In June this year China had blocked India’s proposal to the UN Sanctions Committee to act against Pakistan on the release of 26/11 accused Zaki-ur-Rehman Lakhvi. China had put a ‘technical hold’ on India’s proposal as a permanent member of the UN Security Council (UNSC). This came as India’s Permanent Representative to the UN Asoke Mukherjee wrote a letter to the UN sanctions committee, saying that Lakhvi’s release was in violation of the UN resolution 1267 dealing with designated entities and individuals. Earlier in April, Lakhvi, had been released from Adiala jail following the Lahore High Court’s dismissal of detention orders issued against.
The furore in India over the Chinese action at the UN drew attention away from a more significant Chinese move in favour of Pakistan. China again stood by Pakistan on terror at the Financial Action Task Force (FATF) meet at Brisbane on June 21-26, where New Delhi had strongly raised the non-compliance by Islamabad on freezing assets of Lashkar-e-Taiba (LeT) and its affiliates. This article looks at curbs on the financing of terrorism in the context on India-Pakistan relations.
The Financial Action Task Force, an inter-governmental body, was founded by the G-7 Group in 1989 to set standards for anti-money laundering and combating the financing of terrorism (AML/CFT). The FATF in its functioning has identified ‘jurisdictions’ that pose a risk to the international financial system and works to address their deficiencies in order to improve compliance. The FATF uses the assessments by the International Co-operation Review Group (ICRG), to publicly declare non-compliance through one of its two public documents that are issued three times a year. These public documents are the ‘FATF’s Public Statement’ and the ‘Improving Global AML/CFT Compliance: On-going Process.’ In February 2012, one of these documents, the FATF Public Statement identified Pakistan as having “jurisdictions with strategic AML/CFT deficiencies”.
This designation placed Pakistan on FATF’s ‘grey list’ for not having made sufficient progress in addressing its deficiencies (initially identified in June 2010) and not being committed to an action plan developed with the FATF to address these deficiencies. Simply put, because of weak laws and inadequate actions against money laundering and terror financing. This move proved to be not just a blot on Pakistan but also a major restricting factor in its dealing with the international financial sector.
Implications for Pakistan
According to Pakistani Finance Minister Ishaq Dar, had Pakistan been moved from the grey list to the ‘black’ it would have meant difficulty in opening letters of credit and a four per cent rise in cost of borrowing within the global financial system. On the other hand Pakistan’s exit from the grey list would encourage foreign investment and provide grounds for better assessment of its credit rating in the international market. He said Pakistan to get itself removed from the grey list had brought in legislative changes and then, in collaboration with the State Bank, addressed FATF’s concern regarding the Chaman border point on Pakistan’s border with Afghanistan.
Pakistan’s AML/CFT law had been adopted via an ordinance in 2010, but remained deficient due to the government’s inability to pass it into law. The issue dragged on till January 2014, when the FATF cautioned Pakistan that it was now posing “a risk to the international financial system”. It was then that Pakistan realised the gravity of the situation and by June managed to pass two amendments to its Anti-Terrorism Act of 1997, which allowed Pakistani law enforcement agencies to pursue cases of terror financing, alongside anti-money laundering. These amendments brought Pakistani laws in line with international standards set by the FATF. Post-Peshawar attack Pakistan also made AML/CFT part of the National Action Plan against terror and reduced the actionable threshold for transactions to $2 million from $2.5 million.
Consequently the ‘FATF Public Statement of February 27, 2015’ did not name Pakistan and the ‘Improving Global AML/CFT Compliance: ongoing process’ document of February 27 welcomed “Pakistan’s significant progress in improving its AML/CFT regime” and observed that Pakistan had established the requisite legal and regulatory framework to meet its commitments towards the strategic deficiencies identified in June 2010. However, Pakistan despite being off the FATF grey list, is still required to work with Asia Pacific Group on money laundering (APG-ML) to address the full range of AML/CFT issues identified in its mutual evaluation report, in particular, entirely implementing UNSC Resolution 1267.
Ishaq Dar also said that Pakistan’s journey from ‘grey list’ to the ‘white list’ had been strenuous and had taken 21 months. He pointed to the presence of an “unfriendly country” in the FATF which had delayed Pakistan’s removal from the grey list.
At the FATF Plenary meet in Brisbane on June 21-26, 2015, India persisted with its reservations on removing Pakistan from the grey list of countries. India contested the idea of Pakistan’s significant progress on both money laundering and terror financing. It also drew attention to the fact that Pakistan’s counterfeit currency machinery which produces fake Indian currency was still intact and operational and that Pakistan should be placed back on the grey list.
Rebutting Pakistan’s claim that it had frozen the bank accounts of Jamaat-ud-Dawah (JuD), India placed evidence that JuD was operating through an offshoot, Falah-e-Insaniat Foundation Pakistan (FIF), and was involved in raising terror funds for LeT. Further, Muhammad Iqbal, a founding member of FIF, had been put on the list of Specially Designated Global Terrorists (SDGT) by the US in August 2014. Iqbal had financed the Voice over Internet Protocol (VoIP) connection used by the terrorists during the 26/11 Mumbai attack.
China, however, felt that Pakistan was progressing well on ensuring compliance within the Asia Pacific Group (APG) on Money Laundering. China also objected to India raising the issue at the FATF on the grounds that Pakistan was not a member of the grouping. The issue has now been referred to the APG (of which Pakistan is a member) for further deliberation and will then be brought back to the FATF. The meeting at Brisbane saw India and the US act in tandem, while New Zealand, Australia and Russia supported China’s stand.
The FATF episode not only showcases the efficacy of the AML/CFT mechanisms, but also indicates the availability of other options for India to constrict Pakistan’s support to terror groups. There is also an opportunity in such situations for India to remind China of its commitment to fight terrorism globally.
*Monish Gulati is Associate Director (Strategic Affairs) with the Society for Policy Studies. He can be contacted at [email protected]
This article was published by South Asia Monitor.