Economic Coercion as a Geopolitical
Strategy: From Sanction Regimes to FATF
Dr M. Ajmal Abbasi*
Abstract
The world is in transition. The large-scale conflicts for geopolitical
interests are evidently in decline due to greater reliance on economic
statecraft. This is being preferred for influencing the policies of others. The
economic choking of non-complying states, as well as entities, have emerged as
a more viable alternative for global powers. It has led to the option of an
‘economic solution’ to substitute a potentially costlier ‘military solution’
for geopolitical objectives. While economic coercion has historically been an
effective mean of leverage employed against adversaries, the coercive strategy
is increasingly being institutionalised. There seems to be a rising proclivity
of the dominant neo-liberal economic world towards regulatory mechanisms like
the Financial Action Task Force (FATF) for political objectives alongside, or
as a substitute for conventionally imposed economic sanction regimes. Whatever
might be the stated objectives, initiatives like FATF are largely viewed in the
developing world as instruments of economic coercion for geopolitical
goals.
Keywords: Economic
Coercion, Geo-economic, Sanctions, FATF, Influence, Compliance
* Dr M. Ajmal
Abbasi is a Ph.D. in the discipline of International Relations from Islamic
International University, Islamabad. He specialises in the areas of war
studies, Afghanistan and Iran affairs, while his research interests include
conflict management, geopolitics, and political geography. He can be contacted
at: ajmalabbasi23@yahoo.com.
__________________
@2023 by the
Islamabad Policy Research Institute. IPRI
Journal n XXIII (2): 57-81 https://doi.org/10.31945/iprij.230203
Introduction actors wherein favourable dispositions , as well as responses, are uman history
is replete with recurring endeavours of various
sought by
nation-states to advance their respective interests. The international system
consists of state as well as non-state actors, with the notions of rivalry,
conflict, competition, and cooperation becoming inevitable phenomena. In this
competitive world, every conceivable strategy is devised to achieve desirables
by persuading, influencing, compelling, or going to the extent of coercing the
intended targets. As the notions of conflict or cooperation and amity or
animosity are natural, so are the strategies for pursuing national interests,
objectives, or goals through incentives or coercion. The statecraft, therefore,
makes use of and fuses both pressure as well as persuasion for achieving
desired objectives and employs military, political, and financial instruments
of power to promote a state’s interests.[1] Most
commonly, persuasion does not yield the desired results in the Hobbesian global
system, especially when the targeted entity interprets the demand against its
perceived national interests. It, thus, inevitably leads to a state of affairs
where the policy of ‘coercion,’ whether individually by a dominantly powerful state
or collectively, in the form of an international or regional alliance, is
assumed as a preferred strategy.
Derived from Latin ‘coercion’ refers to the power to
control, the behaviour of others thoughts, as well as ideas.[2]
Thus, in a way, the principal intuitive notion of ‘coercion’ signifies a high
level of constraint imposed on the alternative options available for, or
perceived by the intended target during a deliberately planned influence
attempt.[3]
While this description of the term coercion may appear more relevant with
regards to controlling human actions at the individual level, it does also
illustrate how various actors, may it be the states, organisations, or
entities, are influenced or managed for favourable disposition. Coercive means
are essentially resorted to when attempts to persuade or convince the target to
undertake a sought-after decision cannot yield a desirable outcome. Economic
coercion can thus be understood as a form of financial constraint that is
imposed upon the intended targets or entities to influence some of their
policies and conduct, often without employing violent means. Financial
constraints have traditionally been sought by enforcing economic sanctions
against adversaries or non-complying actors, albeit with varied outcomes.
This paper contends that the viability of ‘coercion’ as one
of the instruments of statecraft for realising geopolitical interests can be
recognised as an international norm. It has been in practice during the entire
period of recorded history. It would be argued that regardless of the outcome,
economic coercive means have conventionally been employed since antiquity for
achieving geopolitical objectives. The paper will also seek to develop the
evolution of economic coercion from traditional sanction regimes to the
employment of contemporary mechanisms. For instance, FATF has been often used
for achieving intended targets. Without actually determining the success or
efficacy of economic coercion through sanctions or FATF, the contention would
be on deliberating as to how economic statecraft comes into play for political
objectives. In some instances of economic sanction regimes, as in the case of
Iran, there may not be an evident impression of success. However, it has
somewhat curtailed the Iranian role in the region and beyond. Likewise, FATF
listing of different states cannot always be equated since the real motives of
each initiative may vary. In the case of Pakistan and the United Arab Emirates
(UAE), both were listed in the grey list at different times. The contention
made in this work is essentially aimed at evaluating the interconnection
between geopolitics and geo-economics as an instrument of statecraft, and how
economic coercion is evolving in the contemporary world.
