(Bloomberg) -- A global anti-money laundering agency placed Pakistan back on its terrorism financing “grey” monitoring list in a bid to push Islamabad to halt support for militant groups as the country’s economy faces headwinds ahead of national elections.
In Paris meetings this week, the Financial Action Task Force decided to place Pakistan back onto its watch list three years after it was previously removed, Mohammad Faisal, a spokesman for Pakistan’s foreign ministry, told reporters in Islamabad on Thursday. The move follows a push by the U.S. and European allies in February to get Pakistan to do more to combat militancy and close financing loopholes to terrorist groups.
With elections scheduled for July 25, Pakistan faces financial difficulties due to a widening current-account deficit and dwindling foreign-exchange reserves. While FATF’s decision is a blow to Islamabad, Pakistan still managed to negotiate an International Monetary Fund bailout package and continued to tap the global bond market when it was last included on the monitoring list.
“Pakistan’s inclusion will not trigger a draconian impact of financial sanctions,” said Hasnain Malik, the global head of equity research at Exotix Capital.
However, the placement could be a precursor to Pakistan’s eventual addition onto FATF’s so-called “black” list, which would mean more serious sanctions. Islamabad has been rushing since the start of the year to avoid inclusion. A week before the FATF meetings Pakistan changed financial regulations and sought disclosure of the ultimate beneficial owners and details of all legal persons and legal arrangements before they offer any services.
In February, it also banned organizations linked to the suspected planner of the 2008 Mumbai attacks, Hafiz Saeed, and changed a law to allow security agencies to take action against groups on the United Nations Security Council sanctions list.
Yet while apparently clamping down on some groups, Pakistan on Wednesday removed a six-year ban on suspected terror group Ahle Sunnat Wal Jamaat and unfroze the assets of its leader. The military has also been accused of renewing a push to lend certain militant outfits political legitimacy, which it denies.
Relations between the U.S. and Pakistan have deteriorated drastically this year after President Donald Trump in January suspended billions of dollars of military aid and said Islamabad gave “lies and deceit” in return for funding.
Pakistani sanctuaries sheltering insurgents are the biggest challenge to stabilizing Afghanistan, U.S. Army Lieutenant General Austin Miller, who is Trump’s nominee to lead allied forces in the 17-year Afghan conflict, told the Senate Armed Services Committee last week.
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