Grey list and Pakistani economy
Dr Shabir Choudhry, London, 04 July 2018
Some Pakistanis are happy that Pakistan is not in the Black list; others are surprised why Pakistan is in the ‘Grey list’.
As a country, Pakistan is not new to the grey list because Pakistan was on the grey list from 2012 to 2015. After Pakistan took some measures in the right direction; and after some firm assurances that Pakistan will adhere to all the conditions, Pakistan’s name was removed from the grey list in 2015.
Pakistani policy makers wrongly thought they have weathered the storm, and they reverted back to old policies. Financial Action Task Force (FATF), is an international body with 37 members that combats terrorist financing and money laundering; and helps the concerned countries to formulate appropriate strategies.
In its plenary meeting held in Paris in February 2018, the FATF recognised the following areas of concern with regard to Pakistan:
1. Deficiencies in the supervision of Anti-Money Laundering and;
2. Counter-Terrorism Financing (CTF) regimes;
3. Cross-border illicit movement of currency by terrorist groups;
4. Progress on terrorism financing investigation and prosecution;
5. Insufficient progress in implementation of the UN Security Council Resolutions 1267 and 1373. These resolutions deal with effectively controlling and limiting terror financing.
Pakistani response – was it satisfactory
FATF urged Pakistan government to deal with the above concerns. It was quite clear that failure to take appropriate steps will result in placing Pakistan back on the grey list. However, this could have been avoided if three member countries had voted against the move. Pakistan’s ‘best friends’ like China, Saudi Arabia and Turkey were also present in the meeting. Despite lofty claim to have friendship deeper than sea, higher than the Himalayas and sweeter than honey, they did not vote in support of Pakistan.
No respectable country with future international ambitions wants to risk its reputation and dignity, and support a country that has a track record of not fulfilling its international pledges. As a result, Pakistan felt totally alienated and humiliated.
Arif Nizami, a very respectable Pakistani journalist and political analyst said:
Now China has openly asserted that Beijing doesn’t want to be part of any initiative that can result in failure. 1
Arif Nizami further says if Pakistan continue to behave like irresponsible child, then Pakistan’s friends will not endanger their international interests because of Pakistan. He thinks, all this is happening because the Pakistani establishment is refusing to read writing on the wall. It was because of these policies there have been conflicts between the civilian governments and the military establishment. If still somewhere this thinking exists that these groups (militant) are strategic assets, then it must be abandoned. 2
Now that Pakistan is back on the grey list; it does not enhance Pakistan’s international standing. Rather it is shame, and proves that Pakistan is still perceived as a country that is involved in money laundering and terrorism related activities.
The rulers of Pakistan, especially those in uniform need to understand that in order to remove Pakistan’s name from the grey list, Pakistan has to fulfil all the obligations and assure that they will behave like a responsible country in future. However, if they contravene the agreement reached with FATF, this can lead to placing Pakistan’s name in the Black list.
Apart from Pakistan, the following countries are also on the FATF grey list. People of Pakistan and their supporters can see where Pakistan stands:
3. Sri Lanka
4. Iran and
Is there a Conspiracy against Pakistan?
Is Pakistan innocent and FATF, under pressure of America and some others, is involved in some kind of conspiracy against Pakistan. Whenever Pakistan is at the wrong end of stick in international relations, or even mess up situation in Pakistan due to wrong policies, they resort to tried and tested strategy of ‘conspiracy against Pakistan’. As usual, and as expected, Pakistanis are calling it a conspiracy. While discussing the decision of FATF, Dr Murtaza Mughal, President Pakistan Economy Watch said:
‘The decision by the Financial Action Task Force (FATF) to put Pakistan on the grey list is a move taken on the behest of US aimed at pressurizing Pakistan and to force Pakistan into submission’.
He further said, ‘The is a tool to hit Pakistan’s economy, CPEC, banking sector, exports and investors’ confidence as it will increase the cost of doing business, he observed’. 3
Dr Mughal believes the decision may have some negative affect on Pakistan’s creditworthiness. The learned Dr Mughal, perhaps forgot that Moody, World’s prominent credit rating agency had already downgraded Pakistan’s credit rating before the FATF decision.
After being back on the grey list officially, the government of Pakistan has pledged to "address its strategic counter-terrorist financing-related deficiencies".
Fundamental question is why you didn’t do it before? Time and again, the International Community urged Pakistan to change their old habit of playing double, and helping and supporting terrorist activities. Since February 2018, Pakistan had plenty of time to put its house in order, and satisfy the FATF. What Pakistan did since February 2018 to 25 June 2018 was clearly insufficient, mainly because the Pakistani establishment was busy sorting out politics of Pakistan to advance their agenda.
During this crucial period, the establishment was still busy pulling strings in Kashmir and Afghanistan to ensure that instability and violence continues in these regions. Also with help of judiciary, they wanted to ensure that power and influence of the ruling party Muslim League N is crushed; and no political party gets majority to form a government in General elections to be held on 25 July 2018.
