documents/call-for-action-february-2020.html, accessed 19 March
2021.
7 As of February 2021, the FATF’s list of Jurisdictions with Strategic Deficiencies

includes Albania, the Bahamas, Barbados, Botswana, Cambodia, Ghana,

Iceland, Jamaica, Mauritius, Mongolia, Myanmar, Nicaragua, Pakistan,
Panama, Syria, Uganda, Yemen, and Zimbabwe.
8 FATF, ‘Jurisdictions under Increased Monitoring – 21 February 2020,’

https://www.fatf-gafi.org/publications/high-risk-and-other-monitored-
jurisdictions/documents/increased-monitoring-february-2020.html, accessed 19
March 2021.
9 G-7 or Group of Seven is an intergovernmental alliance comprising of seven

developed countries: the United Kingdom, the United States of America,

France, Germany, Canada, Italy, and Japan.
10 Mathew Redhead, ‘Deep Impact? Refocusing the Anti-Money Laundering Model

on Evidence and Outcomes,’ RUSI Occasional Paper, October 2019, p.5,

https://rusi.org/sites/default/files/20191011_deep_impact_web.pdf
PAKISTAN'S FATF CONUNDRUM 167

laundering, and (iii) to draft specific actions to enhance countries’ ability

to fight money laundering.11

Evolution

The FATF was established with a one-year mandate focused only to deal
with the flow of finance from the illicit narcotics trade.12 Since its
inception, it has significantly enhanced its mandate from curtailing drug
financing to money laundering, transnational crime, terrorism financing,
and proliferation financing. Recently, the FATF members have
generalized its idea of existence to safeguarding global financial integrity.
The FATF started its fight against global financial ills with 16 member
countries, and now it has evolved to more than 205 jurisdictions and
framed a global network of AML with nine FATF-Style Regional Bodies
(FSRBs).13

In 1990, a year after its origin, the FATF agreed on a set of standards,
outlining the legal, operational, and regulatory mechanisms for the
countries to detect, prevent, and prosecute money laundering.14 This set
of recommendations is famously called the 40 Recommendations. The
next year, in 1991, the FATF initiated a self-assessment process for the
member countries to assess the effective implementation of its
recommendations.

In 1996, the FATF revised its original recommendations for the first
time to accommodate the evolving money laundering typologies. However,
the greater shift in the FATF’s mandate came after the incident of the
September 2001 terrorist attacks on US soil. In the next month, in
October 2001, the FATF issued Eight Special Recommendations on
Terrorist Financing, which were later expanded to nine.15 These
recommendations equipped countries to trace and intercept terrorist

11 Financial Action Task Force (FATF), ‘Financial Action Task Force – 30 years’
(Paris: FATF, 2019), p. 14.
12 Mark T. Nance, ‘The regime that FATF built: an introduction to the Financial
Action Task Force,’ Crime, Law and Social Change, March 2018, p.115,
https://doi.org/10.1007/s10611-017-9747-6
13 Ibid.
14 Financial Action Task Force (FATF), ‘FATF 40 Recommendations’ (Paris:
FATF, 2004), p.2, https://www.fatf-gafi.org/media/fatf/documents/FATF%20
Standards%20-%2040%20Recommendations%20rc.pdf
15 Financial Action Task Force (FATF), ‘FATF IX Special Recommendations’
(Paris: FATF, 2008), fatf-gafi.org/media/fatf/documents/reports/FATF%20
Standards%20%20IX%20Special%20Recommendations%20and%20IN%
20rc.pdf
168 PAKISTAN HORIZON

actions and organizations, and also to take action against the individuals
or states involved in terrorism financing.16

Besides, a crucial aspect of this global fight against money laundering

and terrorism financing, after the issuance of special recommendations, is
the monitoring and evaluation of countries’ AML and CFT frameworks
against the accepted international standards. Mutual evaluations by the
FATF and its affiliated regional bodies, such as the APG, in addition to
assessments carried out by the IMF and World Bank, are important tools
to ensure the effective implementation of the FATF recommendations by
all jurisdictions.17

In 2008, the FATF also added the financing of proliferation of weapons

of mass destruction to its mandate, by issuing a new Recommendation 7
which aims to ensure the effective implementation of targeted financial
sanctions under UNSC Resolution 1540.18In its plenary in February 2012,
the FATF expanded its recommendations to respond to the growing
threat of proliferation of Weapons of Mass Destruction (WMD), and also
included other financial crimes such as tax evasion and corruption in its
ambit.19

Threats to the global financial system are continuously evolving. The

use of emerging financial technologies by criminals and terrorists to
achieve their objectives of illicit financing also demand the FATF to
assume a greater role as a global AML watchdog. It has continuously
evolved its standards and tools to facilitate governments to update their
systems to act against financial crimes.

