In August 2017, the New York branch of HBL Pakistan (HBL), Pakistan’s largest State-owned Bank was fined $225 million by New York State’s Department of Financial Services (DFS)for failure to comply with laws and regulations designed to combat money laundering, terrorist financing and other illicit financial transactions‘.The fine was part of a ‘settlement’ to an ‘enforcement action’ initiated by DFS which has also seen HBL winding up its New York operations. The enforcement action itself followed a review in 2016 which found ‘weaknesses in the bank’s (i.e HBL’s) risk management and compliance’, something that HBL failed to remedy despite being made aware of the same. Interestingly, this scandal was hardly discussed on Pakistan’s public platforms. But looked at another way, Pakistan should have probably taken greater cognizance of this development, since it showed that the days of ‘business as usual’ were over on the terror financing front. Now, with the ‘grey listing’ of Pakistan last month by the Paris-based Financial Action Task Force (FATF), the country faces the very real prospect of being shut out of international financial markets at a time when its economy is quite sluggish.


The United States (US) had actually been gathering information on Islamabad’s non-compliance with United Nations (UN) mandated regulations to prevent money laundering and terror financing through its banks and financial system from 2015 itself.  Finally, in August 2017, the US, backed by the United Kingdom, Germany and France, would lodge a formal complaint with FATF against Pakistan, asking the latter to be placed on the list of countries that have to conform to a plan of action for making systematic changes in its financial system to bring it at par with UN standards for checking money laundering and terror funding. As such, Islamabad has been given three months to show its intent to work out a deal with  FATF or it would be placed in the company of countries like North Korea and Sudan –  i.e on the ‘blacklist’ – and declared a pariah state.


After pretending that nothing had happened at the Paris FATF plenary session that should worry its people, Pakistan has since admitted to its grey-list status. During a regular briefing on February 28, 2018, Pakistani foreign office spokesperson Dr Muhammad Faisal confirmed to the media that, ‘Pakistan will be assigned to the grey-list in June, once an action plan has been mutually negotiated‘.


Not quite the same as before

Pakistan has of course been here before, having been put on the  FATF grey-list for a three-year period during 2012-15. However, that time over its economy was relatively strong, a luxury that Islamabad does not have now. Pakistani experts have warned that this time around things would be much more difficult, as the country’s economy is in no great shape and the political fallout of grey-listing is going to be bigger, what with the West, a great majority of the members of the Organization of Islamic Countries, and even Pakistan’s most trusted ally, China,refusing to lend support to Islamabad at the FATF plenary meet.


In that light, it is ironical that Pakistan’s foreign minister, Khawaja Mohammad Asif, had chosen to prematurely announce victory for Pakistan at the FATF meeting due to a lack of consensus and thanked the efforts of  ‘Pakistan’s friends’ for this- an allusion to China, Saudi Arabia and Turkey. He had tweeted that the decision had been put off and Pakistan was not being placed on the grey-list.  Asif’s tweet turned out to be a major embarrassment  for his country as it was sent out before a final decision had been arrived at by FATF, which was of course adverse to Pakistan. In fact,  Turkey was the only country that did not lend its support to the resolution at FATF.


Meanwhile, Pakistan’s economic situation continues to be worrisome with its foreign reserves touching an all-time low, even as its foreign debt stood at $85 billion in December 2017 and the country is quite close to defaulting on loan repayments. Remittances are drying up and the country is planning to approach the International Monetary Fund (IMF) for avoiding further slippages on its commitments towards foreign liabilities. Now with its ‘grey-list’ status, Pakistan is likely to find that some 700 international financial institutions, including IMF, are not that keen to lend to it. Pakistan’s credit ratings are expected to suffer with the concomitant impact on inward investment.  According to Islamabad based analyst, Eijaz Haider, ‘the grey-listing will result in each bank transaction being scrutinized carefully making the system sluggish and slow‘.


Not a surprise

Importantly, for Pakistani analysts, the FATF grey listing is hardly a surprising development and would have been unsurprising even for the wider public, had they for instance not been kept in the dark with respect to developments such the HBL Scandal. As Ejaz Haider puts it, ‘the silence over this (i.e the HBL episode) huge scam and national shame were convenient to the ruling elite as the generals and political leaders would have got exposed for siphoning off money abroad and the lid on the hugely compromised banking system of the country would have been blown off‘.


On the issue of the grey-listing, a former Pakistani diplomat  told an online news channel that evidence against Pakistan was ‘too strong’ for the country to get a reprieve this time. ‘United Nations had declared Hafiz Saeed a global terrorist 10 years ago and also put the ban on his organization. Why did Pakistan take legal steps to implement this just two weeks before the FATF meeting?‘, he asked. And a former Pakistani Army (PA) officer even asked of his country’s leadership, whether supporting a global terrorist (Read: Hafiz Saeed) was worth risking a country’s relationship with the rest of the world. The saner voices from Pakistan like Rauf Klasra and Amir Mateen blamed hawkish PA Generals and political leaders for not taking the global outcry over their country’s support for terrorists like Hafiz Saeed, the Haqqani network and Maulana Azhar Masood, seriously.


Too little too late

Just two weeks before FATF met, Pakistan had quietly changed its domestic anti-terror law through a Presidential order while the Pakistani Senate was in session. The law, banned various UN-designated terrorist outfits and their leaders operating on Pakistani soil. Among those proscribed was Hafeez Saeed and his terrorist fronts  Falahi-e-insaniyat foundation and  the Jamait-ud-dawah seminary. However, Pakistani opinion makers have since been saying that the ban was ‘too little too late’ and rather cosmetic. Saeed, it seems, was given all the time he needed to withdraw cash from various banks before the Pakistani Government actually moved in to freeze his personal and organisational accounts and take over his immovable assets.


Be that as it may, cutting across the spectrum of Pakistani opinion, there is consensus that India’s global lobbying against Pakistan is what has led to the grey-listing. While the general Pakistani feeling that the West has turned against it solely at India’s behest is perhaps an exaggeration, it is also true that India’s quiet and sustained efforts have played a major role in convincing the rest of the world of Pakistan’s terrorist linkages. These efforts, that began with the Narasimha Rao Government in the 1990s, has been assiduously pursued by all successive governments since, and is finally leading to a state where the cost of inflicting a proxy war on India in Kashmir, is becoming financially prohibitive for Pakistan.


Aasha Khosa is a senior journalist based in New Delhi.


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