The news on FAFT front is not good. In the October 2019 plenary session Pakistan was found fully compliant in only one area. All the remaining 39 areas in various shades of green and red are to be complied by February 2020. Pakistan was warned and cautioned that unless the compliance was credible, blacklisting was a possibility. This was a very serious situation.

In concert, there are smaller regional groups that act as the watchdogs on progress and compliance on behalf of the plenary meetings. These are International Co-operation Review Groups (ICRG) covering Africa/Middle East, the Americas, Asia/Pacific, and Europe/Eurasia. Pakistan falls under the Asia/Pacific Group (APG) where traditional Indo-Pakistan rivalries set in. Earlier this year Pakistan had requested FATF President to remove India from ICRG as its propaganda against Pakistan was hampering progress on technical grounds.

The fact remains that unless Asia-Pacific ICRG endorses anti money laundering and terror financing compliance, Pakistan cannot be removed from the grey list by FATF. Therefore Pakistan’s clearance by ICRG is the only way it can succeed at FATF.

The government as usual played with digits and language to stay clear of any arraignment in the public eye. The confusion thus created could be construed and interpreted either way for the domestic consumption.

Pakistan has two important deadlines.

The first deadline is February 2020 as indicated in the October 2019 plenary meeting. This is a fast track monitoring mechanism though not impossible is nonetheless daunting. For this to happen, Pakistan’s financial institutions, the central bank, economic affair’s division, the banking and insurance sectors, brokerages, portfolio managers, regulators, revenue departments, transparency organisations and surveillance & enforcement will have to work in unison for a common objective.

This effort as reflected through more curbs by banks is resulting in slowing economic activities. Public is now generally avoiding banking channels in contravention to FATF objectives on harnessing the informal sectors. Whatever Pakistan’s compliance, unless APG clears the situation by February 2020, nothing will change. This means that APG must review all progress by January 2020.

The second is October 2020 for a 40 point deadline set by APG of ICRG. Though most points included in February deadline are common, APG could prolong the case of Pakistan into the next phase and as admitted by the minister, even beyond.

What will happen to Pakistan’s status between the two deadlines is a confusion admitted by Pakistan’s minister of economic affairs. The confusion also provides an opportunity for a Houdini act for domestic consumption. The fact remains that despite jargon and political statements, Pakistan is non-compliant for the time being.

But the minister also made a very significant remark. “Pakistan faces greater challenges than many other countries because of its risk profile. Some countries had been removed from the grey list after just 80 per cent compliance while Pakistan was being pressurised to ensure 100pc compliance. Pakistan is being viewed from a very high threshold; there is a political element to this”.

This political element combined with geo strategy makes a lethal case. It brings to fore elements of sanctions, economic coercion and manipulation well beyond the normative objectives to harsh political realities.

Pakistan’s short term diplomatic success with USA also backfired. The recently released State Department Country Report on Terrorism though outdated plays a negative role in perception building against Pakistan. It notes that Pakistan being a member of APG on Money Laundering has made serious efforts to meet the standards set by the global watchdogs but implementation remains uneven. It is followed by ranting of terror groups patronised by the state and backing of Afghan dissident groups. This is the same propaganda, India uses in APG to incriminate Pakistan.

Pakistan’s knee jerk reactions to points raised by APG-FAFT and unimaginative implementation by banks, FBR and other organisations have certainly acted in slowing down the economy. This goes to prove that there is still no institutional frame work to harmonise all FAFT related activities. Pakistan’s top policy and economic planning team has individuals with stellar international reputation. The question that lingers is that why despite a top heavy World Bank and IMF dispensation, the noose around Pakistan keeps getting tighter?

Though the ‘political element’ as mentioned by the minister cannot be ruled out, it is the informal unknown element of FAFT that is a major cause of concern for economic managers.

Readers need to realise that FAFT has emerged as an Anti-Money Laundering and Countering Financing of Terrorism Act (AML/CFT) system well after EU and China began to assert their financial independence. The instrument in its spirit is not linked to Bretton Woods that complemented the Cold War. With European dominance, it also carries a wide array of ‘left of centre’ objectives targeting the impoverished and the poor. Cognizance of economic disparities is an outstanding feature of FATF, only if concerned countries see it as an opportunity of poverty alleviation and broader public advantage. This is called Financial Inclusion. It has both positive and negative effects.

FAFT has made its case for financial institutions right down to the grass roots. It fears that in informal, unregulated and undocumented financial services, a pervasive cash economy can generate significant money laundering and terrorist financing risks and negatively affect AML/CFT preventive, detection and investigation/prosecution efforts. At the same time, dependence on mainly informal financial services limit access to reasonably priced credit and slows country’s development. If the funds are kept outside the formal system, there is a limited multiplier effect in the economy. At the same time, the poor have to rely on financial sources in the unregulated sectors to meet their needs at exorbitant costs.

FAFT estimates that 1.4 billion people, or one quarter of the population of the developing world, lived below an absolute poverty level of $1.25 a day in 2005. More than 215 million people (or 3% of the world’s population) live outside their countries of birth and sent an estimated $325 billion to developing countries in 2010. Out of these at least 120 million live in Pakistan.

On the flip side, FAFT threatens the existence of Pakistan’s informal sector. This sector is stronger and more robust than the mismanaged formal economy. Hence FAFT objectives warrant a twin approach; reforms within the formal financial sectors followed by micro level institutions that provide succour to deprived sectors.

Pakistan’s Prime Minister despite his compassion of a welfare state is caught in a trio of paradoxes. The IMF-WB team that is micro managing the economy and the central bank leaves no space for sustainable growth. This means making the poor poorer. The elites that form the core advisory group are not known for reforms. Change will denude their grip on power. Finally, the international monetary system that works for ends of geostrategy, does not want Pakistan to break free. This leads to an ominous conclusion. What of FAFT?

Meanwhile the middle class will become poor and the poor, poorer. Stranded at each base, it is a long way from home runs.