What is the FATF gray list and why does Pakistan want to get out?
Political parties claim credit as FATF admits completion of 34 actions by the country. However, Pakistan will remain on the FATF gray list until a review panel visits the site before October.
But what is the FATF? what is the FATF gray list? and why is it so important for Pakistan or any country not to be on this list?
WHAT IS FATF?
The Financial Action Task Force (FATF), established in 1989 in Paris, is an intergovernmental unit that sets and reviews international standards to prevent crimes that prevent the financing of terrorist activities and money laundering. The FATF formulates policies to make it mandatory for nations to make reforms in desired areas.
To simplify matters, the FATF has three fundamental objectives:
- To fight against money laundering
- Stop terrorist financing
- Countering the financing of weapons of mass destruction.
WHAT IS THE FATF GRAY LIST?
A country’s gray listing by the FATF means that it has been placed under heightened scrutiny to monitor its progress in countering terrorist financing and money laundering measures.
Countries should then redouble their efforts and take action against the aforementioned subject to be removed from the unwanted watch list.
The following 23 countries, including Pakistan, are currently on the gray list:
Albania, Barbados, Burkina Faso, Cambodia, Cayman Islands, Haiti, Jamaica, Jordan, Mali, Malta, Morocco, Myanmar, Nicaragua, Pakistan, Panama, Philippines, Senegal, South Sudan, Syria, Turkey, Uganda, United Arab Emirates, Yemen
But there is another unwanted list known as the FATF blacklist.
Countries that openly support terrorist activities and launder money are blacklisted and called Non-Cooperative Countries or Territories (NCCTs). The FATF regularly reviews the gray list and the black list, adding or deleting entries.
Pakistan’s complicated relationship with the FATF
Pakistan has had a complicated relationship with the FATF, and this is not the first time the country has found itself on the gray list.
Pakistan was on the list of undesirables three times. We were first listed in 2008 but delisted in 2012. FATF gray listed Pakistan again in 2012 but delisted in 2015. However, the third move to As of 2018 was the longest period Pakistan has spent on the FATF gray list.
According to the FATF website, in 2019, “Pakistan has completed 26 out of 27 actions of its 2018 Action Plan. The FATF encourages Pakistan to continue to make progress in addressing, as soon as possible, the only outstanding item continuing to demonstrate that TF investigations and prosecutions target senior leaders and commanders of UN-designated terrorist groups.
Since 2019, Pakistan has attempted to fulfill the last remaining condition and is virtually eligible to be removed from the gray list. A 33-year sentence of UN-designated terrorist Hafiz Saeed was a historic effort by Pakistan to appease the FATF for its removal from the gray list.
However, the FATF has not yet made a decision on Pakistan’s withdrawal. International news sources have confirmed that Pakistan will remain on the FATF “grey” list until a FATF review panel visits the site.
Minister of State for Foreign Affairs Hina Rabbani Khar said: “It is still critical. No country would want to be in the gray list because it has its challenges, it has repercussions, it takes away the confidence of investors, it puts a country under the bracket that it is working on.
Hina is the chairperson of the FATF National Coordinating Committee in Pakistan.
WHY NOT BE ON THIS LIST?
The inclusion of any country on the FATF gray list can have devastating effects on its economy in particular, especially on countries like Pakistan, whose fragile economies cannot afford to remain on the listing.
Below are some of the effects being causes listed in gray:
- Donor organizations like the World Bank and IMF are reluctant to provide financial assistance
- The economy begins to contract as investors are reluctant to invest in a country with a fragile economy
- Lack of investment causes bearish trends in the stock market
- The local currency begins to lose its value, causing inflation to rise, the trade deficit
- Trade suffers as other countries avoid engaging with greylisted countries
- Tourism drops to virtually zero as tourists avoid visiting gray listed countries.
- Downgrades of the country’s rating impact the bond market
What would be the advantage for Pakistan of not appearing on the gray list?
The most urgent and critical benefit Pakistan could derive from delisting will be approval of the $3 billion economic aid package by the International Monetary Fund (IMF).
The IMF loan is essential because of the alarming drop in the country’s foreign exchange reserves, falling below 10 billion dollars, which is only enough for a month and a half of international payments. Economic bodies such as the World Bank and the Asian Development Bank should follow the IMF.
Read also: FATF gray list: Hina Khar gives details on Pakistan’s planned exit
Another advantage would be the renewal of the country’s GSP+ status by the European Union. GSP+ results in fewer trade restrictions with developing countries in Europe.