FATF Grey Listing of Pakistan: Causes, Compliance Measures, and Policy Implications

Abstract

The Financial Action Task Force (FATF) grey listing of Pakistan has been a defining challenge for the country’s financial sector, law enforcement agencies, and international relations. This article critically examines the causes behind Pakistan’s repeated inclusion on the FATF grey list, the comprehensive compliance measures undertaken by the government, and the broader policy implications for the country’s legal, regulatory, and administrative frameworks. The analysis is grounded in official FATF reports, Mutual Evaluation Reports by the Asia Pacific Group (APG), and Pakistan’s legislative and regulatory reforms. Pakistan’s grey listing has primarily been attributed to strategic deficiencies in its anti-money laundering (AML) and counter-terrorism financing (CTF) regimes, including weak monitoring and enforcement, cross-border movement of currency, failure to fully implement United Nations Security Council Resolutions 1267 and 1373, and ineffective investigations and prosecutions related to terrorism financing. The government responded with a multi-pronged strategy, enacting and amending key legislation such as the Anti-Money Laundering Act and the Anti-Terrorism Act, establishing specialized FATF cells within key institutions, and strengthening the oversight of financial institutions and non-profit organizations. Despite these efforts, persistent challenges such as bureaucratic inefficiencies, limited resources, and the prevalence of informal financial channels have hindered full compliance. The article also highlights the significant economic, reputational, and diplomatic consequences of grey listing, as well as the geopolitical dynamics influencing FATF’s listing decisions. The experience of Pakistan underscores the need for ongoing legal and institutional reforms, enhanced international cooperation, and a more transparent and equitable FATF process. Ultimately, the article provides recommendations for strengthening Pakistan’s AML/CTF framework and mitigating the impact of grey listing, while also reflecting on the broader implications for developing countries navigating the complex landscape of international financial regulation.