Daily Times

The Financial Action Task Force (FATF), a watchdog combating money laundering (AML) and countering terrorism financing (CTF) convened a plenary session in Paris on June 23, placing Pakistan on the dreaded “grey list”. This is a moment of soul-searching scrutiny for the caretaker cabinet, incoming government, and the law enforcement agencies.

FATF’s “grey-listing” compels Pakistan to take an (even) tougher stance on countering extremism, which over the long haul, truly benefits Pakistani citizens.

FATF’s verdict was tragically anticipated, to believe otherwise was naiveté, especially after unleashing the unsavoury Khadim Rizvi, mainstreaming Hafiz Saeed and the Lashkar-e-Taiyaba (LeT), decriminalising Ahle Sunna Waljama’a (ASWJ) (formerly Sipah-e-Sahaba) and unfreezing the assets of its rogue ringleader, Ahmed Ludhianvi, facilitating their electioneering. The Election Commission of Pakistan (ECP) must sharpen its teeth.

The fact that a sectarian hate-spewing Tehreek-e-Labbaik is a registered political party and a motley crew of misfits like Hafiz Saeed and his son-in-law will contest elections, via Allahu Akbar Tehreek (AAT) is a stain upon our collective conscience. Replenishing terrorist coffers, via known regional “proxies” represents the gravest threat to Pakistani citizens.

A lot now hinges on the execution of the FATF International Cooperation Review Group’s 26 point “Action Plan”, to be implemented by Interim Finance Minister Dr Shamshad Akhtar and subsequently by the incoming government over 15 months.  There can be no ducking and diving, for this is our moment of reckoning.

Irrespective of the FATF ruling, Pakistan’s strategic Eastward reset and Sino rapprochement seems irreversible, given promising initiatives

The FATF “action plan” mandates Pakistan to choke financing to ISIS Khorasan (South Asia), al Qaeda, Jamaat ud Dawa and its affiliates LeT and FIF, Jaish-e-Muhammad (JeM), ASWJ, the Haqqani network and Taliban, pursuant to UN Security Council Resolution 1267 (terrorist sanction list).

Aapbara and GHQ Rawalpindi intensify infiltrated intelligence “assets” deployed to monitor Hafiz Saeed and his incestuously reincarnated parties.

Some say this grey-listing sets up Pakistan “to fail” and those sanctions are inescapable, while others maintain that FATF targets incentivise a future elected government to conduct long-overdue housekeeping.

It is strategically unwise for Washington to impose sanctions on Pakistan which may retaliate by increasing the costs for NATO supplies to a land-locked Afghanistan. Pakistan’s port fees, road tolls, and border crossing charges might increase to offset growing financial burden incurred due to sanctions.

Trump’s administration utilises FATF’s “grey-listing” as an economic “lever” against Pakistan. After grey-listing, Washington may have lost this strategic “lever” as Pakistan can restrict crucial access to Afghanistan.

It is in Washington’s interest to rebuild rapport with Islamabad, a key ally in an increasingly combustible South Asian region, as extremism mounts (ISIS) and Russia, China, and Iran secure their influence in a subcontinent replete with mineral resources.

Grey-listing was instigated by an intransigent Bharatiya Janata Party(BJP) in Delhi. Pakistan’s Interim Interior Minister Muhammad Azam confirmed that FATF was under the pressure cooker by Indian lobbyists, who used Washington to pressurise China and Saudi Arabia, Pakistan’s intimate allies, to remove their opposition.

FATF listing further strains already dwindling bilateral relations between Pakistan and the USA, in flames after Trump’s incendiary tweets, Washington’s strategic reset towards Delhi and mutual restrictions on diplomatic movements.

Trump’s administration leverages FATF “grey-listing” to “up the ante” in a diplomatic coup to make Islamabad yield to a laundry list of concessions. The US ended its $1 billion financial assistance, including releasing Coalition Support Funds, money which Washington owes Pakistan for military operations against extremists.

To counter FATF “grey-listing” Pakistan sought support from China, Turkey, and Saudi Arabia, but only Turkey, a time-tested ally, supported Pakistan. Proving that allies will “not” unconditionally stand by Pakistan, reinforcing a “transactional” relation between Islamabad and partners based on “calculated” interests.

