Pakistan’s Journey Off the “Grey List”

In February 2020, the president of the Financial Action Task Force (FATF) warned Pakistan that it would have to enact laws in line with the body’s Anti-Money Laundering and Combating Terrorism Financing (AML/CFT) standards or face consequences. Those consequences could have been severe — so much so that they could have completely dried up foreign direct investment estimated at $1.6 billion in this year. Had Pakistan not complied, it would have had to deal with increased costs and delays in sending remittances back home from abroad. Its banks would have struggled to carry out international transactions, leading to an eventual slowdown of the wheel of an economy already teetering on the brink of being crippled. 

The Financial Action Task Force (FATF) is an inter-governmental body whose purpose is to develop and promote policies to protect the global financial system from money laundering and terrorist financing. As a policy-making body, it works to generate political will to bring about national legislative and regulatory reforms in these areas. The FATF has developed internationally recognized standards, often called the FATF Recommendations or FATF Standards, for combating money laundering and terrorist financing. These standards help authorities go after the money of criminals dealing in illegal drugs, human trafficking and other crimes.   

Pakistan has been on the FATF's “grey list” since 2018 due to “strategic counter-terrorist financing-related deficiencies.” At the FATF’s last annual meeting in June, the organization said it expected Pakistan to remain on the list until a visit to the country took place to verify progress. Pakistan subsequently accepted a FATF technical team’s invitation to visit in late August and declared the visit a success, saying it expected that a logical conclusion would be reached at the next evaluation meeting in October 2022. Friday October 21, the FATF welcomed “Pakistan’s significant progress in improving its anti-money laundering and counter-terrorism financing policies,” which it said had been key to Pakistan’s recent removal from the organization’s blacklist. 

The Road Away from Scrutiny 

The FATF praised Pakistan after the October meeting, saying it “strengthened the effectiveness of its AML/CFT regime and addressed technical deficiencies to meet the commitments of its action plans regarding strategic deficiencies.”   

Pakistan’s Actions Against Terror Financing: 

• In April 2022, a Pakistani anti-terror court sentenced Hafiz Saeed to 31 years in prison for two separate cases of terror financing. The court also ordered the seizure of his assets and imposed a fine of Rs 3.4 lakh (USD 4,178.02) on the Lashkar-e-Taiba founder. 

• On December 3, 2020, Pakistan sentenced three top leaders of the Jamaat-ud-Dawa (JuD), a charity linked to terror groups, to long prison terms for financing terror. Abdul Rehman Makki, deputy JuD chief, was sentenced to six months in prison; Zafar Iqbal and Yahya Mujahid were each given prison terms of 15 and a half years. CTD officers had registered 23 FIRs (First Information Report) against the leaders of JuD in different cities of Punjab. 

• In September 2020, Pakistan froze 964 assets belonging to the banned JuD and Jamat-e-Islami (JeM) terrorist organizations. The Senate was told that 907 of the frozen properties belonged to JuD and 57 to JeM. 

• Falah-e-Insaniat Foundation, charity organization established by Jamat-ud-Dawa, was banned in 2019. 

• In August 2020, Pakistan banned 88 new terrorists in compliance with a new list issued by the United Nations Security Council.

The FATF welcomed Pakistan's significant progress in improving its AML/CFT framework and acknowledged that it has made a concerted effort to address the deficiencies identified in its mutual evaluation report. The Paris-based body praised Islamabad for recent steps but acknowledged that more needed to be done to prevent terrorism financing and money laundering. The FATF noted that two areas of concern remained: "the lack of full implementation of UN sanctions against designated individuals, groups or entities; and insufficiently robust systems for identifying customers' beneficial ownership." It added: "We commend Pakistan on taking action against terrorist financing risks as well as on measures taken to improve customer due diligence processes." 

The road ahead for Pakistan will require continued efforts but is optimistic. Pakistani Deputy Foreign Minister Hina Rabbani Khar hopes the update will “give a much-needed boost to our economy and increase our economic and financial engagement with the outside world.”