Remaining on the grey list of the Financial Action Task Force (FATF) for another year may be the least of Pakistan’s concerns. What poses a greater challenge is the FATF’s insistence that Pakistan investigate and prosecute leaders of UN-designated terrorist groups living on its soil—an expectation that directly clashes with Islamabad’s aspirations to shape the future of neighbouring Afghanistan.
Many of the groups the FATF has demanded action against not only enjoy shelter within Pakistan but also constitute the principal obstacles to peace in Afghanistan, particularly as the United States completes its withdrawal.
The FATF has tasked Pakistan with three key objectives:
- Demonstrating that terrorist financing investigations and prosecutions target individuals and entities acting on behalf of designated persons or organisations.
- Demonstrating that prosecutions result in effective, proportionate and dissuasive sanctions.
- Demonstrating effective implementation of targeted financial sanctions against all individuals designated under UN resolutions 1267 and 1373, especially those acting directly or indirectly on their behalf.
At its plenary last month, the FATF noted “serious deficiencies” in Pakistan’s efforts to curb terrorist financing. It urged Islamabad to address swiftly “the one remaining CFT-related item by demonstrating that TF investigations and prosecutions target senior leaders and commanders of UN-designated terrorist groups.”
With the next plenary scheduled for October, it is highly unlikely that Pakistan can fulfil these requirements in time. More critically, there appears little genuine willingness to act against the leaders of the eight groups identified by the FATF in the past: the Afghan Taliban, Haqqani Network, Lashkar-e-Taiba (LeT), Jaish-e-Mohammed (JeM), Jamaat-ud-Dawah (JuD), Falah-e-Insaniyat Foundation, al Qaeda and Islamic State.
To date, Pakistan has only prosecuted leaders of LeT and JuD. LeT founder Hafiz Saeed is serving a sentence for terror financing, though doubts remain over the seriousness of his confinement amid reports that he continues to communicate with his cadres. JeM chief Masood Azhar has so far evaded action despite responsibility for several major attacks. Meanwhile, much of the Afghan Taliban leadership residing in Pakistan remains untouched and continues to raise funds and orchestrate violence in Afghanistan as US troops withdraw.
This duality exposes Islamabad’s dilemma. On the one hand, it shelters and supports these groups; on the other, it seeks an influential role in Afghanistan’s post-withdrawal landscape. Should it be compelled by FATF to act decisively against these leaders, Pakistan risks fracturing its ties with groups that could in turn retaliate violently against the state.
Pakistan’s predicament is compounded by a fresh FATF action plan on anti-money laundering (AML) and countering the financing of terrorism (CFT). The first four points of the six-point plan require Islamabad to:
- Enhance international cooperation by amending its Mutual Legal Assistance law.
- Demonstrate active requests for assistance from foreign states in implementing UN designations.
- Prove that supervisors are conducting both on-site and off-site oversight.
- Ensure proportionate and dissuasive sanctions are consistently applied to all legal persons and entities failing to meet beneficial ownership requirements.
The final two points are particularly critical:
- Fifth, Pakistan must demonstrate an increase in money-laundering investigations and prosecutions, ensuring that criminal proceeds are restrained and confiscated in line with its risk profile. This includes cooperating with foreign partners to trace, freeze and confiscate assets.
- Sixth, it must prove that sanctions are consistently applied for non-compliance.
Only once Pakistan completes the tasks under the current plan will the FATF decide whether to conduct an on-site inspection—a prerequisite for removal from the grey list. However, Pakistan must also implement the new six-point plan in full, meaning two successful inspections are required before delisting is even considered.
FATF President Marcus Pleyer clarified: “Pakistan must largely complete all the items on this action plan. It will be a separate on-site to decide on this action plan. So the delisting will not occur before both action plans are completed and two on-sites have been granted and successfully completed, demonstrating that improvements are sustainable.”
For now, the ball remains in Pakistan’s court. It has avoided blacklisting over the past two years by making just enough progress to stay on the grey list, one step short of severe sanctions. Its every move is under the watchful eye of the FATF’s International Cooperation Review Group, which includes the US, the UK, France, China and India.
The lingering question is whether the FATF’s influence will wane after the American withdrawal from Afghanistan. Pakistan will undoubtedly hope for diminished scrutiny and seek to persuade Washington of its indispensability as a mediator between the Taliban and Afghan national forces.