Once a temporary organization, today the FATF holds a position with

a permanent mandate to curb money laundering, terrorism financing,
and proliferation financing. Its mandate has continuously evolved over
time. Today, its areas of work include identifying the threats to the
financial system, developing robust standards to fight these threats,

16 Margaret P. Karns, Karen A. Mingst, and Kendall W. Stiles, International

Organizations The Politics and Processes of Global Governance (Colorado, USA:
Lynne Rienner, 2016), p.375.
17 Ibid.
18 Financial Action Task Force (FATF), ‘International Standards on Combating
Money Laundering and the Financing of Terrorism & Proliferation’ (Paris:
FATF, 2020), p.8.
19 FATF, ‘The FATF Recommendations,’ http://search.fatf-gafi.org/documents/
documents/internationalstandardsoncombatingmoneylaunderingandthefinanci
ngofterrorismproliferation-thefatfrecommendations.html, accessed 22 April
2021.
PAKISTAN'S FATF CONUNDRUM 169

assessing countries’ compliance with the FATF standards, and

identifying countries that fail to comply.20

Pakistan’s history with the FATF

Pakistan was first placed on the FATF’s grey list in February 2008, but
was removed after providing a high-level commitment to comply with its
recommendations. It was again put on the grey list in 2012 and was
removed in 2015 after AML legislation was updated according to the
FATF requirements. Pakistan was grey-listed for the third time in June
2018 on the pretext of strategic deficiencies in the AML/CFT
framework.21

2008: the first grey-listing

After its plenary in February 2008, the FATF, in its statement, warned
the international financial institutions about the vulnerabilities related
to money laundering and terrorism financing due to deficiencies in the
AML/CFT regime of Pakistan. In this respect, the FATF urged Pakistan
to improve its legislation and try to achieve compliance with the
international AML standards.22

There could be two perceptions of Pakistan finding its place in the

grey list in 2008. First, Pakistan had serious deficiencies in its AML/CFT
regimes, as mentioned by the FATF. By then, Pakistan did not have any
sound legislation against money laundering and terrorism financing. The
first serious legislation in this regard was the Anti-Money Laundering
Act 2010, promulgated nearly after two years of grey-listing. Before this,
Pakistan only had an Anti-Money Laundering Ordinance 2007 (AMLO)
providing a legal basis for its anti-money laundering regime, which was
also about to expire in November 2009. It was this complacency towards
AML/CFT that led Pakistan to the list of jurisdictions under increased
monitoring.

The second perspective is the political situation of the region. The US

was engaged in Afghanistan and it needed to pressurize the upcoming
democratic government of Pakistan to ‘do more.’ The US used the FATF’s

20 Financial Action Task Force – 30 years, op. cit., p.17.

21 Adnan Aamir, ‘Terror-financing grey listing costs Pakistan billion annually,
’Nikkei Asia, 3 March 2021, https://asia.nikkei.com/Politics/International-
relations/Terror-financing-grey-listing-costs-Pakistan-billions-annually,
accessed 12 March 2021.
22 FATF, ‘FATF Statement - 28 February 2008,’ https://www.fatf-gafi.org/publi
cations/high-risk-and-other-monitored-jurisdictions/documents/fatfstatement-
28february2008.html, accessed 20 March 2021.
170 PAKISTAN HORIZON

grey list to compel Pakistan to take action against the Taliban and other
allied factions allegedly operating from its territory.

In June 2010, Pakistan evaded the list after it gave a high-level

political commitment to the FATF to address its deficiencies regarding
AML/CFT.23 The promulgation of AMLA 2010 significantly helped in
achieving this feat. Before that, the accession to the International
Convention for the Suppression of the Financing of Terrorism by
Pakistan was also positively recognized by the FATF in its statement in
June 2009.24 However, in the June 2010 plenary, Pakistan was also
provided with a five-point action plan to overcome deficiencies in the
AML/CFT framework, which required it to:25

 demonstrate proper criminalization of money laundering and

terrorism financing;
 demonstrate implementation of proper procedures to identify,
freeze and confiscate terrorist assets;
 ensure an effectively functional Financial Intelligence Unit;
 demonstrate effective regulation of money service providers,
including an appropriate sanctions regime; and
 improve and implement effective measures to curb cross-border
cash transactions.

It can be deduced that lack of effective implementation of this action

plan led to the next grey-listing after two years, in 2012.

Jurisdiction Under Increased Monitoring: 2012 to 2015

In the plenary of February 2012, the FATF once again decided to place
Pakistan in the list of jurisdictions under increased monitoring. It stated
that despite making high-level commitments to the global watchdog,
Pakistan had not made any significant progress in implementing the five-
point action plan. According to the statement released after the February

23 FATF, ‘Improving Global AML/CFT Compliance: update on-going process -

June 2010,’ 25 June 2010,https://www.fatf-gafi.org/publications/high-risk-and-
other-monitored-jurisdictions/documents/improvingglobalamlcftcomplianceup
dateon-goingprocess-june2010.html, accessed 20 March 2021.
24 FATF, ‘FATF Statement concerning Iran, Uzbekistan, Turkmenistan, Pakistan
and São Tomé and Príncipe - 26 June 2009,’https://www.fatf-gafi.org/publi
cations/high-risk-and-other-monitored-jurisdictions/documents/fatfstate
mentconcerningiranuzbekistanturkmenistanpakistanandsaotomeandprincipe-
26june2009.html, accessed 20 March 2021.
25 ‘FATF, Update on-going process – June 2010,’ op.cit.
PAKISTAN'S FATF CONUNDRUM 171

2012 plenary, Pakistan needed to legislate against terrorism financing

according to Special Recommendation II and enhance its capability to
detect, freeze, and seize terrorist assets as per Special Recommendation
III. The FATF also mentioned that Pakistan needed to regulate money
service providers and control and monitor cash-based cross border
transactions.26

