Terror-financing grey listing costs Pakistan billions annually

The Financial Action Task Force (FATF), an inter-governmental, antimoney laundering watchdog, is keeping Pakistan on its grey list, and experts say this is a major encumbrance on the country's struggling economy.

FATF announced last week that Pakistan would retain its grey status until June when it will be reviewed at an extraordinary plenary session. The grey list is made up of countries that are subject to close monitoring but cooperating with FATF to address systemic deficiencies so that money laundering, terrorism funding and proliferation financing can be countered.

Pakistan is reported to have largely complied with 24 of 27 action points recommended by FATF, including clamping down on illegal money transfer services.

The country was first placed on the list in 2008, but removed the following year. It went back on in 2012, and was removed in 2015 when anti-money laundering legislation was passed. Because of allegations of terrorism funding, Pakistan was grey listed for the third time in 2018, and remains there.

FATF President Marcus Pleyer told reporters last week that Pakistan is still being closely monitored. "While Islamabad had made significant progress, there remained some serious deficiencies in mechanisms to plug terrorism financing," he said.

Hammad Azhar, Pakistan's industry minister and chair of the FATF Coordination Committee, told local media that the grey listing is approaching an end. "A lot of work has been done on the three points in which we are partially compliant," he said. "We are close to being largely compliant in these areas."

The three outstanding issues include "effective implementation of targeted financial sanctions against all designated terrorists."

A research paper titled 'Bearing the cost of global politics-the impact of FATF grey-listing on Pakistan's economy' estimates a national economic loss of $38b since 2008 due to FATF. The report was authored by Naafey Sardar and published in February by Tabadlab.

Pakistan's economy was severely affected by the grey listing in 2018 when the South Asian country sustained an economic loss of $10.16b, Sardar told Nikkei Asia. The economist, who works as a senior research associate at Texas A&M University, said the report only goes up to 2019: "It was not possible to calculate the GDP losses for 2020 since the World Bank has yet to release data on the macroeconomic variables used for our estimations."