AFTER months of wrangling and meetings, the government appears ready to submit an action plan to the Financial Action Task Force in order to prevent being blacklisted by the global watchdog. Approval of the plan will mean Pakistan will be on the ‘grey list’ of countries that have “strategic deficiencies” in their financial systems to prevent their use for money laundering and terror financing. With an action plan, the country is committed to taking the steps outlined to remove deficiencies and plug the holes where laundered and terrorist money can enter the financial system. Much wrangling preceded the move, and even though many details are opaque since FATF does not operate in a transparent way, it seems the PML-N government had a tough time agreeing to all the demands.

But much has been done by now. The Jamaatud Dawa and its offshoot, the Falah-i-Insaniyat, have been banned, their operations seized by the state, their bank accounts and those of individuals linked to them frozen and many of their assets taken over. True, some will say there’s still much to do, but to those who recall the wrangling in 2015 around the proscription of these groups, even these steps are of great significance. Other demands will take time to fulfil. Consider the demand to take action against illegal money exchanges. This is fair, but in an open economy, with few or limited capital controls, money exchanges can be operated out of a person’s home. Those illegal exchanges operating on the border are a nuisance for Pakistan’s own authorities, and further prodding from global authorities is only preaching the obvious. It is worthwhile to note the weaknesses on the other side of the border that also help keep these exchanges running; action by Pakistan alone will have only limited impact.

Other demands include steps like accelerating prosecutions of money-laundering and terror-financing cases, improving follow-up of cases referred for investigation by the Financial Monitoring Unit at the State Bank and otherwise stepping up the pace of counter-terror-financing activity. After passing the relevant law and regulatory injunctions to come into compliance with the FATF framework, the next steps must focus on producing outcomes in the form of more investigations, prosecutions, convictions and asset seizures. This demand is fine, but in any economy with a vast undocumented sector (Pakistan is not alone in this), there are some dangers to using quantitative metrics to measure progress. The government is trying to meet FATF conditions, but it must do so in a manner that does not choke financial inclusion, or the abuse of these powers. Striking the right balance between the need to promote financial inclusion and exclude illicit and terrorist finances will take time. Law enforcers are new to this activity, and the judicial system must weigh each case with due care since there is no body of precedent. FATF should take this into account when deciding on, and supervising the implementation of the plan.

Published in Dawn, June 10th, 2018