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Understanding FATF and implications for Pakistan

History of FATF

In response to mounting concern over money laundering, the Financial Action Task Force on Money Laundering (FATF) was established by the G-7 Summit that was held in Paris in 1989. In October 2001; after terrorist attack in USA, the FATF issued the Eight Special Recommendations to deal with the issue of terrorist financing.

Membership to FATF

During 1991 and 1992, the FATF expanded its membership from the original 16 to 28 members. In 2000, the FATF expanded to 31 members and has since expanded to its current 37 members and two observers i.e. Israel and Saudi Arabia.

What do the FATF do 

The objectives of the FATF are to set standards and promote effective implementation of legal, regulatory and operational measures for combating money laundering, terrorist financing and other related threats to the integrity of the international financial system.

Starting with its own members, the FATF monitors-

  • Countries’ progress in implementing the FATF recommendations
  • Reviews money laundering and terrorist financing techniques
  • Counter-measures
  • Promotes the adoption and implementation of the FATF recommendations globally.

Countries put on watchlist mainly suffer a reputation problem which leads to less Foreign Direct Investments (FDI) and Corporate Businesses. FATF has 15 recommendations for money laundering; 9 of which target terrorist financing. It is generally assumed that a country with higher terrorist activity would have a government that is more interested, and has more incentives to implement the FATF recommendations to combat terrorist activity. The economic freedom of a country, the real GDP and the level of compliance with FATF recommendations tend to move together.

Being put on the FATF watch list would likely-

  • Complicate the country’s ability to access international financial markets
  • Add further scrutiny to international banking transactions
  • Create more red tape for the country’s exporters.
Pakistan and FATF

Pakistan was on the watch list from 2012 to 2015. FATF welcomed Pakistan’s significant progress in improving its Anti Money Laundering (AML) /Counter-Terrorist Financing (CFT) regime and noted that Pakistan has established the legal and regulatory framework to meet its commitments in its action plan regarding the strategic deficiencies that the FATF had identified in June 2010. Pakistan is therefore no longer subjected to the FATF’s monitoring process under its on-going global AML/CFT compliance process. In January 2018, Trump administration levied new sanctions against several Taliban financiers who the U.S. Treasury said have been fundraising in Pakistan. Starting Point of FATF issue in the meeting scheduled in Feb 2018 was Trump’s Tweet of 1st Jan 2018

 “The United States has foolishly given Pakistan more than 33 billion dollars in aid over the last 15 years, and they have given us nothing but lies & deceit, thinking of our leaders as fools. They give safe haven to the terrorists we hunt in Afghanistan, with little help. No more!” 

On 16th Feb 2018, President of Pakistan Mr. Mamnoon Hussain promulgated the ordinance that allowed the government to outlaw all organisations that are declared to be terrorists under UN Security Council resolutions.

Above actions and diplomacy by Pakistan succeeded to convince members at the Financial Action Task Force’s meeting in Paris on 20th Feb 2018; after member states failed to reach consensus on placing Pakistan on the global list of countries, till the next meeting scheduled in June – 2018.

End Note

A top official has confirmed that Pakistan has lost it battle at the FATF. From June, Pakistan will be placed in the list of countries suspected for terror financing. Further blow is the alarming fact that even China abandoned Pakistan. This will definitely mark the start of Pak-China relationships going downhill.

25 Feb 18/Sunday.                                                                                                                                                afsana159630@gmail.com

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