The Grey List
Pakistan has been grey-listed by the FATF a number of times before 2018. In 2008, the country was declared as a jurisdiction under increased monitoring, more commonly known as the ‘grey list’ for the first time. The key concern of the FATF at that time was that the country did not have appropriate legislations to identify and stop terror financing and to confiscate the assets of terrorists.
It was again put on the grey list in 2012 for being unable to effectively combat terror financing and money laundering. However, it managed to clear its name from the watchdog’s grey list in 2015. Pakistan was once again put on the grey list of the FATF because of a campaign by the United States and the European nations. Their campaign was aimed at asking the country to do more against terror financing and money laundering.
India and the United States allegedly accused Pakistan of assisting Jamat ud Dawah, Lashkar e Jhangvi, and other Al-Qaida-related terrorist groups. Their allegations led the country to fall into the grey list in 2018. Pakistan faced difficulty in clearing its name from this list due to the political maneuvering by the US and India in the FATF. However, the state of Pakistan succeeded to clear its name from this list and once again has been white-listed by the global monetary watchdog.
According to research conducted by Tabadlab, an Islamabad-based research advisory, Pakistan has suffered a loss of almost $38 billion by the mid of 2021 due to the FATF greylisting. The country also faced a major decline in foreign direct investment.
Pakistan has finally succeeded to get white-listed from the FATF after a tumultuous journey of four and a half years. The country was given the toughest action plan by the FATF. However, the strict action plan of the FATF proved a blessing in disguise for the country as it removed most of the loopholes present in the financial system of the country. It improved the financial monitoring of the country which resulted in decreasing money laundering and terror financing.
It also resulted in uncovering massive corruption cases by the political and business elite of the country. The legislation introduced under the FATF action plan has made it much more strenuous for money launderers to move their funds around. It has also tightened the grip of the state on the financial system of the country which has resulted in keeping an eye on the financial activities. This will result in lowering financial crimes in the country and increasing the tax net of the country.
If the authorities continue to implement the policies with the same spirit, Pakistan will progress unprecedently. If not, the country could again fall on the same list as it is no more in the good books of the US.
The exit from the grey list of FATF is sure to bring economic benefits to Pakistan. It would build trust in foreign businessmen which would prompt foreign direct investment in the country. The soundness of Pakistan’s financial system would strengthen its position in international markets and the international community.
Pakistan would also reap several other short and long-run goals from its removal from FATF’s grey list. One of the major implications will be an improvement in its public perception. It would create a positive image of the country which was tarnished by the downgrading of the country’s rating by Moody’s and many other international credit rating agencies. Pakistan’s financial systems would also regain their declining confidence.
Pakistan complied with another structural benchmark of the IMF which paved its way for the successful combined seventh and eighth reviews, enabling the disbursement of SDR 894 million from the IMF. It is important to note that all these benefits could only be reaped if the authorities in Pakistan remain committed to ensuring the smooth working of its financial system.
Pakistan’s political instability could also be a great obstacle to its financial stability, as political stability is directly linked to the economic stability of a country. Hence, the recent political instability in Pakistan could prove more inimical for the country than the greylisting by the FATF.
This piece was originally published on Nearpeer.
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