Coercion: An Instrument of Geopolitical
Objectives
Coercion can be described as a situation where, an actor
(A) manages to manipulate the other actor (B) in such a way that the latter is
compelled to choose a course of action, which is in line with the interests of
the coercer.[4]
Another definition suggests coercion as “the ability to get an actor -- a
state, the leader of a state, a terrorist group, a transnational or
international organisation, a private actor -- to do something it does not want
to do.”[5]
For Haun (2015), coercion implies the threat of the use of force or employment
of a limited force to convince a target to meet certain terms or demands. The
strategies may consist of expectations, as well as threats that are credibly
communicated.[6]
In its simplest form, coercion is deemed to have occurred when an actor
threatens to visit or imparts some evil or undesirable consequence on the
other. The actor undertakes or refrains from undertaking some act, which is in
line with the coercer’s demands.[7]
The conception, formulation, and implementation of coercive
strategy cannot be an impulsive or abrupt process. It instead involves a
deliberate plan, taking into consideration the potential response of the target
as well as its own threshold in pursuit of the objective. The coercive strategy
would not necessarily involve punitive or intimidating instruments alone
against the target. Mere threats of coercion or persuasive policies can help
attain intended goals. Thus, it can be even more captivating when the unfolding
or the implementation mechanism of coercive strategies by various actors in the
global politics is dilated upon. The most common and ever-existent ingredient
of the coercive strategies, adequately conveyed to the coerced by any
preferable means, is the capacity as well as power of the coercer to exercise
or physically manifest the execution of the threat.
Hence, conduct-inducing modalities may include persuasion
or penalisation -- to entice or incite - with the ultimate objective of
ensuring that the coerced decides to conform to the desires of the coercer.[8]
Coercion of a state is, therefore, a comprehensive strategy, which seeks to
employ or threaten with a wide array of diplomatic as well as military options,
including economic sanctions, commercial embargoes, and limited kinetic
actions.[9]
The coercive strategies appear to be the part of influence
operations that are planned and embarked upon for persuading or compelling
targets to either act or, alternatively, refrain from acting in a certain
manner. The persuasions, enticements, or efforts aimed at convincing the target
to adopt a favourably leaning posture, seem to be the employment of soft power,
where amenability is anticipated. However, coercion on the other hand entails
an aggressive approach wherein one actor seeks to overpower the resolve of the
other, not by reason or through rhetoric, but by threats as well as
intimidation.[10]
It, thus, leads to the assumption that the coercion among states, or between
states, non-state entities, or among non-state actors, is principally exercised
through threats or some actions, or both. At times, it may involve military
threats whether implicit or explicit or even military actions.[11]
Consequently, coercion may invariably involve some cost or agony to the target
or precise threats thereof, with an explicitly implied threat of
intensification in the cost, or pain in case of noncompliance.12
Post-Cold War Era of Geo-Economic Primacy
The transformation of global dynamics, especially in the
post-Cold War era, has led towards a visible reorientation of the strategic
course of nation-states with preference over non-kinetic means for maintaining
influence as well as relevance. In a widely publicised article, Edward Luttwak
(1990) for the first time used the term ‘Geo-economics’ to claim that the
inter-state rivalry was being pursued in the post-Cold War era through
financial means. He has been of the view that despite the reduction of armed
confrontations, prospects of greater interaction through world business were
slim due to persistent state action, now represented by the emergence of
‘geo-economics.’[12]
‘Economic statecraft’ thus seeks emphasis on the means rather than ends and
avoids limiting the range of objectives pursued through economic means.14
Contemporary statecrafts appear to rely more heavily on geo-economics for
strategic gains and preserving national interests rather than pre-Cold War era
designed conventional geopolitical approaches. Hence, presently power and
security are regarded to be no longer simply coupled with physical territorial
control. The potential of commanding, as well as manipulating the economic
ties, are also vital in binding states together.[13]
According to one definition, geo-economics can be termed as
‘the use of economic instruments to promote and defend national interests, and
to produce beneficial […] results.’[14] It
implies that the geo-economics is neither meant to substitute geopolitics, nor
the two are something similar. Both phenomena are rather distinct constructs
but function as complementary parts of a strategy. It is claimed that
geo-economics is essentially a merger of financial and geopolitical objectives,
which implies the employment of hybrid strategies for economic as well as
military power projection.[15]
More explicitly, geo-economics can be defined as an interplay of the ‘economic
policy and changes in national power and geopolitics;’ or alternatively ‘as the
economic consequences of trends in geopolitics and national power.”[16]
In one of the most comprehensive elaborations, it is suggested that
geo-economics can be referred as an instrument of the economic means of power,
applied by the states for realising geostrategic objectives, or more precisely
‘the geostrategic use of economic power.’[17]
The contemporary international arena is influenced by the
primacy of economic means where each global actor seeks strategic ascendency by
attaining greater financial clout compared to all others, may it be its rivals,
competitors, or even allies. Regionally also, the most dominant powers continue
