Pakistan is still not doing enough to curb terror financing and time is running out

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  • The Asia Pacific Policy Group (APPG), a regional think tank associated with the FATF, has said that Pakistan’s recent actions to prevent terrorist groups from accessing funds are inadequate.
  • The country was put on a watchlist, called the “grey list”, by the FATF a few months ago for its failure to crack down on terror financing.
  • If Pakistan remains on the grey list, then it could see demand from foreign investors drop and the rating of its sovereign bonds downgraded by international rating agencies.
In a review held last week, the Asia Pacific Policy Group (APPG), a regional think tank associated with the Financial Action Task Force (FATF), confirmed that Pakistan’s recent actions to prevent terrorist groups from accessing funds were inadequate. It noted the lack of progress in freezing the funds of organisations like Jamaat-ud-Dawa (JuD), the Hafiz Saeed-led group behind the Mumbai terror attacks in 2008.

The country was put on a watchlist, called the “grey list”, by the FATF a few months ago for its failure to crack down on terror financing. Pakistan had earlier been on the watchlist from 2012 to 2015 for its inability to address the problem of money laundering. The FATF sets standards and assesses countries’ progress in preventing money laundering and curbing terrorist organisations’ access to finance.

In June 2018, Pakistan approved a 26-point action plan devised by the APPG for it to comply with anti-terrorist financing and anti-money laundering regulations. The measures, which were envisioned to be implemented over the span of 15 months, included curbs on cross-border currency movements, stricter money-laundering controls at banks and an assessment of the financing activities of certain non-profit organisations.

A thorn in the new PM’s side


A lot rides on the evaluation by the APPG. Pakistan has come under criticism from the US government for its inability to stop the proliferation of homegrown terrorist networks. Earlier this month, the US said it would cut $300 million in military aid to the country.

If Pakistan remains on the grey list, then it could see demand from foreign investors drop and the rating of its sovereign bonds downgraded by international rating agencies like Moody’s, which will make it more expensive for the country to access credit.

In addition, financial institutions will be averse to transacting with Pakistani banks and it will also hurt he country’s chances of securing a bailout package from multilateral organisations like the World Bank. This is bound to be a problem for new Prime Minister Imran Khan as he tries to steer Pakistan out of a financial crisis characterised by dwindling forex reserves and an unmanageable debt burden.

The APPG will submit the report on Pakistan to the FATF next month. Thereafter, Pakistan will be subjected to an evaluation of the first phase of its anti-terror financing reforms in December 2018. If it is unable to show any progress by then, the country could face the prospect of capital flows and foreign funding assistance drying up and the imposition of sanctions.
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