We must expect more fluid, ever-evolving diplomatic rifts and shifts and be prepared to witness Islamabad’s recent rapprochement with Beijing, Moscow and Tehran. The Kremlin has its eyes on key Pakistani assets.

To implement the FATF counter-terrorist financing (CFT) plan, the Securities and Exchange Commission of Pakistan (SECP) issued the Anti Money Laundering and Countering Financing of Terrorism Regulations.

Pakistan promulgated the Anti-Money Laundering Act 2010, the Finance Bill 2018, set up a Financial Monitoring Unit (FMU), Counter Financing of Terrorism Units (CFTUs), 1997 Anti-Terrorism Act. Banks file Suspicious Transaction Reports (STRs) and Currency Transaction Reports (CTRs) where AML/CFT is suspected. Pakistan’s Telecommunication Authority’s e-portal system jettisons online terror financing.

Despite the above, curbing anti-terror financing is no easy feat. A challenge remains to make Court Orders against extremists legally “stick”. Militants are a Hydra-headed monster, cancerously metastasising under different guises. For example, after banning Hafiz Saeed’s LeT, the JuD emerged, having cracked down on them the Milli Muslim League appeared, banning them birthed Allahu Akbar Tehreek (AAT) proving that counter-terrorism is not a sprint, but a long-term marathon.

Grey-listing makes it harder to borrow from global lenders, lowers credit rating (Moody’s did recently), and worsens the current account deficit (4.8 percent of GDP). Grey-listing makes life tougher for Pakistani citizens opening foreign currency accounts and expatriates sending remittances.

Despite grey-listing, Pakistan is (somewhat) hedged since it secured GSP+ status with the EU, issued Sukuk (Islamic) bonds worth millions and successfully secured loans from the IMF, World Bank, ADB and foreign remittances. Chinese, Turkish corporations and Egyptian property tycoons heavily invested in Pakistan’s infrastructure and real estate. Out of CPEC’s $50 billion investments, 70 per cent ($35 billion) will come to Pakistan via Foreign Direct Investment.

Pakistan must control hundi and havala (informal money transfers via money exchangers). FATF conformity requires Pakistan’s Federal Board of Revenue to enforce OECD’s Base Erosion and Profit Shifting (BEPS) and their automatic Exchange of Information (AEOI) to curb tax evasion and avoidance, preventing future Panama and Paradise leaks. Such “white collar” crimes inadvertently facilitate terror financing in our highly integrated global financial markets.

Pakistan should seek FATF technical compliance re-rating, regularise reporting to FATF’s Financial Intelligence Units including “fintech” risks like crypto-currencies. Pakistan banned crypto-currency trading like Bitcoin. Crypto-currencies are deployed by terrorists to finance operations via the sinister dark web.

Grey-listing compels Pakistan’s Finance Ministry and Board of Investment to seek credit from alternative (non-Western lenders) like the Asian Infrastructure Investment Banks and China’s International Capital Corporation, with interest rates at 7 per cent.

An increasing reliance on the Yuan as a currency for transactions will ensue (as in Iran) an “Eastward” shift in Pakistan’s strategic posture. Washington, London, and Paris cannot be blind-sided by Modi and Doval’s divisive doctrines and lose a strategic ally like Pakistan.

Pakistan can prevent further punitive measures by ensuring that all state branches are on the “same page”. Islamabad can leverage “back-door” diplomacy to reignite relations with Washington.

Irrespective of the FATF ruling, Pakistan’s strategic Eastward reset and Sino rapprochement seems irreversible, given promising initiatives like CPEC, BRI, SCO, ECO, CASA and TAPI, which bolster Islamabad’s macroeconomic stability. Pakistan stands at a geo-strategic vantage point to re-assert her role in South and Central Asia and the Caucuses.

The writer is a Senior Development Consultant, Rights Activist and Strategic Advisor. He can be contacted at ozzerkhalid@gmail.com and tweets @OzerKhalid

Published in Daily Times, July 8^th 2018.