to develop respective spheres of influence, albeit, the reliance is shifted
towards economically binding these regions with themselves, rather than
conquering territory.[18]
Likewise, Samuel Huntington (1993) suggested that ‘in a world in which military
conflict between major states is unlikely [,] economic power will be
increasingly important in determining the primacy or subordination of states.’[19]
Interestingly, even after the Cold War, many experts in international
politico-strategic realms did not convey much optimism toward peaceful
coexistence of humankind. The quest for mutual gains would lead to an enduring
interdependence. Hence, a transformation in the modes of future conflicts has
been forecasted by professing that it was now being played out ‘with disposable
capital in lieu of firepower, civilian innovation in lieu of military-technical
advancement, and market penetration in lieu of garrisons and bases.’[20]
Utilising Economic Preeminence for Geopolitical
Interests
The contemporary inclination towards minimum reliance on
traditional geopolitical means for acquiring power, as well as security and
increasing focus on economic statecraft, can be attributed to the influences of
globalisation. Consequently, in the post-Cold War period, there has been a
dominant belief that with an increasingly global economic interdependence,
states may opt to abandon power politics for greater cooperation as well as
integration into a newly transforming world order. It promises to be liberal
and rule-based.[21]
Meanwhile, contrary to this anticipation, nearly all of the coercive economic
measures that have been imposed by the coercing states against the intended
targets, were consistently aimed at bringing about review and change of
policies. They were essentially in the non-economic domains of the targeted
nations.[22]
Hence, the exploitation of the leverage presented by the asymmetric
vulnerabilities, which are inherently linked with this kind of economic
interconnectivities, geo-economics offer states an alternative strategy. That
is different than conventional territory-based geopolitics -- for conducting
power politics.[23]
Employment of economic coercion as a geopolitical strategy
may not be something related to contemporary global dynamics alone. However,
the rising focus on mutual interdependence in the aftermath of a Cold War has
certainly provided it a greater impetus. Due to declining appetite towards
major kinetic actions amid concerns of potentially excruciating human and
material costs, coercing the rivals financially is emerging as a workable
preference. Interestingly, in the post-Cold War era where the concept of
economic integration has been gaining currency for the collective good, the
resultant interdependence among the nation-states emerged as one of the
instruments of financial manipulation as well. It can be inferred that while prima facie, geo-economics, or
interdependence seem to portray the notion of cooperation, as a matter of fact,
it has been a strategic lever employed independently or in conjunction with
kinetic instruments of policy. According to Baracuhy (2018), economic power
offers geostrategic leverage to a state by developing interdependencies through
components. For instance, markets, resources, as well as rules, which shape
international economic interactions.[24] It
is also claimed that ‘for present day’s most sophisticated geo-economic actors,
the military as well as geo-economic dimensions of statecraft tend to mutually
reinforce each other.’[25]
Apparently, the economic strength of a state offers
numerous avenues for articulating a functionally viable, sustainable, and
rational strategy to advance its geopolitical interests. It can conceivably
achieve desired objectives. Hence, an underlying economic base is inevitable
for every state to maintain its political power, ranging from military
potential to diplomatic as well as intelligence machines.28 In most
instances, economic coercion serves the aim of deterrence alone and may not
reach the physical implementation stage. The intended targets are made aware of
the dire financial consequences in case of non-compliance. Thus, economic
coercion through sanctions essentially follows the logic of deterrence where
the coercer seeks to convince the intended target by intimidating it for its
failure. It can alter behaviour or abandon a planned activity deemed as
undesirable.[26]
Moreover, the coercive economic measures imposed against developing countries
can either be purely economic or non-economic. The former is when the target is
compelled to abandon its economic policies, while the latter could aim at the
change of policies beyond financial matters.[27]
Economic Coercion: The Conceptual Dimensions
As discussed above, nation-states are global actors, who
seek compliance from the other players while in pursuit of their own national
interests. They employ all conceivable means including ‘coercion’ to achieve
desired goals. The coercive strategies can be exercised in numerous domains
ranging from political, military, and diplomatic realms to constrict the
strategic space of an intended target. The ‘Economic coercion’ through various
means has been a time-tested and fairly popular strategy of degrading rival’s
fighting potential or capacity of not only sustaining but waging wars from
ancient times. Since the eras of Thucydides as well as Pericles’s Megarian
decree, the dominant powers used trade, economic, and weapons restrictions as
punishment strategies in order to intensify the costs of resistance or as
denial strategies for weakening a rival’s defenses.31 With the
evolution of global strategic dynamics, especially in the
post-industrialisation era, the execution of coercive economic measures against
rivals assumed a far greater connotation. In its essence, the term of ‘economic
coercion’ implies the threat or act, undertaken by a state or group of states
for disrupting all or selected economic exchanges with the intended target
state, as long as the target fails to acquiesce with an articulated expectation
or demand.[28]
According to yet another perspective, economic coercion is
more of a transaction used to surrogate or replace for other policy measures
