FATF extends Pakistan ‘Grey Status’; New action plan given

June 25, 2021

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In its plenary meeting held on 25th June 2021, Financial Action Task Force (FATF) has extended Pakistan’s ‘Grey’ status while noting significant progress on the milestones. Pakistan will continue to be in the ‘Grey list’ until all of the identified deficiencies.

The Paris-based FATF said in a statement Friday that Islamabad has complied with 26 of the 27 requirements for overcoming Money laundering and Terrorist Financing in the country. The FATF did not provide any date when it intends to remove Pakistan from Grey List. The one remaining item of the action plan relates to countering financial terrorism.

This is the third extension for Pakistan after missing four previous deadlines. While linking to a gray list is less risky than being on the FATF’s blacklist, countries may still face barriers to accessing funds from organizations such as the International Monetary Fund and the World Bank, as well as negative implications for trade and investment.

FATF has given following 6-Points action plan to meet full compliance

Enhancing international cooperation by amending MLA law,
Demonstrating that assistance is being sought from foreign countries in implementing UNSCR 1373 designations,
Demonstrating that supervisors are conducting both on-site and off-site supervision commensurate specific risks associated with DNFBPs, including applying appropriate sanctions where appropriate,
Demonstrating that proportionate and dissuasive sanctions are applied consistently to all legal persons and legal arrangements for non-compliance with beneficial ownership requirements,
Demonstrating an increase in ML investigations and prosecutions and that proceeds of crime continue to be restrained and confiscated in line with Pakistan’s risk profile, including working with foreign counterparts to trace, freeze and confiscate assets, and
Demonstrating that DNFPBs are being monitored for compliance with proliferation financing requirements and that sanctions are being imposed for non-compliance.

Pakistan is already undergoing a financial assistance program from the International Monetary Fund, which is the key to economic recovery and stability. The decision came at a time when Pakistan is emerging as a major player in the region amid the United States’ efforts to leave Afghanistan after 20 years of war.

Pakistan has been on the FATF Watchlist since 2018 with measures to complement the program, including identifying and monitoring terrorist financing risks and tightening controls on the movement of illegal currency. More than a dozen other countries are flawed and are on the same watchlist, according to the FATF website.

The FATF is an international body made up of 37 countries and two regional organizations. China, Turkey and Malaysia have lobbied in the past to prevent tough sanctions against Pakistan, while India, which accuses Islamabad of funding militant groups operating in its part of Kashmir, has tried to downgrade the rating.