FATF greylist: How would it impact Pakistan economy adversely?
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ISLAMABAD - Pakistan is set to face more financial difficulties and the cost of doing business would go up after the country was again placed on the "grey list" by a global anti-money laundering body for failing to curb terror financing, experts said.
Pakistan was placed on the Financial Action Task Force (FATF) grey list' on June 27 after it failed to put in place measures to prevent money laundering and other illegal transactions that may be used for financing terrorism.
Though the move may not hit the country immediately, its impact could be felt in the coming months as bankers said the cost of doing business would get higher and the situation for banks would become more difficult than it was during 2012-15 when the country figured in the FTAF's list, media reports said.
"Cost of doing business will be higher due to this grey list but it is manageable for banks with some difficulties," Hussain Lawai, a banker, told Dawn newspaper. "Remember we were in the watch list from 2012-2015 but we managed to continue doing business," he noted.
However, there is a difference this time as Pakistan's large banks like the Habib Bank, the United Bank and the National Bank are not working as correspondent banking channels. These were operating during 2012-2015 which helped trading and banking to run smoothly, the report said.
"With the grey list, large banks like JPMorgan Chase, Citibank and others will suspend credit lines which mean they would not accept letter of credits (LCs)," said Lawai.Now the opening of Letter of Credit (LCs) to some extent would be difficult, but still manageable, he added.
The FATF is an inter-governmental body established in 1989 to combat money laundering, terrorist financing and other related threats to the integrity of the international financial system.
Pakistani banks find it very difficult to operate under the current laws and regulations in countries like the US. Last year, Habib Bank had to pay a penalty of USD 225 million to the Department of Financial Services of New York State for violating multiple state regulations and also had to unwind its operations there.
Analysts were anticipating the impact on exchange rate in case of Pakistan's enlistment in the grey list but the currency market did not show any significant impact despite the fact that the exchange rate is already under pressure due to depleting reserves of State Bank and widening current account deficit.
The currency dealers in the interbank market said there was no change as the dollar remained at the same level of Rs 121.50.
"The dollar which has lost during this week about Rs 1.5 gained the same on the last day of business (Friday), said general secretary Exchange Companies Association of Pakistan Zafar Paracha.
Currency dealers in the open market believe that the banks would face the first impact of grey list that would be reflected in the open market.
"The effect of grey list may come later but there is no impact of tax on illegal foreign assets and cash under amnesty scheme as the taxed amount (if any) is not visible in the country's balance sheet, Paracha said.
The FATF at its just-concluded session in Paris has asked Pakistan to demonstrate effective implementation of targeted financial sanctions (supported by a comprehensive legal obligation) against all 1267 and 1373 designated terrorists and those acting for or on their behalf.
The Pakistan government has also to curb the raising and moving of funds by the UNSC designated terrorists, identifying and freezing their assets and prohibiting access to funds and financial services.