that can be exploited or is vulnerable to exploitation. It can render profit at
the cost of others.[29]
In essence, economic coercion appears to be a vital element of a coercer’s
wholesome approach against the intended target for achieving much greater
strategic objectives than economic gains only. This may help in compliance
without the employment of kinetic means. So far economic coercion has been
quite a viable strategy against the opponents than the conventional
understanding. It gives space to the coercer to threaten of disrupting the
course of financial exchanges unless the coerced complies with a specific
demand.[30]
Hence, economic coercion can be one of the facets of economic statecraft that
is unleashed against the targets who have the least possible sustainability
thresholds. It can be effectively used to compel the policy-makers of the
coerced states to give in to the dictations of coercion. Accordingly, the usual
intention of imposing coercive economic measures is, therefore, aimed at
causing a crippling impact on the financial potential of a target, particularly
against a
developing country most susceptible to such policies.[31]
Economic
Sanctions: The Conventional Instrument of Coercion Economic sanctions have been
effective in achieving specific goals in the political, economic, or even
ideological domains. It is formed as an inevitable facet of grand strategic
design. The sanctions are primarily aimed at not only damaging the economic
viability of rivals but also conveying political messaging to a wider audience,
including neutrals or those aligned with the intended target. In ancient times
as well as during the initial days of modern Europe, employment of economic
sanctions was made for diverse objectives, however, even then, its predominant
usage had been as a subordinate instrument of military strategy during
conflicts.[32]
The era of Napoleonic Wars in the early nineteenth century is mostly
acknowledged as the period of warfare, when for the first time, the strategy of
economic blockade was resorted to on a significant scale against the
adversaries.[33]
Thus, during the Napoleonic Wars, the economic potential of the rivals being
one of the most vital components of power, was viewed as a significant target
for the invading forces and manifested through large-scale blockades.[34]
Towards the end of nineteenth century, the instrument of economic sanctions
against the targeted nations was mostly employed during wars by imposing export
restrictions and blockades on strategic supplies.[35]
The strategy of economic sanctions has evolved over the
course of history and from earlier methods of sea blockades with the expansion
of naval power, more effective techniques were developed during the great wars.
While the use of economic coercion as a geopolitical instrument via the
imposition of sanctions has been a common practice since the early days of
warfare, the United States is often quoted by scholars as a nation that used it
for optimum strategic gains. Alexander Hamilton, the first US Secretary of
Treasury (1789 to 1795), is credited for a strong belief that the economy of a
nation not only helps increase its power but also allows it a form of
influence.[36]
Hamilton’s contention of using financial clout as the means of acquiring
influence emerged as the cornerstone of American foreign policy and has been
employed effectively thereafter. The economic means of warfare were more
crystalised by the Allies during the World War-II through policies like
blacklisting, shipping warrants, controlling foreign funds, licensing of
exports to the neutrals, and instituting a proclaimed blacklist for addressing
the issues of ‘corporate cloaks’ and ‘fronts.’[37]
Therefore, a major strategy of the Great Wars, even relevant in the
contemporary world, is the experience of economic warfare, which evolved mostly
during that era in the form of international economic coercion.42
The principal objectives of imposing economic sanctions
have always been consistent during the entire course of history. They
essentially sought either behaviour modification of the intended target, or retribution or punishment, thus conveying a precise message in the
process.[38]
During times of military conflict, the primary goal is defeating the adversary
by reducing or eliminating its warfighting potential, demoralising the target’s
population, and severing the financial outlays of the war beyond a manageable
threshold. The aim of accelerating an adversary’s annihilation in the
battlefield is achieved through all available means including, military,
economic as well as political. Since the enforcement of economic sanctions
constituted a vital component of military strategy during the two Great Wars,
as well as the intervening period and even the era thereafter; so has been the
debate on the effectiveness of these measures in relation to the overall war
effort. The policy of imposing economic sanctions has essentially been an element
of national strategy in war or in case of hostilities between rival states. It
was generally not resorted to as an option during the peacetime. However, the
establishment of the League of Nations in the 1920s led to the authorisation of
economic sanctions against the states that initiated military aggression
against other nations.[39]
The economic sanctions are imposed on the premise of either
deterring or dissuading the target state from pursuing policies that are
apparently against the accepted international norms. They are meant for seeking
acquiescence which is deemed to be in the common interest.[40]
Economic sanctions are, therefore, anticipated to be seeking compliance instead
of deterrence with the objective of changing the status quo and influencing or
shaping the behaviour of the target. In presumably one of the most
comprehensive elucidations, economic sanctions (coercion) are said to be the
actions instigated by a singular or group of international actors against a
particular or even several targets, to either punish them by denying some value
or force them to comply with certain expectations.[41]
These economic measures for coercing the targets have been of various types.
