DNA Edit: Cornered in Paris - Pakistan is feeling the FATF pressure on terror funding

Pakistan needs to pass the FATF test. More than any Indian pressure, which the neighbour is quite accustomed to, Islamabad is wary of global watchdogs like the Paris-based Financial Action Task Force or the FATF.

Currently, it is on the FATF grey list of countries, whose domestic laws are considered too weak to tackle challenges of money laundering, which in these dire days, is directly linked to acts of terrorism. It is no surprise therefore that Pakistan has asked the FATF president to remove India as co-chair of Asia-Pacific’s Joint Group and replace it with any other country of its liking.

The Joint Group is a sub-body of the International Cooperation Review Group (ICRG) of the Asia-Pacific Group (APG). Pakistan is a member of the APG and its case is being presented before FATF by the APG. India’s Financial Intelligence Unit`s (FIU) director general is the co-chair of the Joint Group. Even the slippery Pakistanis - who have been on this list between 2012-15 - know that the international community is increasingly losing patience with them.

Part of the reason for Islamabad’s worries are that both the USA and the UK had moved the motion of putting Pakistan on the FATF terror-financing watch list. Earlier, Pakistan had been bailed out of trouble at FATF by long-standing friends China, Turkey and Saudi Arabia.

With the FATF sword hanging over their head, Islamabad has taken certain cosmetic measures to make it appear that it is clamping down on terror groups within the country. What is hard to explain is how and why the international community believes Pakistan’s age-old tale with a straight face.

For instance, the so-called ban on terror groups in that country has been undertaken many times in the past, only for the banned outfits to re-emerge in another avatar. Putting Pakistan on the banned list would deal a blow to its already doddering economy, making it harder for foreign investors to do business there.

It would become a more expensive country when it goes to borrow money from international debt markets, accompanied by a global downgrading by credit agencies. At the moment, foreign banking organisations functioning in Pakistan would necessarily have to go back and check risk to reward analysis, if a ban was imposed.

Naturally, any decline in foreign transactions will impact foreign currency outflows, which in turn will take its toll on the country’s current account deficit. It will certainly lead to stricter scrutiny by financial watchdogs of any overseas banking transactions, leading to unwanted delays in settlement or even outright rejection.

Observers in Pakistan have been quick to point out that the two allies backing Pakistan at FATF, China and Saudi Arabia, have been less than enthusiastic, of late. US has been using their solid clout with the Saudis to back off in their help-Pakistan efforts, while India is working on China bilaterally to keep Pakistan on the watch list.

The outcome of these efforts and the hearing in FATF would have important implications ahead for this region.