While Western financial institutions continue to address the challenges of keeping terrorist funding out of their organizations, the U.S. government is putting pressure on other countries to step up their controls and preventative measures.
Certainly, the institutions subject to BSA/AML and OFAC regulations don't have the authority to affect geopolitical relationships, but they do have an obligation to monitor and address these types of situations in their risk scoring, transaction monitoring and sanctions screening programs.
The second order effect of a "gray-listed" or sanctioned* Pakistan is a potential reassessment of the entire South Asian Association for Regional Cooperation (SAARC) for risk levels by financial institutions. Likely, the surrounding nations will face increased jurisdictional scrutiny as Pakistani entities continue to move funds throughout the region. AML and sanctions program leaders will be faced with making important risk and business (de-banking) decisions if Pakistan's relationship with the U.S. continues to deteriorate.
* The Office of Foreign Assets Control (OFAC) does not maintain a specific list of countries that U.S. persons cannot do business with. U.S. sanctions programs vary in scope.
Islamabad was particularly incensed by the US-led push to name and shame Pakistan as failing to stop terrorism financing at a recent international meeting in Paris. Members of the Financial Action Task Force, which includes the US, UK, Russia and China, have proposed placing Pakistan on its “grey list” of countries which are not doing enough to tackle terror funding. Islamabad has until June to come up with a plan, which Mr Ismail said would involve prosecuting more people for terror financing and carrying out raids on illegal money changers. But he expressed anger at the way in which the negotiations were handled in Paris.