The key argument for grey-listing Pakistan, at that time, was its non-
compliance with UNSC Resolution 1267, which demands that states take
action against al-Qaeda and other terrorist organizations, including
Tehreek-i-Taliban Pakistan (TTP), Lashkar-i-Taiba (and its other charity
fronts such as Falah-i-Insaniyat Foundation (FIF), Lashkar-i-Jhangvi,
Al-Rashid Trust, and other designated individuals.27

In 2015, after three years, Pakistan managed to evade censure by the

FATF. This happened after the Pakistan Peoples Party (PPP)-led
government amended the Anti-Terrorism Act 1997 to comply with the
FATF’s special recommendations.28 The amendments allowed the
authorities to seize the properties of proscribed organizations and take
punitive actions against financiers of such organizations. The FATF
lauded Pakistan in its statement of February 2015 for establishing a legal
and regulatory framework to overcome the strategic deficiencies in its
AML/CFT regime in accordance with the action plan laid out in 2010.
Nonetheless, the statement mentioned that Pakistan should work with
APG to address the remaining issues identified in its Mutual Evaluation
Report (MER)29 and especially work to implement UNSC Resolution 1267
in its entirety.30

26 FATF, ‘FATF Public Statement - 16 February 2012,’https://www.fatf-

gafi.org/publications/high-risk-and-other-monitored-
jurisdictions/documents/fatfpublicstatement-16february2012.html, accessed 24
March 2021.
27 Musarat Amin, Muhammad Khan and Rizwan Naseer, ‘Pakistan in the FATF

Grey-list: Challenges, Remedies and International Response,’ Margalla Papers,

Vol, XXIV, Issue I, 2020, p.33.
28 Ibid.
29 According to the Asia Pacific Group (APG) membership rules, when a member

joins the organization it agrees to a mutual peer review system to assess its
level of compliance with international AML/CFT standards. These assessments
are called ‘Mutual Evaluations.’ Pakistan is also a member of APG which is a
FATF-Style Regional Body (FSRB).
30 FATF, ‘Improving Global AML/CFT Compliance: on-going process – 27

February 2015,’ http://www.fatf-gafi.org/publications/high-risk-and-other-

monitored-jurisdictions/documents/fatf-compliance-february-2015.html,
accessed 25 March 2021.
172 PAKISTAN HORIZON

June 2018: point of no return for Pakistan

June 2018 proved to be a point of no return for Pakistan. It had to put its
anti-money laundering apparatus in order. The FATF placed Pakistan
under the list of jurisdictions with strategic deficiencies. It called
Pakistan, once again, to strengthen its AML regime and address the
shortcomings in its CFT framework. A comprehensive 27-point action
plan was also drafted by the FATF for Pakistan, with a strict
timeframe.31

It was mentioned in later statements that Pakistan lacked

understanding of terrorism financing risks emerging from al-Qaeda,
Da’esh, Jamat-ud-Dawah (JuD), FIF, Jaish-i-Muhammad (JeM), Haqqani
Network, and the individuals associated with the Taliban.32 Besides,
other factors were key deficiencies in legal, regulatory, and monitoring
mechanisms and inefficient coordination among law enforcement
agencies, financial institutions, and regulators.

This time the grey-listing came with a significant threat of being put
in the High-Risk Jurisdictions Subject to a Call for Action – the blacklist.
The United States was the main proponent, along with India's support, of
black-listing Pakistan. The US even offered that Saudi Arabia should
give up supporting Pakistan at the FATF in return for the watchdog's full
membership. In the FATF plenary in June 2018, the only diplomatic
support Pakistan had was from Turkey and China.33

Although Pakistan managed to thwart the moves of the US and India

to blacklist Pakistan, the risk of black-listing continued to loom until the
plenary meeting in February 2021, in which the FATF Chief explicitly
stated that Pakistan cannot be considered for the blacklist even after the
plenary of June 2021.34 This breather came after Pakistan largely
addressed 24 out of the 27 points of the action plan given by the FATF.

31 ‘Pakistan placed on FATF’s ‘grey list’,’ The Hindu, 28 June 2018,

https://www.thehindu.com/news/international/pakistan-placed-on-fatfs-grey-
list/article24277229.ece, accessed 26 March 2021.
32 FATF, ‘Improving Global AML/CFT Compliance: On-going Process - 22
February 2019,’https://www.fatf-gafi.org/publications/high-risk-and-other-
monitored-jurisdictions/documents/fatf-compliance-february-2019.html,
accessed 21 March 2021.
33 Anwar Iqbal, ‘’Pakistan may find itself on FATF blacklist after June,’ Dawn, 26
February 2018, https://www.dawn.com/news/1391835.
34 Khaleeq Kiani, ‘FATF: a close miss,’ Dawn, 1 March 2021,
https://www.dawn.com/news/1610039, accessed 20 March 2021.
PAKISTAN'S FATF CONUNDRUM 173

The FATF 27-Point Action Plan for Pakistan

The 27-Point Action Plan for Pakistan can be categorized into four
spheres: (i) financial institutions, (ii) border controls, (iii) terrorism
financing investigation, prosecution, and conviction, and (iv) compliance
with targeted financial sanctions.35 Despite its limitations and
constraints, Pakistan went all out to act against money laundering and
terrorism financing with its meagre financial and technical resources. It
had to reorganize the legal, financial, economic, religious, regulatory, and
law enforcement frameworks. The overhaul was not easy as it involved
numerous departments and stakeholders. The action plan demanded a
robust and comprehensive overhaul in the AML/CFT apparatus of
Pakistan.

