The Financial Action Taken Force’s (FATF) decision to put Pakistan on its grey list will not only make it difficult for Islamabad to attract foreign investments, but may also invite punitive action by the European Union as the bloc might put the country on its own blacklist.

Pakistan, following the FATF decision last month, entered into a phase where it has to not only submit an action plan against controlling terror fund at the body’s next plenary in Paris end-June but also give a political undertaking that it would implement the steps, officials here told ET. 

If Islamabad fails to comply with the rules of the grey list and an action plan is not adopted, then the country runs the risk of being included on to the blacklist of the FATF that currently features Iran and North Korea.

At the same time, South Asia’s second biggest country runs the risk also of being put on blacklist by the EU. Such a decision by its top trading partner could severely hit that country’s industry, especially the lucrative textile sector, as well as banking channels with Europe, India’s foreign ministry officials familiar with the subject said. The motion to put Pak on the grey list was jointly moved by the US and three key powers of Europe: the UK, France and Germany.

Pakistan had earlier been pulled up by members of EU Parliament for its failure to control terrorism emanating from its soil. The issue of crossborder terror will figure prominently when French President meets the Indian PM here on March 10.

The EU is Pakistan’s most important trading partner, European Commission figures show. This puts the EU in a strong negotiating position. According to Indian officials, FATF’s decision to put Pakistan on the grey list came after much deliberations. The February 18-23 plenary in Paris witnessed hectic negotiations from day one till the final day as India, supported by its partners, put forward strong arguments against Pakistan’s lacklustre efforts to control financing of terror groups.

Last ditch efforts by Islamabad, including action against Lashkar-e-Taiba founder Hafiz Saeed, did not yield results as even China and the Gulf Cooperation Council (GCC) finally agreed to counterviews, the officials said. Realpolitik came into play on the morning of February 23, with Beijing refusing to support Islamabad.