Pakistan’s hard-won FATF gains

On October 21, global watchdog – the Financial Action Task Force (FATF) – made known what many in Pakistan believed was possible: the country’s exit from the FATF’s increased monitoring “grey list.” Pakistan’s completion of 34 action points was accompanied by plenty of pacy gains, and the removal of “strategic deficiencies” in the anti-money laundering and anti-terror financing space are commendable. There is an entire process that went into it, from successive government contributions to the vital role of the armed forces in making effective implementation possible.

It is also true that the hard-won grey-list exit is enough to put key lessons into context. That includes the realisation that Pakistan does possess the political will as well as the capacity-building to deliver oversight reform in the financial system. The other lesson is perseverance in the face of hostile political campaigning. We have all seen India’s push to employ a range of pressure tactics to politicise and impede Pakistan’s engagement with the FATF, a style of scheming characteristic of New Delhi’s behaviour. Fast forward, Pakistan’s demonstrated success on the FATF puts all those designs to rest, and with it, confirms that progress rests above all else.

“The FATF welcomes Pakistan’s significant progress in improving its AML/CFT regime,” read an FATF hand-out. “Pakistan has strengthened the effectiveness of its AML/CFT regime and addressed technical deficiencies to meet the commitments of its action plans regarding strategic deficiencies that the FATF identified in June 2018 and June 2021, the latter of which was completed in advance of the deadlines,” it added.

The nation stands to benefit from increased level of political commitment, as well as sustainable reforms, that have marked the lead-up to Pakistan’s grey-list exit. The role of the armed forces has been pivotal in timely implementation and stronger headway on key action points. At the same time, the grey-list exit outcome is made possible by the all-round support of lawmakers and government officials across administrations, sending a powerful message on national unity. One must also note that the work to overcome the FATF designation was a way of protecting and supporting Pakistan’s economic profile. To that end, it has paid off meaningfully. These breakthroughs should give way to a deeper realisation about what ought to constitute our core interests, and why national unity becomes central to the achievement of those interests.

The evolution of Pakistan’s progress towards key action plan items makes it clear that future reform doesn’t need to depend on external pressure. Even before FATF announced Pakistan’s breakthrough grey-list exit, legislation aimed at bolstering action plan consensus was a welcome reminder of urgent initiative felt in many circles. It is in Pakistan’s interests to ensure continuity in future progress for several reasons. For instance, a financial system that is even more responsive to state control offers valuable pushback against potential criminal activities in unmonitored spaces. Similarly, there is significant public awareness about financial corruption and associated risks today. It shows in an empowered public, free media, and closely watched political discourse.

All that makes it critical to build on Pakistan’s regulatory overhaul by strengthening future curbs against money laundering, and generate momentum for consistent reform. Moving in that direction can serve the interests of financial transparency in a still-evolving democracy.

The gains from Pakistan’s FATF compliance have also spared us the costs of investor scepticism, much weaker economic growth, and less resilient international partnerships. Islamabad still needs to stay closely engaged with the Asia Pacific Group (APG) – FATF’s regional affiliate – on the level of effectiveness concerning 11 ‘immediate outcomes.’ However, productive engagement on these outcomes has several upsides. First, it could strengthen a culture of regulatory reform to support Pakistan’s financial system, increase the system’s resilience against organised crime, and enable political parties to prioritise agenda-setting. With the passage of time, this cycle of checks and balances – if prioritised as a national imperative – has the potential to take Pakistan ahead of many other countries on financial transparency. It is also pivotal to catering to the interests of a very modest economic profile, given that the impression of political and economic instability has its own set of adverse implications for Pakistan, as for many other countries across Asia.

It is here that added engagement with the APG should build on Pakistan’s strengths. It should further boost the state’s hand on regulation, and extend scrutiny and healthy control into aspects of the financial system chief to future interests.

Finally, in the process of making remarkable progress on FATF’s action plans, there has been welcome adaptivity to reform in Pakistan. “Since June 2021, Pakistan has taken swift steps towards improving its AML/CFT regime and completed six of the seven action items ahead of any relevant deadlines expiring,” said the FATF earlier this year.

Look back to earlier years in the lead-up to major FATF progress: Pakistan’s global commitments to fight financial crimes were complimented by a deeper focus on non-financial business and professions (DNFBPs), including their supervision and regulation. In terms of technical compliance with FATF standards, Pakistan now finds itself among the top compliant countries in the world as well.

Take a moment for that to sink in. This outcome should be enough to strengthen the case for greater adaptation to tighter financial reform. After all, it is Pakistan’s financial sectors that are set to reap the long-term benefits once they enter a state of greater risk aversion.

The writer is a foreign affairs commentator and recipient of the Fulbright Award