Pakistan has come up with a tax amnesty scheme at a time when an intergovernmental body called Financial Action Task Force (FATF) is considering putting it on its grey list. It is quite likely that Pakistan will be put on this list in June. The country has come under the scanner for its alleged failure to introduce and enforce mechanisms to curb money laundering and terror financing.
A major allegation is that Pakistan has not taken action against Hafiz Saeed and his organization Jamat ud Dawa, which is raising funds and financing militant activities in the country. So, allowing people to declare and whiten their hidden wealth within the country and abroad without declaring the source of earning has perturbed the global community.
FATF has reacted strongly and written a letter to the government of Pakistan about this scheme that it says compromises the transparency of financial transactions and makes it difficult to detect money laundering and terror financing. It has also objected that the scheme was not discussed with the international community and introduced single-handedly without incorporating any safeguards into it.
Pakistan has been under observation for long and a proof of this is that Habib Bank Limited (HBL) was fined $225 million and forced to shut down its US operations in September due to compliance failures over money laundering and terrorist financing.
Being on FATF grey list means Pakistan will have to give a comprehensive plan on how to curb money laundering and terror financing and show progress on it to avoid moving on to the black list. Though this status does not directly lead to imposition of any financial sanctions against a country, it hurts its perception and rating. This, in turn, makes it difficult for it to raise funds globally, seek loans and attract foreign investment. Pakistan has already remained on the grey list from 2012 to 2015 and was removed when it showed some progress in this regard.
FATF comprises 37 members, including 35 countries and two regional groups, Gulf Cooperation Council (GCC) and European Commission (EC), and was established in 1989. FATF keeps a keen watch on the financial systems of different countries and issues warnings if it finds or suspects ill-gotten wealth being legalised or used for subversive activities. At the moment, the FATF’s grey list includes Ethiopia, Yemen, Iraq, Syria, Serbia, Sri Lanka, Trinidad and Tabago, Vanuatu and Tunisia.
The criteria to be applied before considering a country as a potential candidate for FATF membership include the country’s strategic importance, size of gross domestic product (GDP), size of the banking, insurance and securities sectors, population, and countering the financing of terrorism (CFT) efforts, among other.