Pakistan has enacted laws, established interdepartmental and

interprovincial coordination mechanisms, enhanced the technical and
legal capacities of law enforcement agencies, and trained the judiciary
and prosecution teams in the technicalities of money laundering and
terrorism financing. All this helped Pakistan in strengthening its
AML/CFT regime as per international standards.

On the legislative front, Pakistan has enacted and updated several

laws to strengthen its money laundering framework. Between February
2020 and September 2020, the National Assembly of Pakistan amended
10 acts through 13 bills, including the Foreign Exchange Regulation Act
Amendment Bill 2020, the Anti-Money Laundering (Second Amendment)
Bill, and the Anti-Terrorism Act (Amendment) Bill.36 The most
significant piece of legislation was the Anti-Money Laundering (Second
Amendment) Act 2020. Under section 21, the offence of money laundering
was rendered cognizable. This has increased the authority of
investigating officers, as they do not further require an arrest warrant or
a court order to proceed against money laundering-related violations.
This also enhanced the role of the National Accountability Bureau (NAB)
in the domain of money laundering. The penalties have been made more
stringent for money laundering related crimes.

To strengthen and improve interdepartmental coordination, the

NACTA (Amendment) Act 2020 was passed. Similarly, to achieve

35 Statement by Iqbal Khan, former DG NACTA, during a webinar on

‘Deconstructing FATF through a Legal Lens’ organized by Islamabad Policy
Research Institute (IPRI), 6 April 2021, https://youtu.be/T4WgAprWcDE
36 Rizwan Shahzad, ‘Pakistan clears FATF legal hurdles,’ The Express Tribune,
16 September 2020, https://tribune.com.pk/story/2264252/pakistan-clears-fatf-
legal-hurdles, accessed 26 March 2021.
174 PAKISTAN HORIZON

ownership transparency, the Islamabad Capital Territory Waqf

Procedure Act 2020 was enacted.37 Besides, a legal framework was also
brought in place to regulate the Designated Non-Banking Financial
Institutions (DNBFIs) such as accountants, lawyers, real estate
businessmen, and jewellers.

In addition to amendments in important laws, numerous guidelines

were issued by the concerned departments, ministries, and regulators to
streamline the application of UNSC Resolutions 1267 and 1373 and to
enhance the AML/CFT frameworks. These include the United Nations
Security Council (UNSC) Freezing and Seizure Order 2019, passed by the
Ministry of Foreign Affairs; Ministry of Foreign Affairs Guidelines for
Implementation of UNSC1267 Sanctions; NACTA Guidelines for
Implementation of UNSC Resolution 1373; State Bank of Pakistan (SBP)
Guidelines for AML/CFT; Securities and Exchange Commission of
Pakistan (SECP) Guidelines for AML/CFT frameworks, and NACTA-
SECP’s AML/CFT Guidelines for Non-Profit Organizations.38

Pakistan also demonstrated convictions of individuals accused of

terrorism financing, as per the FATF action plan. In May 2019, Pakistan
outlawed almost 11 organizations affiliated with the already banned
outfits of JuD, FIF, and JeM. In the next year, an anti-terrorism court
convicted JuD chief Hafiz Saeed, Malik Zafar Iqbal, YahyaMujahid, and
Abdul Rehman Makki under Section 11-N of the Anti-Terrorism Act
1997.39 They were prosecuted for their involvement in terrorism financing
by managing assets and finances of proscribed organization. Moreover,
Pakistan’s security apparatus continued to apprehend and prosecute
terrorists affiliated with other terrorist organizations.

A major source of terrorism financing in Pakistan had been in the

form of donations. Especially during the Islamic month of Ramzan and
Eid-ul-Azha, charitable fronts of terrorist organizations actively collected
funds in the form of Zakat and animal hides. To curb this, authorities
have ensured that only organizations having No Objection Certificates

37 Senator Rehman Malik, ‘FATF discrimination and Indian terrorist financing,’

The Nation, 19 February 2021, https://nation.com.pk/19-Feb-2021/fatf-
discrimination-and-indian-terrorist-financing, accessed 26 March 2021.
38 Jamal Aziz, Noor Fatima, and Hira Arif, ‘Analyzing Pakistan’s Compliance on
FATF’s 27-Point Action Plan,’ Research Society of International Law, p.5,
https://rsilpak.org/2020/analyzing-pakistans-compliance-on-the-fatf-action-
plan/
39 ‘JuD chief, three others jailed over terror-financing,’ The Express Tribune, 19
November 2020, https://tribune.com.pk/story/2272819/jud-chief-hafiz-saeed-
sentenced-to-life, accessed 27 March 2021.
PAKISTAN'S FATF CONUNDRUM 175

(NOC) will be allowed to collect donations.40 Besides, suspected

organizations and individuals are being subjected to increased
surveillance by the concerning authorities.

