For those who grew up in the 2010s, the news of a bomb blast in a major urban centre of Pakistan had become a routine event in their childhood. Terrorists roamed free, left, right and centre, and their financing structures were well intact.
And while Pakistan got rid of the basic problem much earlier, for the decade to follow, Pakistan faced persistent challenges linked to terror financing—an enduring issue that earned the country a place on the Financial Action Task Force (FATF) Grey List in 2018. This grey listing, imposed due to shortcomings in Anti-Money Laundering (AML) and Counter-Financing of Terrorism (CFT) measures, cast a long shadow over Pakistan’s economy, deterring foreign investment, increasing banking costs, and triggering scrutiny from international lending institutions.
However, being resolute in the face of adversity and consistent reforms at the institutional level resulted in Pakistan’s removal from the list in October 2022. This marked a turning point, but the journey toward transparency and trust continues.
Tackling the Grey List and Strengthening AML/CFT Frameworks
Following the FATF’s 2018 evaluation, Pakistan embarked on an ambitious 34-point Action Plan designed to rectify identified deficiencies. These included enhancing legislative frameworks, increasing the prosecution of terror financiers, and strengthening financial oversight mechanisms. Notably, courts began delivering meaningful sentences—high-profile individuals such as Hafiz Saeed and Zakiur Rehman Lakhvi faced convictions, which reflected a shift in enforcement culture.
The establishment of the Financial Monitoring Unit (FMU) in 2007 and its subsequent enhancement served as the backbone of Pakistan’s financial intelligence operations. In 2023, the FMU completed a comprehensive National Risk Assessment evaluating threats posed by 87 different terrorist organisations and identifying money transfer vulnerabilities.
These assessments led to measures such as stricter regulation of money service providers and enhanced border checks, including biometric screening at transit points.
The National Action Plan (NAP), launched in response to the tragic Peshawar school attack of 2014, created new legal and institutional infrastructure for counterterrorism efforts. The Anti-Terrorism Act of 1997 and the establishment of special courts expedited prosecution procedures, while the formation of NIFTAC in 2025 further consolidated intelligence sharing among federal and provincial agencies.
These combined efforts garnered praise from international observers. A December 2024 report by the U.S. State Department acknowledged Pakistan’s decisive progress in terror financing investigations and compliance systems, although it noted ongoing security concerns. In October 2022, FATF itself confirmed Pakistan’s adherence to its most challenging Action Plan, granting it full exit from intensified monitoring.
Pakistan and Nicaragua have been removed from the FATF’s Jurisdictions under Increased Monitoring list, often referred to as the ‘grey list’. See the full update on the list here➡️ https://t.co/OvPfPyeWPA #FollowTheMoney pic.twitter.com/7p7j9lzrIC
— FATF (@FATFNews) October 21, 2022
Positive Momentum and Overcoming Longstanding Obstacles
Pakistan’s progress has been both systematic and substantial. The grey-list exit unlocked access to international capital flows, reduced bank overheads, and fostered foreign investment sentiment. It also supported re-engagement with global financial institutions and ratings agencies. For instance, S&P and Fitch cited enhanced AML/CFT frameworks as key factors in stabilising Pakistan’s sovereign risk profile.
Operationally, successive efforts—such as Operation Zarb-e-Azb (2014) and Operation Radd-ul-Fasaad (2017)—dramatically weakened militant networks through coordinated security sweeps. The 2023 crackdowns on black-market currency exchange and commodity hoarding further illustrated cross-ministerial collaboration to choke illicit financial channels. Institutional coordination has become more refined, with unified intelligence platforms and dedicated agencies enabling more proactive financial and security management, from local banking practices to multicountry exchanges.
Navigating Remaining Challenges
Despite this upward trajectory, Pakistan continues to face hurdles. Scepticism lingers internationally. India has openly lobbied for Pakistan’s return to the grey list, citing insufficient action against terror financiers. FATF’s 2025 review disclosed serious concerns, such as a 2020 dual-use equipment shipment breach and indirect funding links to recent regional terror incidents.
These gaps highlight the resilience of informal terror funding channels, including hawala networks and cross-border couriers. While the Pakistani public may not be cognizant of these events happening around them, hostile neighbours and conspirators are often on the lookout to weaken the country’s reputation by using these vulnerabilities to the country’s disadvantage.
Experts caution that the grey-list status did not directly curb militant activities, underscoring the complexity of disrupting floating terror economies.
Yet Pakistan has embraced these criticisms as catalysts for deeper reform. Recognising that legislative reform alone is insufficient, officials have ramped up judicial training, expanded law enforcement capacities, and applied targeted sanctions. The premier FATF-status upgrade has also catalysed corporate and national institutional upgrades, including state-led AML/CFT training programs and inclusion of AML compliance in economic reforms across sectors.
A Vision for Sustainable, Inclusive Progress
Pakistan’s journey reflects a deliberate evolution from reactive compliance to proactive resilience. Removal from the grey list has fostered macroeconomic stability, empowering the country to pursue credit from the IMF, World Bank, ADB, and EU. It also provided foreign investors the confidence needed to re-engage with Pakistan’s banking and capital markets.
Institutionally, Pakistan is now better-equipped with sophisticated AML/CFT systems: from extensive due diligence and intelligence sharing to cross-border cooperation on terror-finance investigations. Modern tools like goAML and biometric systems now underpin these procedural safeguards.
Crucially, Pakistan’s efforts have not stopped at de-listing. The emphasis has shifted towards sustaining and evolving these safeguards. Regular mutual evaluations, continuous training, sectoral risk assessments, and quicker legal enforcement are now integral to the country’s AML/CFT momentum.
Ultimately, Pakistan’s story is one of resilience. Despite facing decade-long deficits in financial governance, regional conflict, and evolving terror ecosystems, it has successfully leveraged international scrutiny into a roadmap of national transformation. The journey ahead demands unwavering commitment to transparency and institutional integrity, especially as global partners intensify pressure to address terror financing in practice, not just on paper.
Pakistan’s emerging narrative is one of cautious optimism. It illustrates how determined reforms, backed by enforcement and institutional will, can shift a nation from grey-list stigma to financial rehabilitation. This shift not only strengthens Pakistan’s economy but also contributes to a safer regional and global environment, making a lasting positive impact well beyond its borders.
