THE State Bank has just updated its rules for banks so they can be more diligent about handling funds that could be connected with persons or entities designated by the UN as terrorists. The move is obviously linked to the upcoming review of Pakistan’s compliance with global money laundering and anti-terror financing regulations that is due in July. It will be conducted by the Financial Action Task Force, the UN body tasked with developing the regulatory architecture to prevent the use of the banking system by terrorists and criminals. The costs of failing such a review can potentially be high and lead to the disconnection of the country’s financial system from the global financial system, making it impossible for the economy to transact with the outside world. There is little chance that Pakistan will land up there in the near future, but it is a slippery slope; one wrong step can have very damaging consequences — which could mean a terrible hit for our external trade and remittances.

A drama has always played out whenever Pakistan’s case has come up for review before the FATF — the last time was in February 2015 when the country was actually removed from the ‘grey list’ of jurisdictions whose financial system pose a risk to the global financial system. The drama preceding this was linked to the unfinished business of ensuring compliance with the regulatory framework created by the FATF, to which Pakistan is a signatory. The unfinished business has to do with certain individuals and entities that have been designated by the UN body as terrorists, but who roam freely, with some openly operating large organisations and charities that collect donations across the country — work that requires the use of the banking system.

Pakistan managed a step forward in 2015 because it gave a commitment to the FATF to move against these groups before the next review due in July. Of course, that commitment was never delivered on; a small step towards sensitising key stakeholders about the importance of the issue led to the outbreak of civil-military tensions that have only recently subsided. Now we are moving towards another review when Pakistan will be asked again whether action has been taken against the designated groups as it is committed to doing — perhaps, a long-winded answer will have to be furnished. It is in preparation for this review that the State Bank has apparently acted to update its regulations and guidelines, bringing in clauses that hew closer to the requirements mandated by international regulatory authorities. It seems the government is preparing to go back to the FATF with yet another ‘commitment’ to take action — at a later date — against designated terrorist groups, hoping this will be enough to get past the referee until the next review.

Published in Dawn, June 11th, 2017