They were either enforced by powerful states individually
on their own, or in groups to often complement the military measures, even
without the authorisation of the United Nations.[42]
Hence, it has been a customary phenomenon wherein either a single state
embarked upon initiating unilateral economic action to achieve coercive effects
or alternatively. Several states pursuing shared objectives, decided to
initiate concerted action as a group.[43]
Economic sanctions are regarded to be deliberate attempts
to manipulate the extension or abandonment of financial resources for
augmenting a specific policy towards the target. It is largely with the intent
of influencing and not destroying it.[44]
Economic coercion through enforcing these sanction regimes is deemed
appropriate where the degradation of an adversary’s power potential is sought.
It does not necessarily require resorting to some kinetic or most-costly
options. Among the majority of the non-military means that may be opted for
diluting targeted nation’s capacity in almost each sphere, hurting the
financial capability is accepted as the most comprehensive, result-oriented,
and functionally viable strategy. While the policy of imposing economic sanctions
is accepted as an ancient strategy against the adversaries, the execution
methodologies or mechanisms kept transforming with the evolving global
dynamics. From antiquity models of exclusive state to state sanction regimes to
the present era modes, where globally established institutions are used for the
purpose, there is a visible diversity in the targets as well. Sanction regimes
now appear to be flexible, diverse in nature, and even indirect. The tactical
policy objectives may be to either deter or coerce the intended target; or even
other states as well as those individuals who are not the exact targets. They,
nonetheless, have financial interactions with targeted states/entities.[45]
As a matter of fact, economic coercion by imposing a
sanction regime is usually employed by a powerful state unilaterally or
together with a group of like-minded states, for reinforcing military as well
as diplomatic means in pursuance of a geopolitical agenda. While in ancient
times, the imposition of economic sanctions, singularly or collectively, would
have been opted by either one state or a group/ alliance of nations against the
potential target, the ploy is well-structured as well as institutionalised in
the contemporary world. The strategy of sanction regime is thus structured
directly through consensus in the UN Charter with a key proviso that empowers
the organisation itself or its member states to impose it on the charter
violations.[46]
However, the presumption that economic coercion through sanctions is employed against
the states/entities that are found violating the globally accepted UN Charter
or international norms, can be termed as a too simplistic view. In reality,
such economic sanctions have usually multiple, far-reaching, and often
well-concealed agendas compared to what is being projected to the public.52
In hindsight, the sole objective of sanction regimes is essentially
geopolitical that seeks to influence the decision-making as well as the
behaviour of the target states and may be imposed collectively to enhance its
legitimacy at the international level.
