FATF: Pakistan on the Verge of being Blacklisted

The Financial Action Task Force, FATF, was founded in 1989 and is considered to be the ‘watchdog’ of money laundering and terrorist financing. The organization is made up of thirty-seven different countries and two regional organizations. The standards and regulations that are made from this organization are followed by all members and a plethora of different international and continental financial aid organizations. When a country is in compliance with the standards that are set, then they will be able to have access to all of the international financial aid organizations to aid their economy. If a country is not in compliance then sanctions will be implemented. If the country still does not make progress regulating banking activities and preventing the financing of terrorism, then the FATF can cut off all international aid to that nation.

Money laundering is one of the major ways that terrorist organizations can be funded. Money laundering is attempting to make illegally obtained funds appear legitimate, normally found in the financial sector, such as banks. Three of the major ways that different terrorist groups fund their organizations are done by donations from charities, performing illegal activities, and setting up front companies. Charities around the world are formed for the sole purpose of aiding and abetting terrorist organizations. These organizations will raise the money for a false purpose, and then slowly transfer the funds that they raised to different terrorist organizations without the detection of the bank or government officials. Terrorist organizations obtain most of their funds through illegal activities such as drug and human smuggling, selling counterfeit items, and exercising taxation on the individuals that are under their control. The funds that are raised are transferred to terrorist organizations through banking and money transferring activities. One increasingly popular form of money transfer is through Bitcoin. Bitcoin is a cryptocurrency that makes the sender virtually undetectable, perfect for sending money to an illegal recipient. Bitcoin is one of many different forms of cryptocurrency that terrorist organizations use to successfully receive funds from their supporters without detection of authorities. Front companies are companies that appear to be completely legitimate and legal on papers and documents, but are actually using it to disguise illegal financial activity.

All of these funds that are generated are being sent to the terrorist organization either through governmental banking system or through money transfer actions. Government organizations around the world have procedures and departments established to monitor all of these activities and make sure that no funds are being sent to terrorist organizations through banking actions. The FATF is the organization that sets the standards that governments should be achieving when monitoring these actions and the repercussions that should follow if any of these activities are seen. The FATF meet three times a year and will go over an evaluation of all countries on how well they are acting on combating the funding of terrorism through money laundering. If any country is found in violation of these set standards, then they will be given an action plan that should be completed by the given date at the time of the meeting. If no improvement is made or if the organization believes that they are still aiding in money laundering activities, then FATF will discuss the repercussions that are necessary.

The FATF had one of their conferences from October 14 through October 18, 2019 in Paris. One of the major topics of conversation at this conference were the steps that Pakistan took from their last conference. The FATF gave Pakistan a twenty-seven point action plan to be completed by this past conference, only five of the action points were achieved at the level desired. Due to this poor performance, the FATF told Pakistan that they need to make a dramatic improvement on their plan by the next conference in February 2019 or else the organization will have to take action. This action insinuates that the country will be put on the non-cooperative countries and territories list, the blacklist. This will create banking sanctions on the country and will virtually cease all international banking relationships until it has taken serious and notable action to the prevention of terrorist funding in their country.

Pakistan being put on the blacklist will deeply squash the slight progress that the country has seen in its economy. Recently, the country has received loans from ally countries: China, Saudi Arabia, and United Arab Emirates. They also recently received a bailout loan of $6 billion from the International Money Fund8. Strict sanctions placed on the country will deter most investors from looking into the country and most banks that has a business relationship with a company within Pakistan will be closed out due to the high monitoring requirements that are put on the country. The only other two countries that are on the blacklist are North Korea and Iran.

A possible implication from this is the potential for an unintentional outcome. A decentralized government can be a breeding ground for terrorist organizations to either form or overtake. If Pakistan is placed on the blacklist, then the economy will be greatly impacted by international trade and aid being shut off. The economy can be expected to collapse and local and state governments can be expected to fall apart. With no money, a government is unable to keep order over its citizens. Civilians and business owners may go to illegal activities to attempt to gain money. A second outcome could be that people may look towards terrorist organizations in the area to gain wealth and a more affluent lifestyle. While the FATF restricting Pakistan through international financial means provides them motivation to improve their counterterrorism, it may be creating a higher likelihood for the promotion of terrorist activity.

The Crime Team is currently keeping tabs on different money laundering activities that are being committed around the world. We are working with the teams needed to help communicate about the potential threat that could affect their area. The Counterterrorism Group (CTG) is staying up to date on different money laundering activities and reporting any pertinent information gathered to essential local, state, federal, and international agencies and organizations. Money laundering is a crime that is happening all around the world. It is impossible to know how much money is transferred through money laundering due to the fact that it is believed that only a fraction of the money laundering crimes are being noticed and reported. Even if strict policies and procedures are in place at different government organizations, individuals are still able to find ways to send money to their desired terrorist organization. The FATF needs to be one step ahead of these individuals if they will be able to combat the funding of terrorism through money laundering.

1. Money Laundering, Cornell Law School, https://www.law.cornell.edu/wex/money_laundering

2. Tracking Down Terrorism, Council on Foreign Relations, April 4, 2006, https://www.cfr.org/backgrounder/tracking-down-terrorist-financing

3. Here’s where terrorist groups like ISIS and Al Qaeda gets their money, Business Insider, December 7, 2015, https://www.businessinsider.com/how-isis-and-al-qaeda-make-their-money-2015-12#4-donations-3

4. Terrorist turn to Bitcoin for funding, and they’re learning fast, New York Times, August 18, 2019, https://www.nytimes.com/2019/08/18/technology/terrorists-bitcoin.html

5. Front Company, AML-CTF, July 21, 2018, https://aml-cft.net/library/front-company

6. FATF warns Pakistan of blackisting if terror funding not controlled by Feb 20, Economic Times, October 19, , https://economictimes.indiatimes.com/news/defence/fatf-retains-pakistan-in-grey-list-warns-of-action/articleshow/71647632.cms

7. Pakistan avoids terrorist financing blacklist - for now, Washington Post, October 18, 2019, https://www.washingtonpost.com/business/pakistan-avoids-terror-financing-blacklist--for-now/2019/10/18/8a5e38f6-f1a6-11e9-bb7e-d2026ee0c199_story.html

8. Pakistan warned to curb terrorist financing, Financial Times, October 18, 2019, https://www.ft.com/content/cb89184c-f196-11e9-ad1e-4367d8281195

9. Public Statement FATF-GAFI, October 2019, http://www.fatf-gafi.org/countries/d-i/iran/documents/public-statement-october-2019.html

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