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Pakistan Castigated for Deficiencies in Counter Terrorist Financing Regime

Colonel Satinder K. Saini was Research Fellow at the Institute for Defence Studies and Analyses, New Delhi.
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  • March 17, 2008

    In a statement on February 28, 2008, the Financial Action Task Force (FATF) voiced concern about the existing deficiencies in Pakistan’s counter terrorist financing and anti-money laundering system. While acknowledging some progress, the FATF noted that the shortcomings in Pakistan’s national legal framework constituted a money laundering/terrorist financing vulnerability in the international financial system. The statement also urged Pakistan to continue its efforts to improve its anti-money laundering/counter terrorist financing laws to come into closer compliance with international standards and to work closely with the Asia Pacific Group to achieve this. This castigation of Pakistan’s role as the fountain head of terrorism has gone largely unreported in the Indian media.

    The FATF was established in 1989 at the Paris Summit of leaders of the Group of Seven Nations and the President of the European Commission. Its original mandate was to co-ordinate and spearhead an international campaign against criminal money laundering. In October 2001, its responsibilities were widened to include the fight against terrorist financing. It adopted Eight Special Recommendations to this end, which set out the key legislative and regulatory steps that countries need to put in place to stop the financing of terrorism. Since then, the FATF has become the world’s most important standard setter in the fight against terrorist financing, and has worked to promote international awareness and co-operation in this regard. Later, realising that cash smuggling was one of the major tools of terrorist financing, Special Recommendation IX on cash couriers was issued in October 2004. In addition, action was taken to amend the 1996 version of the Forty Recommendations on money laundering, which was adopted in June 2003 after a protracted process of consultation. The FATF’s Special Recommendations on Terrorist Financing, combined with its 40 Recommendations on money laundering, set out the basic framework for detecting, preventing and suppressing the financing of terrorism and terrorist acts.

    The FATF is currently made up of 32 countries and territories, and two regional organisations. It also works in close co-operation with a number of international and regional bodies involved in combating money laundering and terrorist financing. The criterion for membership in FATF is fairly stringent. To qualify, a country must be strategically important, be a full and active member of a relevant FATF-style Regional Body and effectively criminalise money laundering and terrorist financing. It should also make it mandatory for financial institutions to identify their customers, to keep customer records and to report suspicious transactions and establish an effective Financial Intelligence Unit, so that the country is assessed to be compliant with international standards. For many years, membership was restricted to the 26 principal industrialised countries. However, in line with its new strategy for increasing the effectiveness of international anti-money laundering efforts, the FATF decided in 1999 to expand its membership to a limited number of strategically important countries who can play a major role. Argentina, Brazil and Mexico were admitted as members in 2000, followed by South Africa and Russia in 2003. China was inducted as a member recently. India presently has an observer status, though the FATF wants India to be an active member as is evident from the statement of the British Prime Minister during his recent visit to India.

    It will be in India’s interest to become a full member of FATF at the earliest so as to be able to bring into focus terrorist financing issues that are of concern and relevance to it. One such issue is declining attention to state sponsored terrorism and its funding. In the 1970s and 1980s, most terrorist groups were sponsored by sympathetic governments. The US government issued its first list of “State-Sponsors of Terrorism” in 1979, and since 1993 seven countries were listed every year as state sponsors of terrorism. At present this list has shrunk to five countries, namely Cuba, Iran, North Korea, Sudan and Syria.

    While the list may have largely remained unchanged over the years, it does not represent an accurate representation of the problem due to the non-inclusion of some other countries for various reasons. For example, Kashmiri terrorist groups and the Taliban fighting in Afghanistan are largely funded by the ISI. But Pakistan has never been added to the list.

    The FATF is operating on the valid premise that there has been a decrease in the number of countries supporting terrorist groups because of the changed geo-strategic environment and the emergence of global terrorist groups that no longer rely on states for support. Accordingly, the response of the international community to countering terrorist financing is based on the premise that a majority of terrorist organisations are non-state actors. Thus the onus of choking their finances has been placed on the countries where they operate from.

    This response does not address the problem of state sponsorship, wherein terrorism is used as an instrument of state policy. India should endeavour to re-focus the attention of the international community on this issue and work towards developing more comprehensive counter measures that take into account the problems posed by state-sponsored terrorism