Given that the financial interactions are more often than
not mutually rewarding for each participant; the use of economic sanctions as a
geopolitical instrument may not apparently be an attractive proposition. It
leads to the query as to why a state would opt to use economic sanctions for
coercing a target at the cost of some financial gains, even if comparatively
limited in scale. Moreover, why would a powerful state subscribe to the idea of
employing economic coercion when it is dominant enough militarily as well as
diplomatically and can prevail upon others rather conveniently? According to
the analysts, nations possess limited policy options for influencing the
behaviour of other states, and thus, economic sanctions are preferred for
occupying a middle ground among the available options including diplomatic or
military actions.[47]
The bulk of international sanctions have overwhelmingly relied on economic
measures that not only conform the criterion of being non-lethal means of
coercing the intended target but are also anticipated to have a significant
punitive impact.[48]
Thus in conventional parlance, sanctions generally reflect nonviolent means and
may comprise diplomatic, political, cultural, and communication measures,
besides a broad range of economic actions of potentially commercial, financial
and technological nature.[49]
There has always been a debate on the standing of economic
sanctions in the overall spectrum of national strategy as well as the probable
impact of the peace or conflict environments while determining the conducive
timeframe for the implementation process. While war strategies contemplate all
available means to degrade the combat potential of the adversary, including
economic blockades or imposition of sanctions after the outbreak of
hostilities, its peacetime manifestation and conduct methodologies continue to
be evaluated. For many analysts, the sanction regimes of today have semblance
with the economic sieges of ancient times, which were designed to hurt the
war-fighting potential of the adversaries by destroying their financial
capacity. With the evolution of technology as well as the growing dependence of
states on transnational trade in the modern era, monitoring of the real economic
potential of a country and imposition of crippling sanctions can affect all the
nations. It has become comparatively easier. Thus, in contemporary global
environment, economic sanctions are usually viewed as the instrument of foreign
policy, which is classified to be on a continuum somewhere between totally
unhindered international exchange and the situation of absolute war.[50]
Analogues to the customary norms of undertaking costbenefit analysis prior to
pursuing each policy, the overall gain anticipated via economic sanctions in
comparison to all other options, primarily determines and influences the
ultimate strategy.
FATF: Evolving Instrument of Economic Coercion
In the realm of economic statecraft, the creation of the
FATF can be regarded as the newest initiative to complement the global
neo-liberal financial management. This has become even more significant in the
era of increased connectivity as well as interactions. The ever-rising
interconnectivity of the contemporary world and the presumed fallout of easy
financial interactions have led to the essence of gaining more regulatory
control over potentially dubious monetary exchanges. Hence, FATF as a global inter-governmental
organisation was established by the G7 countries (the United States, Canada,
Britain, Germany, France, Italy, and Japan) and the European Union in July
1989.[51]
Whatever might be the real motives of the establishment of yet another
instrument of greater control over global economic interactions, the initiative
appeared as an arrangement deemed essential after the elimination of the
Marxist challenge that kept rivaling the Capitalist financial order during the
Cold War era. According to the initial mandate, the FATF was authorised to
examine money-laundering techniques as well as trends, review the measures
undertaken at national or international levels, and advise actions still
regarded as essential for combating the menace.[52] The
FATF review was issued through a report in April 1990, well within one year of
its establishment, and contained the famed forty recommendations that had been
intended to stipulate a comprehensive action plan deemed inevitable for
combating money-laundering.59
The formation of the FATF was neither preceded by lofty
claims from its founders nor was the inter-governmental body projected to be an
initiative designed to achieve some highly ambitious goals. Since its
establishment with a rather limited mandate of reviewing and recommending
moneylaundering issues, the FATF has emerged as a potent global financial
watchdog. It allows significant geopolitical leverage to the dominant
international actors. FATF’s initial success and potential was enough to
gradually expand its original mandate.
It was set to be completed in 1990; but in April 2019 on the 30th
anniversary, the members agreed on its openended mandate. They acknowledged
that “the FATF has evolved from a temporary forum to a sustained public and
political commitment to fight money-laundering, terrorist financing, and
proliferation financing.”[53]
Despite several extensions in the mandate, questions about the legitimacy of
the FATF continue to recur and the mechanism is largely perceived as a new
geopolitical instrument of the powerful global actors, not only by the affected
but even by many neutrals. A persistent observation about the FATF has been the
anonymity of those governing or setting its agenda, thus fueling the suspicion
regarding organisation’s use as a proxy for promoting the vested agenda of
powerful states who developed its recommendations.[54]
After more than three decades since its establishment, the
FATF neither consider itself a trans-governmental setup nor a formal
international organisation but rather a ‘task force’ that has a temporary as
well as specific mandate.[55]
Notwithstanding usual claims that the FATF is merely a task force created for a
specific purpose, it appears to be a vital cog of the evolving international
structure. It is designed to preferably regulate or at the minimum retain a
capacity to monitor the global capital flow. While
FATF’s functional modalities are generally similar to most
intergovernmental organisations, as it lacks any legal authority with regard to
its members, the power is derived from the ability to expel noncomplying
members.[56]
In fact, the contemplation that some of the nonFATF members may opt against
complying with the recommendations led to the introduction of a non-voluntary
process in 1998, named the ‘NonCooperative Countries and Territories (NCCT)’
initiative that utilises economic forces for inducing changes in the state
behaviour.[57]
With each passing day, the reach and influence of the
initiative is on the rise. Despite being largely perceived to be a pro-West
mechanism, FATF seems to have a reasonably significant role in the contemporary
global financial order. It is often questioned that if the FATF lacks a
legitimate authority or power to enact binding laws then how come the
organisation manages to function as an effective financial management apparatus
and gets its way against the listed jurisdictions. In essence, the prospects of
non-compliance or the non-responsive attitude from the targets and the need for
an internationally binding power for all the global actors were never lost to
the architectures of the initiative. Thus, in the absence of the authority to
directly enacting binding laws, FATF’s ‘soft law’ influence is regarded to be
profound wherein any member failing in the compliance of organisation’s
recommendations faces the threat of expulsion that may exactly be in the
geopolitical interests of a few members.65 Besides the soft law and
risk of expulsions as discussed above, the FATF can blacklist the jurisdictions
which fail in combating money-laundering as well as terrorism financing. Public
listing pressurises and compels through
naming and shaming for undertaking necessary reforms.[58]
Moreover, the narrative of this economic coercion, largely
being perceived as an instrument of geopolitical interests by the powerful
states, is based on the post-colonial dependence of the Global South on funded
economic assistance through International Financial Institutions (IFIs).