Furthermore, commercial banking rules have been made more

stringent. As per State Bank of Pakistan (SBP) guidelines, commercial
banks have adopted and enforced the principles of Know Your Customer
(KYC) and Customer Due Diligence (CDD) to scrutinize their customers.
Banks are also obliged to send periodic Suspicious Transaction Reports
(STRs) and Suspicious Activity Reports (SARs) to Financial Monitoring
Unit (FMU), which works in close collaboration with NACTA and other
domestic law enforcement and intelligence agencies. The FMU is
responsible for corroborating information from investigating agencies
with STRs and SARs from financial institutions. This mechanism helps
in the detection and prevention of potential threats of terrorism financing
and money laundering.41

By the plenary of February 2021, out of 27 action items, 10 points

relating to financial institutions and border management have been
largely addressed. Eight of the nine action points related to targeted
financial sanctions have been addressed. Whereas, out of eight points
related to terrorism financing investigations and prosecutions, six have
been largely addressed.42

The three partially addressed action points were related to targeted

financial sanctions and terrorism financing investigations and
prosecutions, which require Pakistan to (i) demonstrate that terrorism
financing investigations and prosecutions target persons and entities
acting on behalf or at the direction of the designated persons or entities;
(ii) demonstrate that terrorism financing prosecutions result in effective,
proportionate and dissuasive sanctions; and (iii) demonstrate effective

40 SohailRab Khan, ‘Sindh issues rules for animal hide collection on Eid-ul-Azha,’
Samaa, https://www.samaa.tv/news/pakistan/2020/07/sindh-eid-animal-hide-
collection/
41 State Bank of Pakistan, ‘Anti-Money Laundering and Combating the Financing
of Terrorism (AML/CFT) Regulations for Banks & DFIs,’ updated up to
November 14, 2017, https://www.fmu.gov.pk/docs/Banks_CFI_AML.pdf
42 Shahbaz Rana, ‘FATF gives 4th extension to Pakistan to fully implement
‘action plan’, ’The Express Tribune, 25 February 2021, https://tribune.com.pk/
story/2286250/fatf-keeps-pakistan-on-grey-list-till-june
176 PAKISTAN HORIZON

implementation of targeted financial sanctions against all 1267 and 1373

designated terrorists, specifically those acting for or on their behalf.43

Although it was anticipated that Pakistan will come out of the grey
list in June 2021, the FATF provided Pakistan with an additional six
points’ action plan which is based on Pakistan’s 2019 APG MER. The
plenary statement also mentions that Pakistan has completed 26 of the
27 action items in its 2018 action plan, but it still needs to make progress
on one remaining CFT-related action point. It calls Pakistan to
demonstrate that terrorism financing investigations and prosecutions
target the senior leadership of UN-designated terrorist outfits.44

Since its grey-listing in 2018, Pakistan has taken sophisticated

measures to bring its AML/CFT regime in alignment with the FATF’s 40
recommendations and nine special recommendations. Once it gets off the
grey list, Pakistan will be able to present its compliance as a success
story which could be a learning experience for the world, as Pakistan has
been a frontline state against terrorism for the past two decades.45
Despite a lack of resources and an over-utilized administrative
infrastructure, Pakistan gradually complied with the 27-point action
plan, as depicted in the figure below.
Largely Partially
Plenary Session Incomplete No Consensus
Addressed Addressed
January 2019 1 1 25 -
June 2019 2 12 12 1
October 2019 5 17 5 -
February 2020 14 11 2 -
October 2020 21 6 - -
February 2021 24 3 - -
June 2021 26 1 - -
Source: Status of Points of Action Plan for Pakistan46

43 FATF, ‘Jurisdictions under Increased Monitoring - February 2021,’

https://www.fatf-gafi.org/publications/high-risk-and-other-monitored-
jurisdictions/documents/increased-monitoring-february-2021.html, accessed 29
May 2021.
44 FATF, ‘Jurisdictions under Increased Monitoring - June 2021,’
https://www.fatf-gafi.org/publications/high-risk-and-other-monitored-
jurisdictions/documents/increased-monitoring-june-2021.html#pakistan,
accessed 6 July 2021.
45 Statement by Noor Fatima, Research Associate RSIL, during a webinar on
‘Deconstructing FATF through a Legal Lens’ organized by IPRI, 6 April 2021,
https://youtu.be/T4WgAprWcDE
46 ‘FATF keeps Pakistan on grey list until June despite 'significant progress',’
Dawn, 25 February 2021, https://www.dawn.com/news/1609329/fatf-keeps-
PAKISTAN'S FATF CONUNDRUM 177

Why is Pakistan obliged to act on the FATF Action Plan?

Pakistan had voluntarily agreed to international legal obligations which

make it liable to comply with the recommendations and standards set by
the FATF. Pakistan is a signatory to three international conventions
which allow the FATF to monitor and evaluate its AML/CFT frameworks
and their enforcement.47 These conventions include the UN Convention
Against Illicit Traffic in Narcotic Drugs and Psychotropic Substances
1988, ratified by Pakistan on 25 October 199148; the International
Convention for the Suppression of the Financing of Terrorism 1999,
ratified by Pakistan on 17 June 200949; and the UN Convention Against
Transnational Organized Crime 2000, ratified by Pakistan on 13 January
201050.