It was crystal clear in February 2018, that if appropriate steps were not taken, Pakistan will be officially placed on the grey list. Despite this bitter fact, no urgency was visible; and Security and Exchange Commission of Pakistan promulgated new regulations on money laundering and terror financing on 20 June, only 5 days before the proposed FATF meeting in Paris.
The way Pakistani establishment is interfering in the election process was making headlines in the international media. Many analysts believed that the establishment and judiciary wanted to bulldoze everything to ensure that outcome of the elections is a ‘hung parliament’, which could be controlled. For this purpose, they even inducted extremists and hate preachers in the mainstream politics.
Daily Times of Pakistan in its editorial wrote that the previous government of PMLN government, despite pressure of the establishment, ‘had strived towards by effectively outlawing particular militant groups as well as seizing their assets’. However, the new caretaker government, may be under pressure of establishment and religious parties, ‘has recently been a flurry of activity around certain proscribed outfits; resulting in them being all set to contest the elections. And while the Election Commission of Pakistan (ECP) has done the needful on the non-registration front — it is no match for those who wish to see such groups mainstreamed at any cost’. 4,
The editorial further says: ‘the current power battle is being waged on a single agenda: devastating the PMLN of any electoral hopes. And once this is achieved, with the crowning of a new blue-eyed boy’. 5
How imprudent, that while critical decisions were being discussed about future of Pakistan, the caretaker government, may be under the pressure of the establishment, unfroze accounts of Head of Ahle Sunnat Wal Jamaat, Ahmed Ludhianvi, who is also Joint Secretary of Defence of Pakistan Council. Restrictions on his movements were also lifted. He was given back his National Identity Card, and allowed to travel abroad as well.
How interesting that Hafiz Saeed is a wanted man; and yet his infrastructure operates in Pakistan, and in Azad Kashmir and Gilgit Baltistan without any problems. One may ask, is he bigger than the state and state institutions; or is he extension of them? The UN and America regard Jamaat-ud-Dawa and Falah-e-Insaniat Foundation, as ‘terror groups’; and both of these are believed to be still linked to Hafiz Saeed.
Despite the above hard realities, the Milli Muslim League, political branch of the banned Jamaat ud Dawa will contest the general elections under the umbrella of Allah-o-Akbar Tehreek; and will launch 260 candidates for the July 2018 elections. Interestingly they also have ten women candidates. The final list confirms 79 candidates for the National Assembly and 181 for the four Provincial Assemblies.
Even though it is their first participation in the national elections, but they have demonstrated a national support and character of the party by fielding 36 candidates for the National Assembly from Punjab, 29 from Sindh, 28 from the Khyber Pakhtunkhwa, 14 from Balochistan and eight from FATA. It has put up five candidates in Karachi and four in Lahore. 6
Among the candidates include names of Hafiz Talha Saeed, son of Hafiz Saeed, who is contesting for National Assembly seat, NA 91; and his son in law, Khalid Waleed who is contesting PP -167. It looked some of the institutions were working hard, not to satisfy conditions of the FATF, but to ensure that there was a ‘hung Parliament’ in which their man becomes the Prime Minister; and Nawaz Sharif is ousted for ever. 7
Grey list and Pakistani economy
Even before Pakistan was placed on the black list; the Pakistani economy was struggling. Political instability was also increasing to the detriment of the economy and confidence of potential investors. Moody downgraded Pakistan’s credit rating from stable to negative, and affirmed it at ‘B3’.
In view of some experts B3 rating still ‘reflects Pakistan’s robust growth potential, supported by ongoing improvements in energy supply and physical infrastructure’, mainly because of the projects related to China Pakistan Economic Corridor. Moody also pointed out about problems of external payments and government’s inability to generate more revenue.
In my opinion, we should look at overall political and economic picture; and country’s will to overcome the challenges, and not only look at ‘potential growth’. We must look at the ground realities and what is actually happening in the country. In my considered opinion, all the above will surely have negative impact on the Pakistani economy; and country’s ability to persuade potential investors to come to Pakistan with money bags.
Furthermore, it will affect Pakistan’s ability to reach out to global lending institutions; and obtain more funds. In view of a Pakistani commentator, Pakistan’s democratic and economic health has ‘forcefully been put on life support’. Many economists are apprehensive of the fact that if they tell facts about political and economic health of Pakistan, and what may happen, they will be castigated as ‘anti-Pakistan’ and ‘traitors’.
With these tags, it is not possible to live with respect, or even survive in Islamic Republic of Pakistan. In view of this, many choose to go with the tide; and refrain to tell what the rulers don’t want to hear.
The devaluation of Rupee has only made the bad situation worse, and added the credit burden. The growth is more than likely to decline. Exports will also continue to decline, and imports will continue to rise; and that will create more problems for balance of payments. It will also result in steep rise in inflation, which will surely result in more social, economic and political problems.