The persistent financial dependency on IFIs has induced a
kind of de-facto subordination of the developing nations to the West. It is
exploited through economic pressure to influence political as well as global
affairs, including counter-terrorism.[59]
Hence, the World Bank and the IMF (IFIs when referred collectively) have been
performing a vital role in the process of monitoring the implementation of the
FATF
Recommendations.[60] A
vibrant and consequential role of IFIs in the FATF process shall not be
surprising since all these institutions as well as the concept of task force
are vital components of neo-liberal global economic order and are meant to
complement each other. IFIs maintain requisite expertise for the role as these
have not only been established, mostly funded, and are controlled by the same
players that created the FATF, but they have also strong working relationships
in matters concerning non-
FATF member developing states.[61]
In the contemporary international arena, there are many
voices against the rising sway of institutionalism through setups like the
FATF. It is perceived to be an instrument of maintaining traditional influence
of Global North and in contradiction with the established norms of sovereignty.
The critics opposing supra-national bodies go as far as terming present
international system as a neo-colonial era and continue to be sceptical of the
real motives of setups like the FATF. The criticism of the operations of FATF
is due to the attempts to impose its recommendations on non-members, which is
deemed against the traditional notion of state sovereignty.[62]
There is a growing perception among many developing nations, especially the
countries facing the scrutiny of their financial systems, against the
supra-national bodies. For instance, FATF represents institutional imperialism
more. It carries neocolonial policies.[63]
Consequently, it is even argued that the states primarily opt to respond to the
FATF demands because they are compelled to face heavy moral, political, as well
as economic pressure, which if resisted, could risk them being listed in the ‘non-cooperative
countries and territories’ category.72
The rhetoric that the FATF has been created as a task force
to combat international money-laundering, suffers a serious credibility
challenge when it fails to take account of numerous safe heavens of black
money, maintained by the Western countries. It is evident that there has been a
conspicuous omission of several jurisdictions from the FATF scrutiny like the
British Virgin Islands, the Cayman Islands, Seychelles, Panama and several
others. These places are known for apparently objectionable financial
activities.[64]
The policy of selected reviews and listing by the FATF, therefore, leaves many
unanswered ambiguities. It somehow justifies the allegations of the victims
that the initiative is actually meant to pursue the strategic interests of its
movers and shakers. Consequently, as a case in point, FATF’s grey listing of
Pakistan in February 2018, has not been largely accepted as an action warranted
by some financial concerns but mostly viewed as a geopolitical move initiated
at the behest of India. For many, especially in Pakistan, it was part of a
coercive strategy initiated by the United States in collaboration with India.
