Dr. Ikramul Haq & Abdul Rauf Shakoori
The global scale of financial crime now runs into trillions of dollars every year, permeating banking systems, trade flows, real estate, digital payments, and informal economies across continents. The Financial Action Task Force (FATF) estimates that a significant share of global gross domestic product is laundered annually, while terrorist financing networks continue to exploit regulatory gaps and opaque financial channels. The persistence of such crimes is not simply a function of criminal ingenuity, but also a reflection of structural weaknesses within financial systems, particularly the exclusion of large segments of the population from formal financial services.
The absence of accessible, affordable, and trustworthy financial institutions pushes millions of people toward cash-based transactions, informal remittance channels, and unregulated money service providers, creating fertile ground for illicit finance. The limited efforts to expand meaningful financial inclusion have therefore indirectly amplified the very risks that anti money laundering and counter terrorist financing regimes seek to mitigate.
The global policy response to financial crime has increasingly emphasized stronger anti-money laundering and counter terrorist financing controls precisely because financial exclusion remains widespread. The heavy compliance requirements placed on banks and financial institutions often result in blanket account closures, service restrictions, and excessive customer screening that further marginalize vulnerable populations.
The reliance on rigid controls rather than proportionate measures reinforces a cycle in which exclusion breeds informality, and informality breeds financial crime. The FATF Guidance on ‘Financial Inclusion and Anti Money Laundering and Terrorist Financing Measures’ directly challenges this dynamic by arguing that effective integrity controls and inclusive finance are not opposing goals, but mutually reinforcing objectives.
The Guidance makes clear that bringing people into the regulated financial system strengthens transparency, improves traceability of funds, and reduces the space in which illicit actors operate. The reality of financial exclusion is absolute in countries such as Niger, Chad, South Sudan, Afghanistan, and Yemen, where formal banking penetration remains extremely low. Most adults in these jurisdictions lack access to basic accounts, digital payments, or regulated credit facilities. The weak financial infrastructure in these states is accompanied by high levels of corruption, fragile governance, and limited law enforcement capacity, all of which exacerbate money laundering risks.
The prevalence of cash economies, informal hawala networks, and cross border smuggling creates significant challenges for tracking illicit flows. The Transparency International corruption indices consistently rank these countries among the most vulnerable, demonstrating a clear correlation between financial exclusion and systemic financial crime.
The absence of formal financial participation not only deepens poverty but also makes anti money laundering enforcement more difficult and less effective. On the contrary, the countries that exhibit high financial inclusion are equally revealing. The Nordic states such as Sweden, Norway, and Denmark, along with Singapore and Canada, maintain some of the highest levels of account ownership and digital payment adoption in the world.
The widespread use of formal financial channels in these jurisdictions enables stronger oversight, better data collection, and more efficient detection of suspicious transactions. The integrated financial ecosystems in these countries also reduce reliance on cash and informal intermediaries, limiting opportunities for money laundering.
The corruption levels in these states are comparatively low, reinforcing the argument that inclusion supports integrity rather than undermines it. The FATF Guidance explicitly recognizes that well-regulated, inclusive systems enhance the reach and effectiveness of anti-money laundering and counter terrorist financing measures.
The FATF Guidance builds its framework around the risk-based approach, which rejects one size fits all compliance models. The Guidance stresses that countries should first understand their specific money laundering and terrorist financing risks before designing regulatory responses. The emphasis is on proportionality, meaning that low risk customers and sectors should not face excessive barriers to financial access.
The document highlights that unserved and underserved populations should not automatically be treated as high risk but rather assessed based on evidence and context. The flexibility embedded in this approach allows governments and financial institutions to balance inclusion with financial integrity more effectively.
The Guidance also addresses the problem of de-risking, which occurs when banks withdraw services from entire categories of customers rather than managing risk individually. The FATF warns that indiscriminate account closures can deepen exclusion and drive financial activity underground.
The document encourages supervisors to clarify expectations, support simplified due diligence measures, and avoid punitive interpretations of compliance failures. The clear message is that strong supervision should distinguish between deliberate misconduct and minor procedural gaps. The creation of such regulatory certainty is presented as essential for encouraging banks to serve low income and marginalized communities.
The Guidance provides several practical examples of how countries can promote inclusion without compromising security. The expansion of digital identity systems, as demonstrated in Argentina, has enabled millions of people to open accounts remotely and participate in the formal economy.
The Indian JAM Trinity model, built on biometric identification, mobile connectivity, and universal bank accounts, is presented as a successful blueprint for large scale inclusion. The Guidance suggests that similar models, adapted to local conditions, can significantly reduce reliance on cash while improving financial transparency.
The development of proportionate customer due diligence procedures and tiered account structures is also recommended to accommodate low risk users. The institutional capacity of regulators and financial institutions is identified as a critical enabler of both inclusion and integrity.
The Guidance calls for continuous training of compliance staff, investment in data analytics, and stronger public private collaboration. The supervisory role is framed not merely as punitive, but as supportive and developmental.
The creation of clear guidelines, typology reports, and scenario-based learning tools is encouraged to help financial institutions apply the risk-based approach effectively. The underlying principle remains that better informed institutions make better decisions that serve both security and inclusion.
The case of Pakistan demonstrates both the challenges and opportunities embedded in this agenda. The country still has a significant unbanked population, with estimates suggesting that less than half of adults have access to formal financial accounts. The reliance on cash transactions remains widespread, particularly in rural areas and among small businesses.
The financial inclusion gap has contributed to a large informal economy, which complicates efforts to combat money laundering and terrorist financing. The State Bank of Pakistan has made progress through initiatives such as digital wallets, branchless banking, and simplified accounts, but significant work remains.
