Countering FATF’s ‘Lawfare’: Lessons from Pakistan

The October 22 decision by the Financial Action Task Force (FATF) to place Turkey on its so-called “grey list” would have come as a surprise to many in Turkey. But those with a keen eye for geopolitical developments knew that Turkey ending up on the FATF hot seat was a foregone conclusion. 

As the inevitable has happened, Turkey needs to prepare for the consequences of being placed on the FATF grey list. Turkish policymakers also need to understand the evolution of FATF and the factors that have transformed it into a potent international institution with intrusive powers. 

FATF, a seemingly innocuous international institution, has been transformed into an effective international weapon that is being used to bludgeon “non-compliant” states into submission. Everything is done under the rubric of “law” and by the sanction of the international community to lend a veneer of credibility to FATF.  

But behind the facade of law lies the real FATF: an institution that has taken seed at the intersection of law and politics and whose underpinning legal framework has been corroded by geopolitics.  

FATF was set up in 1989 as an initiative of the G7 group of advanced economies that include the US, UK and France to combat money laundering. FATF currently has 39 members (37 countries and two regional organisations).

Over the years, the FATF’s mandate and powers expanded through two United Nations Security Council (UNSC) resolutions: 1267 (1999) and 1373 (2001). These resolutions – especially UNSC Resolution 1373 (2001) passed in the aftermath of the 9/11 attacks – gave teeth to the organisation.

The combined effect of these two UNSC resolutions was to bring terrorism and terrorist financing within FATF’s purview. Unfortunately, however, the international community’s noble goal of fighting terrorism and terrorist financing is now being used to selectively target some countries.  

For example, while FATF has been used to target countries like Iran, Pakistan and now Turkey, FATF has conveniently turned a blind eye towards money laundering safe havens like the BVI, Cayman Islands and prominent global financial hubs where the corrupt are known to have parked their ill-gotten wealth worth billions of dollars. 

Pakistan’s experience with FATF confirms this. Over the years, with the US and India’s backing, a constellation of subjective requirements has been foisted upon Pakistan by FATF and APG (an associate member of the FATF), the cumulative effect of which has been to require Pakistan to single-handedly discharge the onus of showing its ‘clean hands.’

For instance, not only is Pakistan required to enact relevant legislation to investigate and prosecute terrorist financing and undertake capacity building of prosecutors and regulators, it is also required to provide evidence (deemed satisfactory to the FATF) that it has actively sought to enhance the impact of sanctions beyond its jurisdiction. 

As FATF plays judge, jury and the executioner, Pakistan finds itself caught in a sinister web of never ending requirements. Why Pakistan remains entangled in the FATF net cannot be viewed in isolation to Islamabad’s foreign policy. 

In recent months, Prime Minister Imran Khan refused to allow US airbases in Pakistan to carry out military strikes in neighbouring Afghanistan. The fall of the US-backed Afghan government has been unfairly blamed on Pakistan. And India and the US are forging ties to counter China, which is Pakistan’s most important ally.  

The game is being played with a sleight of hand: every time Pakistan’s progress is up for review at FATF, a new wish list is handed over to the Pakistani delegation.  

The idea being to defang Pakistan, present it with a shifting goal post each time and, in the process, leave it in a maze to befuddle its strategic direction. Not surprisingly, the biggest casualty of the FATF lawfare against Pakistan has been its economy.

Blueprint for Turkey

There are glaring parallels between Turkey and Pakistan. Turkey has been pursuing an independent foreign policy in line with its strategic goals.  It shouldn’t therefore come as a surprise that a “price” is  being exacted from Turkey. 

Lately, Turkey’s relations with the US have soured. Turkey has also been in the European Union’s crosshairs, which Ankara says has been interfering in its domestic affairs. President Recep Tayyip Erdogan’s recent call to declare ambassadors of ten countries as “persona non grata” for domestic interference in Turkey’s affairs has irked the US and EU. 

The ultimate objective of the ‘grey list’ designation, as has been the case with Pakistan, is to coerce Turkey into accepting the West’s diktat.

If Pakistan’s experience with FATF is an indication about what Turkey can expect, then Turkey should also avoid making some of the mistakes that Pakistan made when it was first placed on the grey list.  

In all fairness, Pakistan was caught napping by FATF when it was first placed on the grey list in 2018 — a result of years of mismanagement and neglect by successive governments. Back then, Pakistan did not have in place adequate domestic legislation to counter money laundering and terrorism financing and policymakers had minimal knowledge of the FATF. As a result, the FATF came all guns blazing at Pakistan and the government had to make a last ditch scramble to get off the hook.

Another area where Pakistan faltered was in its failure to establish a central authority to oversee implementation of FATF requirements. Turkey could consider establishing a designated group of external eminent financial, technical, and legal experts tasked with FATF matters specifically to work alongside MASAK, which has overarching authority to coordinate between public and private sector entities. This would streamline FATF compliance more efficiently and effectively and give Turkey a “headstart” and enable its policy makers to understand the nuances and technicalities of FATF requirements.

Since the decision to place and remove countries from the grey list is taken by FATF member states through voting in FATF plenaries, Turkey’s Ministry of Foreign Affairs should get down to mapping out the positions taken by countries at FATF regarding Turkey. 

Turkey should reach out to individual members to explain its position and allay their concerns, if any – all with a view to securing a pledge from them to support Ankara’s quest to secure an exit from the grey list. As the negotiations with member countries would be intricate and time consuming, Turkey must embark on this right away.

FATF lawfare against Turkey is designed to break Turkey’s will.  Pakistan has decided to fight this out by taking a leaf from the international playbook and by using the language of the law.

While there is no doubt that the FATF is a tool of oppression with trappings of the law, in the end, Turkey, like Pakistan, has no choice but to play by the rules of the game. The best defence for Turkey is a counter-lawfare coupled with grit, resilience and astute planning.