Some Pakistanis take inclusion of Pakistan in this grey list very lightly, and shrug off their shoulders by saying, we were in the grey list before, and we got out of it. We can do it again. They don’t understand we are living in 2018 now, with different political and economic climate.
The FATF is not an American organisation. It is an inter-governmental institute founded in 1989, specifically for the purpose ‘to combat money laundering, terrorist financing and other related threats to the integrity of the international financial system’. This body must be satisfied that Pakistan has changed its policy, and is no longer protecting terrorists; or exporting terrorism and is involved in money laundering.
With your hand on your heart, can you sincerely say that Pakistan has changed its policy; and has become a ‘good boy’ now.
Apart from that, between 2012 and 2015, the Pakistani banks like Habib Bank and National Bank were operating as ‘correspondent banking channels’, which helped trade and banking to run satisfactorily. Now under the new laws and new operating systems, the Pakistani banks will find it increasingly difficult to operate in some countries like America. It must be pointed out that Habib Bank had to pay a penalty of USD 225 million last year to the Department of Financial Services of New York State for violating multiple state regulations. As a result of this, Habib Bank was forced to close its operations there.
When a country is on the grey list or economically vulnerable, big banks are reluctant to issue Letter of Credit, which makes it very difficult to trade. With Pakistan’s current fragile political and economic situation; and government’s lack of will to control and eradicate jihadi infrastructure known as terrorist infrastructure, there are more chances of Pakistan not fulfilling the conditions of the FATF. This can result in either placing Pakistan on the Black list; or at best giving Pakistan more time to put its house in order.
America and some other countries believe that Pakistan, or some of its institutions were still behind many wrong doings, and support terrorists. Call it international community, or some powerful countries have consistently complained that Pakistan was not doing sufficient to control terrorism and other wrong doings. One reports notes:
‘Terror financing still remains a challenge in Pakistan, where militant and extremist groups have openly generated large sums of money under the guise of religion and welfare for the poor. The funds are allegedly being used for terror activities within and outside the country’. 8
The report further says that:
‘Militant groups collect money using different methods and sources in the country, largely relying on foreign funding, drug trafficking, extortion from businesses and kidnapping for ransoms. The Hawala system, a parallel banking system, is another convenient method militants use to launder their money’. 9
The FATF has set ten-point agenda for Pakistan to implement. They have to implement or achieve targets of nine goals to the satisfaction of the FATF before May 2019. The tenth target is to be achieved before September 2019. The list of agenda is produced below. With the prevailing situation in Pakistan, as explained the above, can Pakistan satisfy the FATF.
This is the action plan or homework for Pakistan:
1) Demonstrating that terrorist financing risks are properly identified, assessed, and that supervision is applied on a risk-sensitive basis
2) Demonstrating that remedial actions and sanctions are applied in cases of AML/CFT violations, and that these actions have an effect on AML/CFT compliance by financial institutions
3) Demonstrating that competent authorities are cooperating and taking action to identify and take enforcement action against illegal money or value transfer services (MVTS)
4) Demonstrating that authorities are identifying cash couriers and enforcing controls on illicit movement of currency and understanding the risk of cash couriers being used for terrorist financing
5) Improving inter-agency coordination, including between provincial and federal authorities, on combating terrorist financing risks
6) Demonstrating that law enforcement agencies (LEAs) are identifying and investigating the widest range of terrorist financing activity and that terrorist financing investigations and prosecutions target designated persons and entities, and persons and entities acting on behalf or at the direction of the designated persons or entities
7) Demonstrating that terrorist financing prosecutions result in effective, proportionate and dissuasive sanctions and enhancing the capacity and support for prosecutors and the judiciary
8) Demonstrating effective implementation of targeted financial sanctions against all 1267 and 1373 designated terrorists and those acting for or on their behalf, including preventing the raising and moving of funds, identifying and freezing assets (movable and immovable), and prohibiting access to funds and financial services
9) Demonstrating enforcement against targeted financial sanctions violations including administrative and criminal penalties and provincial and federal authorities cooperating on enforcement cases
10) Demonstrating that facilities and services owned or controlled by designated persons are deprived of their resources and the usage of the resources. 10
Dr Mohammad Faisal, Foreign Office spokesman said:
“We will have to ensure the implementation of the action plan shared with FATF while we are on the grey list, if adequate measures are taken, we can be removed from the grey-list”.
Failure to meet the above targets will mean more problems for Pakistan. It is sad to conclude with a depressing note – Pakistan will sleep walk in to a quagmire. With Pakistan getting deeper and deeper in to problems, not only people of Pakistan will suffer, we people of Azad Kashmir, Gilgit Baltistan and people of the region will suffer too.
Writer is a renowned writer and author of many books. He is also a senior leader of UKPNP and Chairman South Asia Watch, London.
Email: Drshabirchoudhry@gmail.com Twitter: @Drshabir
8. Shahnaz Nafees from VOA's Urdu service contributed to this report.