Pakistan in FATF crosshairs

March 15, 2018 By Lt. General P.C. Katoch (Retd)
By Lt. General P.C. Katoch (Retd)
Former Director General of Information Systems, Indian Army


Pakistan find itself in the crosshairs of the Financial Action Task Force (FATF), founded in 1989 on the initiative of the G7 to combat to ‘combat money laundering and terrorism financing’. It is an intergovernmental organization, also known as Groupe d'action financière, with its secretariat housed at the OECD headquarters in Paris. India became a full member of the FATF in June 2010. The FATF has 37 members, including all five permanent members of the UNSC, two regional organizations (Gulf Cooperation and European Commision), with Saudi Arabia and Israel as observer countries. The FATF monitors progress in implementing the FATF recommendations through peer reviews / mutual evaluations of member countries. The organization has the power to publicly name countries not abiding by its norms, making it difficult for them to source financial flows internationally. In its review during June 2013, the FATF identified 14 countries as jurisdictions that had strategic deficiencies that posed risk to the international financial system; Pakistan was identified as jurisdiction with strategic Anti-Money Laundering (AML) and Combating the Financing Terrorism (CFT) deficiencies having not made sufficient progress in addressing the deficiencies or not having committed to an action plan. But this warning was ignored by Pakistan and the Pakistani military continued its policy of nurturing terrorist organizations and exporting terrorism as hithertofore, not being member of FATF and perhaps based on its relations with Arab and Gulf countries and particularly the Chinese backing to Pakistani terrorism.

Despite being put on the abovementioned watch list by the FATF in June 2013, Pakistan became more brazen in exporting terror across its boundaries in India and Afghanistan. The terror attacks increased in India and went up exponentially in Afghanistan, latter with a view to assist a Taliban takeover, based on the hope that US troops would eventually withdraw from Afghanistan. Ironically, the US too had helped Pakistan avoid getting placed on the ‘grey Lisy’ of the FATF. Pakistan continued to reject credible evidence provided by India in LeT’s role in the 26/11 Mumbai terrorist attack, as well as JeM masterminding the terrorist attack on the IAF airbase at Pathankot, to avoid taking action against them. Pakistan-based terrorists groups attacking Afghanistan are listed in the reports by the United Nations Assistance Mission in Afghanistan (UNAMA) and also by the US, latter ironically focusing primarily on Pakistan’s support for the Haqqani Network. Pakistan is particularly vulnerable to pressures from the FATF as the Afghan Taliban, Haqqani network, LeT and JeM are all internationally designated terrorist groups, operating from its soil. Afghanistan has time and again also pointed out Pakistani army regulars undertaking terror attacks in Afghanistan. Pakistan had trained three Mujahid battalions during 2012-2013 to covertly operate in Afghanistan in conjunction Taliban.

However, in the plenary session of the FATF in February 2018, Pakistan was served notice that there will be a global crackdown on its financial network on account of its support to terror outfits. Pakistan is expected to be put back in the grey list in June. It is a positive development for India and Afghanistan which have borne the brunt of terrorist activities emanating from Pakistani soil. Pakistan did not expect this to happen having mobilized support from China, the Gulf Cooperation Council led by Saudi Arabia, Turkey and Russia, latter because of the recent bonhomie between the two countries. Just before the plenary session of FATF, Pakistan even announced additional regular troops of about division strength to be sent to Saudi Arabia. But the US move to get the FATF to place Pakistan on its “grey list” at its next meeting in June 2018 went through, with China, Russia, Saudi Arabia-led GCC all falling in line.

The only support to Pakistan was from Turkey, which is following the path of radicalization like Pakistan and is already being called Pakistan 2.0 by some. Despite China-Pakistan relationship described as “Higher than the Mountains, Deeper than the Ocean” or “All Weather Friends”, China did not support Pakistan because China did not want to jeopardize its chances of becoming Vice-Chairman of the FATF, which it has now become. However, if China tries to protect Pakistan during the FATF meet in June 2018, she will likely elicit only Turkey’s support. Being placed in the grey list has an adverse impact on a country’s private sector entities which transact with overseas partners. In this context, without a bailout from multilateral organizations, being on the grey list will hurt Pakistan. Pakistan will now have to provide a detailed action plan on actions it proposes to take on curbing funding for UN-designated terrorist groups. It would then be placed on the FATF grey list, where its financial flows would be subject to intense international scrutiny. Pakistan would, thereafter, be placed on the FATF “black list” if it fails to present a credible and comprehensive action plan to the FATF by June. Not that Pakistan will desist from its game of deflection. For example the manipulation of funds for terrorism, it would henceforth like to show against political parties like Milli Muslim League created by the LeT-JuD. It would be interesting to watch how FATF would deal with Pakistan in such case.