The aforementioned treaties are also complemented with UNSC

Resolution 1267, 199951 and UNSC Resolution 1373, 200152. These
resolutions were adopted by the Security Council under Chapter VII of
the UN Charter, which makes them binding on the member countries of
the UN. In addition, in 2005, under UNSC Resolution 1617, the member
countries were urged to enforce the FATF’s 40 Recommendations on
money laundering and nine recommendations on terrorism financing.53

pakistan-on-grey-list-until-june-despite-significant-progress, accessed 26
March 2021.
47 Kamran Adil, ‘Anti-Money Laundering and Countering Financing of Terrorism
(AML/CFT) Laws in Pakistan: An Overview,’ Research Society of International
Law, 12 October 2020, https://rsilpak.org/2020/anti-money-laundering-and-
countering-financing-of-terrorism-aml-cft-laws-in-pakistan-an-overview/,
accessed 27 March 2021.
48 United Nations, ‘United Nations Convention against Illicit Traffic in Narcotics
Drugs and Psychotropic Substances,’, 20 December 1988, https://trea
ties.un.org/doc/Publication/MTDSG/Volume%20I/Chapter%20VI/VI-19.en.pdf
49 United Nations, ‘International Convention for the Suppression of the Financing
of Terrorism,’ 9 December 1999, https://treaties.un.org/doc/Publication/MTDSG/
Volume%20II/Chapter%20XVIII/XVIII-11.en.pdf
50 United Nations,‘United Nations Convention against Transnational Organized
Crime,’ 15 November 2000, https://treaties.un.org/doc/Publication/MTDSG/
Volume%20II/Chapter%20XVIII/XVIII-12.en.pdf
51 United Nations Security Council, ‘UNSC Resolution 1267 S/RES/1267 (1999),’
15 October 1999, https://www.sipri.org/sites/default/files/2016-03/UN
SC_1267.pdf
52 United Nations Security Council, ‘UNSC Resolution 1373 S/RES/1373 (2001),’
28 September 2001, https://www.unodc.org/pdf/crime/terrorism/res_1373_
english.pdf
53 United Nations Security Council, ‘UNSC Resolution 1617 S/RES/1617 (2005),’
29 July 2005,http://unscr.com/en/resolutions/doc/1617
178 PAKISTAN HORIZON

TLP and the French connection

The handling of the Tehreek-i-Labbaik Pakistan (TLP) issue by the

current administration of Pakistan has undermined political will to
tackle counterterrorism financing. TLP was proscribed as a terrorist
organization, its leaders were put in the Fourth Schedule, yet it managed
to bring the government to its knees and get all its demands accepted.54
This portrays a lack of clarity and decisiveness on the government’s part.
This whole episode will negatively affect Pakistan’s performance review
in the next FATF plenary.

Although the PTI government has not directly agreed to TLP’s core
demand to expel the French ambassador, a session of the National
Assembly was convened on the matter. The whole episode, in a nutshell,
shows that Pakistan’s state machinery can still be blackmailed, and
religious pressure groups have the ability to influence decision making in
matters with diplomatic repercussions. The government has not left an
encouraging message for those who are going to assess and decide
Pakistan’s fate with the FATF. It is being inferred that due to such
situation it became difficult for Islamabad to get out of the grey list in the
June 2021 plenary.55

It cannot be ignored that France wields significant influence in the

FATF and the decisions taken in its sessions. This was evident before the
last plenary in February 2021. France had recommended that the FATF
should continue keeping Pakistan on the grey list because it had not
fulfilled all the action points.56 Other EU nations had also supported
France on this issue. According to reports57, these developments had
implied that France was displeased with Pakistan because of the latter’s
response to the anti-Islam comments made by Emmanuelle Macron.58

54 Roohan Ahmed, ‘TLP ends Lahore sit-in as govt accedes to demands,’ 20 April
2021, https://www.samaa.tv/news/2021/04/tlp-government-negotiations-ban-
protest-talks/
55 Statement by Aisha Saeed, Independent Analyst on International Affairs, as
shared on Twitter, 20 April 2021, https://twitter.com/MsAishaK/status/
1384433244544905218
56 Mansij Asthana, ‘Five Key Reasons Why Pakistan Continues To Be On FATF
‘Grey List’,’ The Eurasian Times, 27 February 2021. https://eurasiantimes.com/
five-key-reasons-why-pakistan-continues-to-be-on-fatf-grey-list/, accessed 5
April 2021.
57 Mubarak Zeb Khan, ‘Pakistan optimistic about exiting FATF grey list,’ 21
February 2021, https://www.dawn.com/news/1608488, accessed 6 April 2021.
58 ‘France summons Pakistan envoy over criticism of ‘separatism’ bill,’ 23
February 2021, https://www.aljazeera.com/news/2021/2/23/france-summons-
pakistan-envoy-over-criticism-of-separatism-bill, accessed 26 March 2021.
PAKISTAN'S FATF CONUNDRUM 179

Besides, Pakistan has not posted its ambassador to France in nearly ten
months.59 This depicts the strained relationship between the two
countries, which will reflect on Pakistan’s position in the FATF.

Is the FATF politicized?

The politicization of FATF is no secret. The role of the French

government in the February 2021 plenary has made it clear that the
FATF is not just about combatting ‘money laundering’ and ‘terrorism
financing;’ it also serves the political interests of global powers.

