Last week, at a plenary meeting in Paris, the counter-terror watchdog Financial Action Task Force (FATF) officially put Pakistan on the grey list of countries to monitor.

The decision originated during an FATF meeting held in February, after which an unprecedented second vote was called by the US, with Islamabad asked to come up with a convincing plan to avoid being blacklisted.

While Pakistan has avoided blacklist status, which currently only affects Iran and North Korea, the blacklist menace still looms following the developments in Paris last week.

Government officials told Asia Times that the final action plan was ‘completely dictated by the FATF officials’, with the Pakistani delegation led by caretaker Finance Minister Dr Shamshad Akhtar largely reduced to taking notes.

“Dr Shamshad did try to plead our case and pointed out the steps taken by Pakistan, but a lot of these (steps) came just before the meeting, with insufficient action being taken in the time period between February and now,” a finance ministry official told Asia Times.

Just weeks before the meeting, the Securities and Exchange Commission of Pakistan, in “compliance” with FATF recommendations released its Anti Money Laundering and Countering Financing of Terrorism Regulations, 2018, which had been preceded by a National Security Committee meeting dedicated to “cooperation with FATF”.

However the timing was eerily similar to President Mamnoon Hussain’s actions on the brink of the February meeting, when he issued the Anti-Terrorism Ordinance 2018 for a nationwide ban on UN listed terror groups. Officials within the Federal Investigation Agency (FIA) have told Asia Times that while Pakistan has avoided the blacklist this time around, penalties are likely to be increased if FATF guidelines are not followed.

“The next [FATF] meeting will be in February 2019, so Pakistan would have to show evidence of counter-terror work, and curb financing of the UN listed groups,” an FIA official told Asia Times.

A detailed list of 10 objectives for Pakistan has been issued on the FATF website, which focuses on demonstrating action against financing terrorism, illegal money or value transfer services and the illicit movement of currency. The guidelines also demand better coordination between federal and provincial authorities, improved vigilance on behalf of law enforcement agencies, as well as implementation of sanctions and other legal actions against UN designated terrorists.

Potential blacklisting does not only mean that Pakistan could be targeted through sanctions by leading powers. In fact, global banking isolation could also ensue.

Following the FATF announcement, the Pakistani delegation came in for heavy criticism. Much of the backlash questioned how caretaker representatives had agreed to such a wide ranging plan of action.

“Such a major step which has financial, political and repercussions on national security should have been left to the new parliament,” former senate chairperson Raza Rabbani said. “This issue will be raised in the upcoming session of the senate.”

However, security analysts believe that the FATF guidelines are in the best interests of the country.

Muhammad Amir Rana, Pak Institute for Peace Studies (PIPS) Director and author of The Militant: Development of a Jihadi Character in Pakistan, says that the fact that a caretaker government negotiated the guidelines does not delegitimize the agreement.

“It’s not necessary for government officials to represent the country in front of terror watchdogs. Especially at the FATF it’s the representatives of the financial institutions that attend the meetings,” he said to Asia Times.

Former caretaker finance minister Salman Shah agrees that the delegation had every right to finalize the plan. “The caretaker government’s policies are in continuation with the policies already in place. It’s up to the new government to pursue them or justify their rejection,” he told Asia Times.

Shah believes that while there are currently no financial sanctions in place against Pakistan, a lot would depend on actions being taken in the next few months.

“There are no immediate economic ramifications. The investment won’t stop and no sanctions would be imposed as things stand. It’s all a case of implementing [the FATF plan] and also taking the watchdog on board, so that they know that work is being done on their guidelines,” he says.

The former finance minister also underscores the problems in documenting Pakistan’s economy.

“They are freezing bank accounts, but in Pakistan there is a significant undocumented economy. Pakistan is a cash society, so how will you curtail all money exchanges? Pakistan currently doesn’t have the capability to document the entire economy,” he maintains.

A major hurdle for Islamabad in presenting a convincing counter-terror case is the ongoing acceptance into the mainstream of the terror groups being spearheaded by the military establishment, which has resulted in UN sanctioned terrorists like Hafiz Saeed – and his affiliates – eyeing seats in Parliament.

Saeed’s Milli Muslim League (MML) has not been registered for this month’s election. However, the Tehrik-e-Labbaik Ya Rasool Allah (TLY), which pays allegiance to convicted terrorist Mumtaz Qadri, calls for the genocide of the Ahmadiyya sect and held the capital hostage last year, is officially participating.

The authorities have also lifted the ban on the Ahle Sunnat Wal Jamaat (ASWJ), a proscribed sectarian anti-Shia extremist group, formerly known as Sipah-e-Sahaba, releasing its assets including bank accounts.

The government has returned the passport and National Identity Card of ASWJ Chief Ahmed Ludhianvi, which means he can now go abroad or travel within the country. Ludhianvi will contest the upcoming elections from NA-115 under the Rah-i-Haq Party’s banner, with Masroor Jhangvi and Muawia Azam – both affiliated with ASWJ – filing their nomination papers in PP-126.

“The military has a major say in the [security] policy formulation with regards to India and Afghanistan, but they should understand the consequences of incorrect policies – which are damaging in both short and long run – and broaden their horizons. It’s in Pakistan’s own interests to implement the FATF plan,” says former secretary of Pakistan’s Ministry of Defense Production Lieutenant General Talat Masood.

“The military feels they have to live with these militant groups and the way to go about that is to [bring them into the electoral process],” he adds.

Muhammad Amir Rana says that any action that allows such groups to actively participate in the electoral process should be sanctioned by the Parliament and not be spearheaded by the military.

“The Election Commission of Pakistan should monitor how individuals from terror groups are able to participate in elections. There’s been a suggestion that those in the fourth schedule should not be allowed to contest [elections]. Until then, as citizens of Pakistan, they can contest the elections,” he says.