Terrorist Financing Risks in Pakistan in Early 2020

Interaction between Pakistan’s government officials and the Paris-based Financial Action Task Force (FATF), which monitors and controls international terrorist financing and money laundering, was a back-and-forth in 2019. The FATF called on Pakistan multiple times to increase efforts against the financing of terrorism – the most recent time being in October 2019 when the FAFT warned Pakistan to improve terrorist financing controls by late February 2020.

A Short History of Terrorism Levels in Pakistan

Antagonism toward the central government for failing to provide sufficient social and economic security and US influence in the region provided favorable conditions for militias and terrorist organizations like the Taliban and al-Qaeda to gain traction in Pakistan in the late 2000s and early 2010s. Terrorist operations increased over time, peaking in 2014 when six men associated with the Taliban shot 149 people, most of them schoolchildren, at the Army Public School in Peshawar city. After this incident, the military redoubled efforts to crack down on terrorism, backed by public and political support. Data shows that, since then, the number of terror attacks has gradually fallen from almost 2,000 in 2009 to below 250 in 2019. At the same time, the number of deaths caused by terrorist violence in Pakistan has diminished significantly from about 12,000 in 2009 to less than 300 in 2019. Moreover, since 2019 the country has utilized its anti-terrorism laws to ban 66 terrorist groups and has identified 7,600 individuals involved in these groups in order to mitigate terrorism risks.

Risks of Uncontrolled Terrorist Financing

These developments give the Pakistani government reason to hope that, in the long-term future, the country can escape the FATF’s gray list of states that lack sufficient mechanisms to combat the financing of terrorism. The more immediate concern following the FATF assessment in October 2019, however, was that Pakistan was not doing enough to combat terrorist financing, which is why the FATF repeatedly threatened to place Pakistan on its blacklist. The blacklist includes countries like North Korea and Iran and can have serious implications for a country’s economy. If blacklisted, all financial transactions of a country are examined closely by the FATF. Such limitations deter foreign investments and increase the cost of business operations. Pakistan’s placement on the FATF’s blacklist could put China’s multi-billion-dollar investments and Belt and Road Initiative-related development projects in the country at risk. Moreover, blacklisted countries may also face restricted access to international lending and development banks, such as the International Monetary Fund, the World Bank, and the Asian Development Bank. These are vital sources of funding for Pakistan, which has recently received a 39-month loan amounting to $6 billion from the International Monetary Fund in 2019.

Anti-Terrorism Mechanisms and Compliance

For these reasons, Pakistan seeks to improve its compliance with FATF standards and avoid the potentially-grave economic consequences. To accomplish this goal, Pakistan’s authorities must work on the country’s institutional functionality. At present, only about 1% of citizens pay taxes and financial transactions largely remain informal and undocumented. Improved institutional structure and control could aid Pakistan in implementing the 40 recommendations of the FATF’s Asia Pacific Group on Money Laundering. The group’s previous report found that Pakistan fully complied with only one of its recommendations, largely complied with nine, partially complied with 26, and failed to comply with four of the 40 recommendations.

Conclusion

US and Chinese officials support Pakistan’s efforts to enhance its counter-terrorism mechanisms, and while it does not appear likely that Pakistan will be blacklisted in the FATF assessment, Pakistan still must improve institutional control capabilities and anti-terrorism endeavors in order to establish long-lasting security.

About the Author

Yasemin Zeisl

Yasemin Zeisl is a Risk Analyst at Global Risk Intelligence. She earned her MSc in International Relations and Affairs from the London School of Economics and Political Science (LSE). She is currently based in Austria. Yasemin is fluent in German and English and possesses advanced Japanese language skills.

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