Identified as a country with “strategic deficiencies” by the Financial Action Task Force (FATF), Pakistan is trying to secure an exit from the grey list. It has submitted a Terror Financial Risk Assessment Report electronically to the Paris-based global anti-terror financing watchdog. A delegation comprised of twelve high level dignitaries will appear in the FATF meeting being held in Sydney, Australia to answer questions on the efforts presented in the report.
Despite diplomatic efforts, the FATF placed Pakistan on the grey list in June 2018 with eight other countries — Ethiopia, Serbia, Syria, Trinidad and Tobago, Tunisia, Yemen and Sri Lanka due to “strategic deficiencies” in its anti-money laundering and terrorism financing regime. It was the monitoring report of the International Cooperation Review Group (ICRG) that compelled the watchdog body to take the decision of putting Pakistan on the grey list.
Two parallel FATF monitoring processes are presently underway, one from the Asia Pacific Group (APG) that has given 40 recommendations and FATF’s own Action Plan whose 27 recommendations need to be followed till September 2019 if Pakistan wants to move from grey to green list.
To begin with, Pakistan has been asked to accomplish ten targets in January 2019. The core objectives include, “Demonstrating that TF (transfer of funds) risks are properly identified, assessed, and that supervision is applied on a risk-sensitive basis; remedial actions and sanctions are applied in cases of anti-money laundering (AML) violations; competent authorities are cooperating and taking action to identify and act against illegal money or value transfer services; improving inter-agency coordination including between provincial and federal authorities on combating TF risks; demonstrating that law enforcement agencies (LEAs) are identifying, investigating and prosecuting target designated persons and entities; demonstrating that TF prosecutions result in effective, proportionate and dissuasive sanctions, enhancing the capacity and support for prosecutors and the judiciary; demonstrating effective implementation of targeted financial sanctions against all…designated terrorists including preventing the raising and moving of funds, identifying and freezing assets (movable and immovable)”.
Apart from this, the FATF action plan requires Pakistani authorities to proactively collaborate with counterpart agencies to clog funding to Taliban, al-Qaeda, Haqqani Network, ISIS, Jamaat-ud-Dawa, Falah-e-Insaniat Foundation, Lashkar-e-Taiba, Jaish-e-Mohammed, Haqqani Network and any persons affiliated with the Taliban.
The FATF statement, released in June 2018, specified that Pakistan had made “a high-level political commitment to working with the FATF and APG [Asia/Pacific Group on Money Laundering] to strengthen its AML/CFT [Anti-Money Laundering and Combating the Financing of Terrorism] regime and to address its strategic counter-terrorist financing-related deficiencies”.
The delegation that left for Australia to attend the FATF meeting comprised of Secretary Finance Arif Ahmed Khan and the representatives of the State Bank of Pakistan (SBP), National Counter Terrorism Authority (NACTA), Federal Investigation Agency (FIA), Federal Board of Revenue (FBR) and Financial Monitoring Unit.
A few weeks ago, ICRG did acknowledge Pakistan’s progress in three out of four major areas of concerns but cross-border smuggling of cash was the only area where Pakistan also admitted deficiencies.
Security and political analyst and director Pakistan Institute for Peace Studies Muhammad Amir Rana believes the Pakistani delegation has many things to defend in the FATF meeting; a meeting whose outcome is critical for us.
“FATF’s Action Plan has identified four key areas for Pakistan to comply with before attending the January 2019 meeting — one, to overcome deficiencies in the supervision of AML/CFT (Anti-Money Laundering/Combating the Financing of Terrorism), two, check cross border illegal movement of currency by terrorist organisations, three, progress on terrorism financing investigations and four, prosecution by law enforcement agencies.”
Rana is certain that despite some fruitful steps taken under the guidelines of the Action Plan, “fund seepage to Afghanistan and free functioning of banned organisations in the country are two areas where this delegation would face a challenging situation in the meeting”.
So far, informal banking channels are being utilised by the banned organisations to collect charity and disperse it. “Nothing serious has been done by the government and the law enforcement agencies till now to put an end to the activities of banned organisations. Indeed, Pakistan cannot get itself out of the grey area without taking noticeable action against such miscreants,” Rana adds.
To fulfill the recommendations of the FATF, amendments in Mutual Legal Assistance (MLA) Act 2010 and draft of National Risk Assessment have been finalised by the federal government. These will be shared with the FATF in the meeting.
The State Bank of Pakistan (SBP) has been very strict about implementation of revised AML/CFT regulations 2012 for banks and forex companies. The FMU (Financial Monitoring Unit) has been established under the AML Act 2010 in order to perform as the financial intelligence unit of Pakistan. FMU was established to ensure compliance with the FATF recommendation on AML and terror financing.
Under the SBP regulations, a transaction of Rs2 million or more must be reported to FMU by the service provider. Identification is obligatory to collect more than $500, every entity (bank or forex company) is supposed to make a video of every customer who comes for money transaction, and every entity is supposed to report to FMU if any suspicious element comes up in collecting or sending money.
Chairman Forex Association of Pakistan, Malik Bostan, acknowledges while talking to TNS that SBP has been very strict in the transfer of funds. “However, the money being sent to Afghanistan or coming from there does not fall in such area, as most of the funds are transferred from man to man. Kabul has been an established hub of hundi business for the last couple of years. Afghan refugees are instrumental in this kind of money laundering which needs to be handled effectively by the law enforcement agencies.”
He says, “SBP has done its part. FBR (Federal Board of Revenue) and other concerned departments of the state should play their part in curbing every possible source of funds transfer.”
The upcoming meeting in Sydney is not only important for Pakistan to convince the watchdog of the efforts it has made so far to fulfill the ten out of 27 FATF recommendations but also to buy time for the rest that are supposed to be in the clear by September 2019. If Pakistan does not fulfill all the 27 recommendations by September 2019, it will get a year’s extension to achieve this target. But if FATF finds Pakistan’s work unsatisfactory even then, it can be blacklisted, which can have serious repercussions for the country.