Pahalgam terror attack: Does Pakistan risk returning to FATF’s grey list?

Pakistan has said it has “nothing to do” with the deadly terror attack that claimed over 25 lives

The gruesome terror attack in Jammu and Kashmir's Pahalgam district has once again brought the needle of suspicion to Pakistan’s tacit support to terror outfits and their offshoots, after The Resistance Force, a proxy of the Pakistan-based Lashkar-e-Taiba claimed responsibility for the act.

The outfit, banned by Home Ministry in 2023, had emerged after the abrogation of Article 370 in Jammu and Kashmir, and is said to be formed by members of Lashkar-e-Taiba and Hizbul Mujahideen.

Pakistan has denied any involvement, with its Defence Minister Khawaja Asif saying Islamabad has ‘nothing to do’ with the deadly attack. However, it has in the past offered space to outfits fomenting terror in India, and till as recently as October 2022, the country was in the ‘grey list’ of the Financial Action Task Force (FATF), a global money laundering and terrorism financing watchdog.

What is the FATF’s Grey List?

Pakistan was placed on FATF's grey list in June 2018, which refers to countries considered as safe havens for terror funding and money laundering.

The specific country is expected to then actively work with the watchdog to address strategic deficiencies in their regimes to counter money laundering, terrorist financing, and proliferation financing.

When the FATF places a jurisdiction under increased monitoring, it means the country has committed to resolve swiftly the identified strategic deficiencies within agreed timeframes and is subject to increased monitoring.

The FATF had in 2022 said that it welcomed Pakistan's ‘significant progress’ in improving its anti-money laundering and combating financing terror (AML/CFT) regime.

What Led to Pakistan’s Exit from FATF Grey List?

In 2018, Pakistan was put in the ‘grey list’ by the watchdog as its National Risk Assessment conducted in 2017 was found to be deficient. The country was said to be lacking a comprehensive and coordinated risk-based approach in combating money laundering and terror financing.

In June 2018, the FATF urged Islamabad to implement a 34-point action plan to curb money laundering and terror financing by the end of 2019. This deadline was extended due to the coronavirus pandemic.

In response to these findings, the government of Pakistan provided its commitment to the FATF on the action and carried out significant measures including amendments to its anti-money laundering and anti-terrorism laws.

In September 2022, the FATF conducted an onsite visit to Pakistan to confirm the completion of the action plan, ultimately leading to their removal in October 2022.

"Pakistan has strengthened the effectiveness of its AML/CFT regime and addressed technical deficiencies to meet the commitments of its action plans regarding strategic deficiencies that the FATF identified in June 2018 and June 2021, the latter of which was completed in advance of the deadlines, encompassing 34 action items in total. Pakistan is, therefore, no longer subject to the FATF's increased monitoring process," the watchdog had said in October 2022.

FATF added that there is still work to be done and that Pakistan will continue to report to the watchdog about follow-up action.

India’s Response to FATF Review

India had then responded to FATF’s move by saying that Pakistan must continue to take credible action against terrorism.

In a statement back in October 2022, then Ministry of External Affairs (MEA) spokesperson Arindam Bagchi said, “As a result of FATF scrutiny, Pakistan has been forced to take some action against well-known terrorists, including those involved in attacks against the entire international community in Mumbai on 26/11.”

"It is in global interest that the world remains clear that Pakistan must continue to take credible, verifiable, irreversible and sustained action against terrorism and terrorist financing emanating from territories under its control," the MEA spokesperson had said in October 2022.

However, certain quarter within India were unhappy with the development. Strategic analyst Brahma Chellaney had in 2022 said that even as Pakistan exits the FATF’s ‘grey list’, its nexus with terrorist groups remains intact.

What Happens Next?

The latest terror attack in Pahalgam and speculation over Pakistan’s involvement has led to questions over whether Islamabad may slip back into FATF's ‘grey list’.

The FATF holds three plenary meetings, which usually takes place in October, February and June of each year. With the next meeting set to take place in June, the findings of the terror attack in Jammu and Kashmir could be key in influencing Pakistan’s position in the FATF. Being in the grey or blacklist of FATF is a financial burden on any country, given its potential to scare away longer-term investment.