The application of the FATF Guidance in Pakistan would require a more integrated national strategy that aligns financial inclusion with anti-money laundering objectives. The expansion of digital identity systems, greater interoperability between payment platforms, and incentives for banks to serve low-income customers should be prioritized.
The adoption of proportionate due diligence measures can reduce compliance burdens while maintaining safeguards. The strengthening of supervisory capacity, along with clearer regulatory communication, would encourage financial institutions to move away from blanket restrictions.
The promotion of financial literacy, particularly among women and rural communities, would further deepen inclusion and reduce vulnerability to exploitation. The ultimate objective should be a financial system that is both inclusive and resilient, where formal participation strengthens economic development while closing the space for illicit finance.
_____________________________________________________________
Dr. Ikramul Haq, Advocate Supreme Court, specializes in constitutional, corporate, environment, media, ML/CFT related laws, IT, intellectual property, arbitration and international tax laws. He holds LLD in tax laws with specialization in transfer pricing. He was full-time journalist from 1979 to 1984 with Viewpoint and Dawn. He served Civil Services of Pakistan from 1984 to 1996.
He established Huzaima & Ikram in 1996 and is presently its chief partner. He studied journalism, English literature and law. He is Chief Editor of Taxation. He is country editor and correspondent of International Bureau of Fiscal Documentation (IBFD) and member of International Fiscal Association (IFA). He is Visiting Faculty at Lahore University of Management Sciences (LUMS) and member Advisory Board and Visiting Senior Fellow of Pakistan Institute of Development Economics (PIDE).
He has coauthored with Huzaima Bukhari many books that include, Tax Reforms in Pakistan: Historic & Critical Review, Towards Broad, Flat, Low-rate, and Predictable Taxes (third edition, 2024), Pakistan: Enigma of Taxation, Towards Flat, Low-rate, Broad and Predictable Taxes (revised/enlarged edition of December 2020), Law & Practice of Income Tax, Law , Practice of Sales Tax, Law and Practice of Corporate Law, Law & Practice of Federal Excise, Law & Practice of Sales Tax on Services, Federal Tax Laws of Pakistan, Provincial Tax Laws, Practical Handbook of Income Tax, Tax Laws of Pakistan, Principles of Income Tax with Glossary and Master Tax Guide, Income Tax Digest 1886-2011 (with judicial analysis).
He is author of Commentary on Avoidance of Double Taxation Agreements, Pakistan: From Hash to Heroin, its sequel Pakistan: Drug-trap to Debt-trap and Practical Handbook of Income Tax. Two books of poetry are Phull Kikkaran De (Punjabi 2023) and Nai Ufaq (Urdu 1979 with Siraj Munir and Shahid Jamal).
He regularly writes columns/article/papers for many Pakistani newspapers and international journals and has contributed over 3000 articles on a variety of issues of public interest, printed in various journals, magazines and newspapers at home and abroad.
X (formerly Twitter): DrIkramulHaq
_______________________________________________________________
Abdul Rauf Shakoori, Advocate High Court, is a subject-matter expert on AML-CFT, Compliance, Cyber Crime and Risk Management. He has been providing AML-CFT advisory and training services to financial institutions (banks, DNFBPs, Investment companies, Money Service Businesses, insurance companies and securities), government institutions including law enforcement agencies located in North America (USA & CANADA), Middle East and Pakistan. His areas of expertise include legal, strategic planning, cross-border transactions including but not limited to joint ventures (JVs), mergers & acquisitions (M&A), takeovers, privatizations, overseas expansions, USA Patriot Act, Banking Secrecy Act, Office of Foreign Assets Control (OFAC).
Over his career he has demonstrated excellent leadership, communication, analytical, and problem-solving skills and have also developed and delivered training courses in the areas of AML/CFT, Compliance, Fraud & Financial Crime Risk Management, Bank Secrecy, Cyber Crimes & Internet Threats against Banks, E–Channels Fraud Prevention, Security and Investigation of Financial Crimes. The courses have been delivered as practical workshops with case study driven scenarios and exams to ensure knowledge transfer.
His notable publications are: Rauf’s Compilation of Corporate Laws of Pakistan, Rauf’s Company Law and Practice of Pakistan and Rauf’s Research on Labour Laws and Income Tax and others.
His articles include: Revenue collection: Contemporary targets vs. orthodox approach, It is time to say goodbye to our past, US double standards, Was Due Process Flouted While Convicting Nawaz Sharif?, FATF and unjustly grey listed Pakistan, Corruption is no excuse for Incompetence, Next step for Pakistan, Pakistan’s compliance with FATF mandates, a work in progress, Pakistan’s strategy to address FATF Mandates was Inadequate, Pakistan’s Evolving FATF Compliance, Transparency Curtails Corruption, Pakistan’s Long Road towards FATF Compliance, Pakistan’s Archaic Approach to Addressing FATF Mandates, FATF: Challenges for June deadline, Pakistan: Combating the illicit flow of money, Regulating Crypto: An uphill task for Pakistan. Pakistan’s economy – Chicanery of numbers. Pakistan: Reclaiming its space on FATF whitelist. Sacred Games: Kulbhushan Jadhav Case. National FATF secretariat and Financial Monitoring Unit. The FATF challenge. Pakistan: Crucial FATF hearing. Pakistan: Dissecting FATF Failure, Environmental crimes: An emerging challenge, Countering corrupt practices .
X (formerly Twitter): Abdul Rauf Shakoori
The recent publication, coauthored by these writes with Huzaima Bukhari is:
Pakistan Tackling FATF: Challenges & Solutions, available at:
https://aacp.com.pk/book-detail/pakistan-tackling-fatf-challenges-and-solutions-35
https://www.amazon.com/dp/B08RXH8W46