Daily Times

As if domestic political crisis was not enough, Pakistan has been hit by the Financial Action Task Force (FATF). The lame duck government which is tottering to complete its last few months is telling us that they have got a respite of three months before they are put on the black list (FATF). After a lot of confusion they have hesitantly accepted that Pakistan has been put on the grey watch list in the Paris (FATF) moot.

Like always we are told that ‘poor us’ have once again been a victim of the US and Indian conspiracy. At the same time the government is putting up a brave face and telling the people not to worry about being put on the grey list. We have been through this slippery path before in 2008 and 2012. But what worries the analysts is that this time we have been put on the watch list on the insistence of the US which is following a hostile policy towards Pakistan in collaboration with India.

“FATF develops and promotes policies to protect the global financial system against money laundering, terrorist financing …. The FATF Recommendations are recognised as the global anti-money laundering (AML) and counter-terrorist financing (CTF) standard”.

Although Pakistan has made rules and regulation to comply with FATF guidelines on piece-meal basis, but as in all the cases its implementation record has not been satisfactory. Some of the actions were taken at the last moment before going to the Paris meeting of the FATF. For instance Pakistan promulgated an ordinance aimed at reigning in the LeT, Al-Qaeda and Taliban, etc. which have been banned by the UN Security Council.

This ordinance, which was passed when the FATF axe was about to fall amended a section of the Anti-Terrorism Act (ATA), enabling the authorities to take action against the UNSC-proscribed individuals and terror outfits, like sealing their offices and freezing their bank accounts. The UN head proscribed Lashkar-e-Taiba (Let) / Jamaat-ud-Dawa much earlier but as these non state actors are darlings of our establishment the action was taken belatedly when threatened by the FATF whip.

It is only a matter of time that we may also be put to take similar action against the India specific terrorist groups such as Jaish Mohammad and Hizbul Mujahideen. Apparently the move of the Pakistan establishment to get a fatwa passed by over 1800 ulema of various sects indicates that these non-state jihadi groups are in the process of being curbed or at least this is what we want to tell the world that Pakistan would not be supporting private jihads of terrorist groups in Afghanistan and India.

It is because of such policies of using non-state actors as an instrument of our national security and foreign policy that Pakistan was left to fend for itself in the Paris meeting. When the Nawaz Sharif government had raised this issue of not supporting non-state jihad actors with the establishment and leaked the news to Dawn, all hell broke loose. Instead of addressing this issue the establishment started intriguing against the Nawaz Sharif government.

Coming back, the probable implications of being put on the grey list are that the FATF regional group is expected to visit Pakistan very soon to see the level of compliance of their guidelines. Senior central bank officials say that the government has formed a committee now to plug the holes in the compliance guidelines.

The cost of being isolated internationally cannot be wished away by claiming that we have China’s support. Pakistan has been put on the grey list when it is in dire need to raise funds from abroad in view of the unprecedented current account deficit

Senior bankers who have experience of compliance are of the view that costs of transferring foreign currencies to and from Pakistan are likely to increase as the international banks will have to scrutinise the movement of money closely. As Pakistan’s foreign trade and remittances are dollar denominated they have to pass through the New York based clearance houses. Since the action against Pakistan has been taken on the behest of the US and other western countries the banks have already started showing cautiousness in clearing and moving money to and from Pakistan. This would slow down the movement of legitimate transactions. The foreign banks operating outside Pakistan have not only stopped opening the accounts of Pakistanis but are also shunning their business away.

Pakistan has had quite a liberal foreign exchange policy. The first hole in the very strict foreign exchange manual was punched by the late Dr Mahbubul Haq in the 80s by introducing Foreign Exchange Bearer Certificates (FEBC). In the 90s Nawaz Sharif government allowed Pakistan citizens to open the foreign currency account with the facility that no questions will be asked about the source of remittance. And also if this money is converted to Pak Rupee through the banking channels it would be considered ‘white money’. Even today one third of the foreign exchange reserves are basically these foreign currency deposits with the banks.

The Pakistani banks have become more cautious in opening the foreign currency accounts of the local citizens. And it seems that to meet the FATF guidelines the government will also have to take away the ‘no questions asked’ facility about the source of remittance.

The cost of being isolated internationally cannot be wished away by claiming that we have China’s support. Pakistan has been put on the grey list when it is in dire need to raise funds from abroad in view of the unprecedented current account deficit. The costs of this borrowing internationally, Pakistani bankers believe,may also rise due to the Paris set back.

The writer can be reached at ayazbabar@gmail.com. He is the author of Whats wrong with Pakistan

Published in Daily Times, March 10^th 2018.