The country assessment process of the FATF has become highly

politicized. The 39 members of the FATF have refrained to act against
one of their own despite significant deficiencies in their AML/CFT
systems. These members are rich countries, some of them can be referred
to as global financial hubs. A slight deficiency on their part will have a
much larger negative impact on global financial integrity, in comparison
to all the countries in the FATF grey list combined. Minor failings in the
UK are more consequential than strategic deficiencies in the systems of
Uganda or Pakistan. The risk-based approach of the FATF has failed to
take this aspect into account.60

Europe needs to look inwards, as well. It has a greater issue of non-

compliance with the FATF recommendations. Although the issue of
traditional terrorism financing is not as prevalent in European
jurisdictions as they are in states like Syria, Iraq, and Pakistan, money
laundering from crime syndicates is not a novel problem. In some eastern
European countries, conventional banking channels have shown greater
complacency towards enforcing the protocols to curb money laundering.61

Danske Bank, Denmark's largest lender, facilitated money laundering

transactions worth nearly $220 billion from just a single small branch in
Estonia, from 2007 to 2015.62 Similarly, transactions of dubious nature,

59 Muhammad Saleh Zaafir, ‘Pakistan has no ambassador in France,’27 October

2020, https://www.thenews.com.pk/print/735356-pakistan-has-no-ambassador-
in-france, accessed 7 April 2021.
60 Tom Keatinge, ‘It’s Time to Reform and Refocus the Financial Action Task
Force,’ RUSI, 23 October 2019, https://rusi.org/commentary/it%E2%80%99s-
time-reform-and-refocus-financial-action-task-force
61 ‘Another piece of Europe’s financial architecture needs fixing,’ The Economist,
October 2019, https://www.economist.com/leaders/2019/10/17/another-piece-of-
europes-financial-architecture-needs-fixing
62 Teis Jensen, ‘Explainer: Danske Bank's 200 billion euro money laundering
scandal,’ Reuters, 19 November 2018, https://www.reuters.com/article/us-
danske-bank-moneylaundering-explainer-idUSKCN1NO10D
180 PAKISTAN HORIZON

amounting to $135 billion also flowed out of the Estonian branch of

Swedbank, headquartered in Sweden.63 Other banks in Austria and
Germany also have a tainted record. Besides Europe, authorities in the
US have also shown reluctance in taking strict action against institutions
not complying with AML/CFT standards. When the London-based and
largest bank in Europe, HSBC, was caught laundering funds for drug
cartels, it was just fined $1.9 billion and the bank emerged as ‘clean.’
None of these ‘strategic deficiencies’ was noticed by the FATF.64

India, one of the most active members of the FATF, which was a very
vocal advocate of getting Pakistan black-listed, has significant loopholes
in its AML framework. This was evident from the number of suspicious
activities, identified by the US authorities, emerging from India. Between
2011 and 2017, at least 44 Indian banks and 2,000 transactions
amounting to $1 billion were flagged by the US watchdog, the Financial
Crimes Enforcement Network (FinCEN).65 The FATF missed this as well.

The FATF also misses looking at the financial capacity and capability
of each country to comply with FATF standards of money laundering and
terrorism financing. It assesses all countries from an identical lens.66 The
costs incurred on capacity building, legislation, building institutions, and
other preparations to comply with the action plan are huge. These costs
can be easily catered by countries like the UK and France, but the under-
resourced and under-developed countries face tough challenges in this
respect.

Some scholars have termed the FATF's list of jurisdictions under

increased monitoring as a ‘prey list’, due to the selective approach of the
FATF.67 It has been argued that Pakistan was punished by the western
powers because of its strategic proximity to China. When the Basel anti-
money laundering index is compared with the FATF’s grey list, the
disparity is highly prominent. Pakistan was ranked 46th out of 146 states
in 2017 in the Basel Money Laundering Index, which means 45 countries

63 ‘Swedbank handled €135bn of ‘high-risk’ flows through Estonia,’ Financial

Times, 27 March 2019, https://www.ft.com/content/2f99ab58-4fee-11e9-b401-
8d9ef1626294
64 ‘Europe’s Financial Architecture,’ The Economist, op. cit.
65 Sandeep Singh, ‘FinCEN Files: 44 Indian banks, transactions of $1 billion
flagged to US regulator,’ The Indian Express,https://indianexpress.com/article/
express-exclusive/fincen-files-44-indian-banks-transactions-of-1-billion-flagged-
to-us-regulator-6608181/
66 Ibid.
67 Statement by Huma Baqai, Associate Professor, IBA Karachi, during a webinar
on ‘Deconstructing FATF through a Legal Lens,’ organized by IPRI, 6 April
2021, https://youtu.be/T4WgAprWcDE
PAKISTAN'S FATF CONUNDRUM 181

were more vulnerable than Pakistan in terms of money laundering.68 The

FATF grey-listing reflected Pakistan's ranking in the Basel AML Index
2019, and it was ranked at 23rd. Still, it was ironic to see Afghanistan,
Kenya, Vietnam, Argentina, and China ahead of Pakistan in the list of
topmost vulnerable states in connection with money laundering and
terrorism financing. But these states are not being subjected to the
FATF’s action plan or grey-listing.69

Conclusion and recommendations

From 2018 onwards, Pakistan has adopted serious measures and shown
progress in filling the gaps in its law enforcement apparatus regarding
terrorism financing and money laundering. It has invested heavily in
capital and human resources, in the last three years, to build the capacity
of its financial institutions and law enforcement agencies to detect,
prevent, and prosecute different types of financial crimes, including
money laundering and terrorism financing. Pakistan has promulgated,
amended, and updated several laws to comply with international
standards on money laundering.

