Islamabad, Feb 1 (NationPress) Although Pakistan's removal from the Financial Action Task Force (FATF) grey list in 2022 was initially viewed as a step towards enhanced financial governance, the initial enthusiasm has significantly diminished.

The FATF declared in 2025 that Pakistan would remain under follow-up monitoring, even after its grey list exit, due to ongoing concerns regarding the country’s capability and willingness to combat money laundering and terror financing. This underscored a critical insight: delisting does not equate to lasting compliance, especially in areas plagued by structural deficiencies, informal economies, and entrenched networks of illicit finance, as highlighted in a recent report.

FATF President Eliza D' Anda Madrazo emphasized this caution, stating that delisting is not a guaranteed safeguard against criminal activities. Countries that exit the grey list still face follow-up evaluations, and for Pakistan, this oversight is managed by the Asia-Pacific Group (APG), given its non-member status in the FATF. Her comments were clear: no nation that departs from the grey list is immune to the threats posed by money launderers or terrorist financiers, as reported by Asian News Post.

The warning is not merely theoretical. It coincided with disturbing intelligence indicating that the Pakistan-based militant group Jaish-e-Mohammad has been utilizing local digital payment systems, such as Easypaisa and SadaPay, to amass approximately USD 14 million, purportedly allocated for the establishment of over 300 new training camps nationwide. This revelation adds to the persistent concerns regarding the vulnerability of Pakistan’s financial framework, particularly within its digital and informal sectors, to exploitation by extremist organizations.

Compounding these issues is Pakistan's sluggish pace in regulating virtual assets (VAs) and virtual asset service providers (VASPs). In June of the previous year, the FATF expressed its alarm over Pakistan's failure to explicitly ban or regulate VAs. In its latest report concerning the global enforcement of standards for VAs and VASPs, the watchdog urged all jurisdictions to implement effective mitigation strategies, warning that regulatory shortcomings in any single country can have international ramifications. It pointed out the rising adoption of stablecoins by terrorist financiers, drug traffickers, and state-affiliated actors, demanding strict adherence to Recommendation 15.

Moreover, Pakistan's extensive informal economy presents an even greater challenge. Despite the exit from the grey list, money laundering continues to be a pervasive issue. On March 12, 2025, the Federal Board of Revenue (FBR) identified over 70 real estate agents allegedly involved in transferring millions to the UAE through hawala and hundi networks.

Despite its illegality, the hawala system is prevalent in cities such as Peshawar, often referred to as Pakistan’s hawala capital, and Quetta, where it facilitates smuggling operations involving narcotics, weapons, and other illegal goods. The hawala system poses significant risks for money laundering and terror financing due to its lack of oversight, ease of cross-border transactions, and reliance on unregulated intermediaries.

Although Pakistan has exited the FATF grey list, the ongoing presence of militant groups, the prevalence of informal remittance systems, weak regulatory enforcement of charities and religious organizations, and the dominance of cash transactions all contribute to persistent vulnerabilities.

With an estimated 85 percent of transactions being cash-based and widespread corruption, dismantling the hawala system or fully regulating virtual assets appears exceedingly challenging. These structural realities explain why the FATF continues to closely monitor Pakistan and why concerns regarding its long-term commitment to combatting money laundering and terror financing remain unresolved.