It was meant to exert pressure on Islamabad, especially in the context of so called
‘do more’ approach on terrorism.[65]
Another major concern is the absence of an effective
accountability system in the FATF operations that appears to induce an element
of exclusivity or elusiveness to the organisation. It only fuels scepticism about
the real motives of the initiative. While this exclusivity is contradictory
when compared with the functioning of many other international organisations,
the concern is validated by the FATF’s admission that it does not follow a
‘tightly defined constitution.’[66]
The contention that the grey listing of Pakistan in February 2018, has been a
well-deliberated strategy of economic coercion, which was primarily aimed at
geopolitical objectives, is validated by the inappropriate methodology adopted
during the entire process. Consequently, the grey listing of Pakistan was made
twice in six years. In fact, not only the procedure was sidestepped, but the
country was discussed twice by a single plenary.[67]
This methodology was in contradiction to the normal procedures, wherein the
case regarding a specific country is placed for discussion as well as voting
only ‘once’ during a single FATF plenary.77
The deliberate violation of the rules as well as principles
by the task force during the listing process of Pakistan was, therefore, not
coincidental but essentially dictated by the prevalent geopolitical imperatives
at that time. It would not be grossly imprudent
to assume that the FATF has emerged as one of the controversial international
mechanisms and continues to be implicated for pursuing the geopolitical agenda
of its founding members as well as dominant states. It is widely perceived that
vested political interests influence the functioning modalities of the FATF,
rendering the mechanism as an instrument of global strategic intrigues.
Ostensibly, the member jurisdictions of the FATF are exempted from any
accountability for their omissions, and countries like India can dare manoeuver
for assuming the co-chairmanship of the task force for the Asia-Pacific region
even with serious questions over its large black economy.[68]
Thus, despite granting non-member jurisdictions the option of procedural
rights, the FATF lacks any significant accountability mechanism that may
contain some obligation to keep the organisation limited within its founding
mandate.[69]
It can be inferred that in the absence of an effective accountability
mechanism, the apprehensions of non-member jurisdictions regarding use of the
FATF operations to economically coerce the targets for geopolitical gains,
cannot be totally overruled.
Conclusion
Conflict entails the employment of all conceivable means,
whether kinetic or non-kinetic, conventional or asymmetric, traditional or
irregular, for the objective of coercing and ultimately defeating the
adversary. Coercion or coercive policies are not generally acknowledged as the
means of statecraft to avoid criticism or international condemnation, they are
even denounced mostly by the coercers. Notwithstanding the public refutations,
a strategy of coercion is understood to be dictated by an objective of
exploitation, with the least material commitment for perhaps an immediate
‘payoff.’[70] The economic strangulation of the rival for
coercion has been a tried and tested formula since antiquity. It has not only
helped in degrading the combat potential of the opponent but played a vital
role in lowering the morale of its public as well. Thus, in the post-Cold War
era, power projection by the states is no more limited to traditional
statecraft means. It has been somewhat shifting towards the employment of
financial instruments for seeking leverage. Today territorial occupation in any
form is becoming an increasingly redundant option for the dominant players to
strangulate non-compliant states. In fact, even institutions are also being
considered as a more viable instrument of this influence strategy.
Apparently, neither war nor economic action shall be
regarded as an isolated enclave of social life since both can never be divorced
from politics and are meant to serve the ultimate objectives of the polity. [71]It
would be pertinent to suggest that analogous to the understanding of
geopolitics and geo-economics as two sides of the same coin, fusion of military
and financial capabilities or alternatively, preference for economic coercion
may appear internationally more tolerable. In the contemporary global
environment, there is a general reluctance towards exercising kinetic means,
which are believed to be more destructive and perhaps counter-productive.
Hence, economic statecraft is increasingly being observed as a convincing
alternative to the option of military force.[72] As
suggested in this paper, the neo-liberal international economic order seeks to
economically coerce the intended targets for geopolitical gains by persistently
utilising sanction regimes that have been further complimented by the evolving
mechanism of FATF. With regards to the economic coercion implementation means,
the increasing role of global institutions in the post-Cold War era has added a
new, as well as comparatively structured dimension to the phenomenon.
While summarising, it can be suggested that the functioning
of the FATF is shrouded with visible contradictions and interest-based
influence of the dominant members, while the listing strategy of non-compliers
also points out politically motivated decision-making. The FATF is, therefore,
rightfully criticised for being an exclusive institution lacking transparency,
shunning broad participation resulting in a lack of universal participation,
and a wider perception that the organisation is only accountable to a few of
those states whose agenda it promotes. However, it is earnestly felt that, with
the present-day world confronting a bewildering variety of financial
challenges, the focus of the international political organisations needs to be
on reducing tension. It must keep communication channels accessible, and manage
to evade conflict among members.[73]
In the longer run, policies of coercive strategies and international
‘enforcement’ with institutional mechanisms like the FATF may not be an ideal
option for resolving contentious global issues. It could instead escalate a
propensity of defiance. A prudent approach is always the one that is
methodologically more constructive, and politically convincing. It must aim at
problem-solving and finding the resolution of the issue rather than seeking
one-dimensional compliance.n
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