The government of Pakistan has shown a serious will to make

coordinated and result-oriented interdepartmental efforts to come out of
the FATF grey list. In this regard, the security institutions of Pakistan
have hit hard on the organizations designated as terrorist groups by the
UN. The financial operability of these sanctioned organizations, their
sub-organizations, and their members was curbed. Their offices were
sealed. Their charitable organizations were taken over by the
government. The members of proscribed organizations were put under
the Fourth Schedule. Their leaders are being prosecuted under anti-
terrorism and anti-money laundering laws. This compliance with
international AML standards will benefit the country. Pakistan can
immensely enhance its Foreign Direct Investments once it gets off the
grey list. It will also help in making its international rankings better,
such as Transparency International’s Corruption Index, Moody’s Credit
Ratings, and Ease of Doing Business Index.

The FATF action plan may have proved as a force multiplier to act
against the designated organizations but according to some senior
officials, the strategic shift in policy had happened even before the grey-

68 Anwer Iqbal, ‘Money laundering: Pakistan on 46th spot among 146 countries,’
Dawn, 9 September 2017, https://www.dawn.com/news/1356528
69 ‘Basel AML Index 2019,’International Centre for Asset Recovery, August 2019,
p.6, https://baselgovernance.org/sites/default/files/2019-08/Basel%20AML%20
Index%202019.pdf
182 PAKISTAN HORIZON

listing in June 2018.70 However, the recent TLP episode has shown that
Pakistan needs to institutionalize its approach against money laundering
and terrorism financing.

The threat of terrorism financing still exists, and although the

situation has improved, terrorists are still trying to disrupt peace and
security. Recently, a suicide attack in the parking space of a four-star
hotel in Quetta established that Pakistan’s fight against terrorism is far
from over. Responsibility for the attack was claimed by the outlawed
TTP71 which has been a prime target of Pakistan’s security forces after
the Army Public School massacre in Peshawar in 2014. It is alarming
that it was able to deploy suicide bombers and arrange logistics in a high-
security area in the provincial capital.72

Besides TTP, sub-nationalist terrorist groups are also active in

Balochistan and Sindh. The Balochistan Liberation Army (BLA) and its
offshoots have waged a war to disrupt economic activities under the
China-Pakistan Economic Corridor (CPEC).73 In addition, the Sindh
Revolutionary Army (SRA) has also been targeted by the Counter-
Terrorism Department (CTD) because of its involvement in multiple
terrorist activities. It is claimed that SRA is being supported by other
terrorist organizations such as BLA and TTP.74 In the post-US
withdrawal from Afghanistan by September 2021, the political vacuum
created may give rise to new terrorist threats in the region against which
Pakistan’s security apparatus needs to keep its guard.

The FATF has become a tool of lawfare. In its national interest,

Pakistan needs to avoid any loopholes in its compliance with
international laws and conventions. To tackle the evolving nature of
lawfare, Pakistan should develop an appreciation for international law
and realize that domestic circumstances can have international
repercussions. The pressure on Pakistan has moved from the FATF to

70 Fahd Hussain, ‘Grappling with strategic reorientation,’ Dawn, 24 April, 2021,

https://www.dawn.com/news/1620026
71 ‘Pakistan hotel bomb: Deadly blast hits luxury venue in Quetta,’ BBC News, 22
April 2021, https://www.bbc.com/news/world-asia-56834937
72 Umair Jamal, ‘What Is the Significance of Tehreek-e-Taliban Pakistan’s Latest
Attack in Quetta?,’ The Diplomat, 22 April 2021, https://thediplomat.com/
2021/04/what-is-the-significance-of-tehreek-e-taliban-pakistans-latest-attack-
in-quetta/
73 Amjad Bashir, ‘The nests of terrorists, tangled, untangled across Karachi,
Balochistan,’ The News, 3 April 2021, https://www.thenews.com.pk/print/
814022-the-nests-of-terrorists-tangled-untangled-across-karachi-balochistan.
74 ‘CTD arrests two ‘SRA militants’ in city,’ Dawn, 14 April 2021,
https://www.dawn.com/news/1618132/ctd-arrests-two-sra-militants-in-city
PAKISTAN'S FATF CONUNDRUM 183

GSP plus status, given by the European Union.75 The EU is now using
this trade agreement to bring in a change in Pakistan's domestic laws.
Pakistan needs to build a professional capacity to counter such
challenges. Although it is partially true that the whole FATF saga has
been influenced by geopolitical circumstances, Pakistan suffered
primarily due to the absence of its own effective regulatory and
legislative frameworks to combat financial crimes, including terrorism
financing. While it has improved its AML/CFT frameworks, it should
keep them enforced in the long run.

The trend shows that Pakistan gets placed on the grey list, stays there
for nearly three years, and finds its place in the list again after an
interval of two years. To escape this trend, Pakistan should honour its
commitment to fight financial ills, not only because of the threat of being
placed on the grey list or black list by the FATF, but also to ensure the
financial integrity of its own jurisdiction and continue with its resolve to
fight corruption, tax evasion, money laundering, and terrorism financing.

75 ‘EU Parliament adopts resolution calling for review of Pakistan's GSP+ status
over blasphemy law abuse,’ Dawn, 30 April 2021, https://www.dawn.com/
news/1621254